[Analysis] Validity of Reassessment Notices with Case Studies
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- Last Updated on 21 February, 2023
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Table of Contents
a. Category 1 – If income escaping assessment is less than Rs. 1 lakh
b. Category 2 – Income escaping assessment is Rs. 1 lakh or more but less than Rs. 50 lakhs
c. Category 3 – Income escaping assessment is Rs. 50 lakh or more
Citation: [2022] 138 taxmann.com 255 (Article)
1. Background
The Finance Act 2021 had substituted sections 147 to 151 with effect from April 1, 2021. Until March 31, 2021, the notice under section 148 for income escaping assessments could be issued within 4 years from the end of the relevant assessment year if the amount of income that has escaped assessment is less than Rs. 1 lakh. Where, however, it exceeds Rs. 1 lakh, the notice could be issued within 6 years from the end of the relevant assessment year.
Under the new provisions applicable from April 1, 2021, the re-assessment notice can be issued within 3 years from the end of the relevant assessment year. If, however, the amount of escaped income exceeds Rs. 50 lakh, the notice can be issued within 10 years from the end of the relevant assessment year.
2. Extension in due dates
Due to the COVID-19 pandemic in 2020 and 2021and consequent nationwide lockdown, the Government had extended the due dates of various compliances on multiple occasions. The limitation period to issue the notice under the old provision was also extended. The chronology of these limitation periods is mentioned in the below table –
| Due dates falling between March 20, 2020 and – | Extended to | Source |
| June 29, 2020 | June 29, 2020 | Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [TOLA]† |
| December 31, 2020 | March 31, 2021 | Notification S.O. 2033(E) [No. 35/2020], dated June 24, 2020† |
| March 30, 2021 | March 31, 2021 | Notification S.O. 4805(E) [No. 93/2020], dated December 31, 2020 |
| March 31, 2021 | April 30, 2021 | Notification S.O. 1432(E) [No. 20/2021], dated March 31, 2021 |
| March 31, 2021 | June 30, 2021 | Notification S.O. 1703 (E) [No. 38/2021], dated April 27, 2021 |
| †The impact of the Ordinance and notification was covered in the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. | ||
3. Matter of dispute
As mentioned above, the Assessing Officers were allowed an extended period to issue a notice under section 148 till June 30, 2021. The additional time was allowed if the original due date for sending such notices fell between March 20, 2020 to March 31, 2021.
A dispute arose between the taxpayers and the revenue on the validity of the notices issued under the old provision between April 1, 2021 and June 30, 2021. During such period, the new provisions (section 147 to section 151) came into force, which explicitly stated that any notice under section 148 on or after April 1, 2021 shall be issued as per the new provisions only.
In many cases, the assessee challenged the validity of notices issued on or after April 1, 2021 under old provisions on the ground that the said provisions were not existent and substituted by the new provisions with effect from April 1, 2021. Thus, the notices should have been issued in compliance with the new provisions and timelines provided therein.
The Supreme Court ultimately settled the controversy in the case of Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64 (SC). The Court provided relief to both the parties. The revenue got relief as the re-assessment notice issued under the old provision during the said period was held valid on the grounds that the Assessing Officer was under a bona fide belief that the old provisions also got an extension by TOLA and notifications issued thereunder. The assessee got the relief as the Court held that all the defences available under section 149 shall continue to be available to the assessee.
4. CBDT’s Instruction
Considering the decision of the Supreme Court, the CBDT has issued Instruction No. 01/2022, dated May 11, 2022, to deal with re-assessment notices issued under the old provision between April 1, 2021 and June 30, 2021.
With the combined reading of the Supreme Court’s Judgment and the CBDT’s instruction, it can be submitted that the notice issued between April 1, 2021 and June 30, 2021 shall be deemed to be valid only if the following two conditions are satisfied:
a. The notice is issued within the limitation period prescribed under new Section 149 as follows:
-
-
- within 3 years, if the income escaping assessment is less than Rs. 50 lakhs;
- within 10 years, if the income escaping assessment is Rs. 50 lakhs or more.
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b. The limitation period should not have expired under old Section 149 as on April 1, 2021.
5. Case Studies
The following case studies have been formulated to examine the impact of the aforesaid Supreme Court ruling (and CBDT’s instruction) on the validity of re-assessment notices for different assessment years.
On June 21, 2021, X Ltd., a manufacturing company, gets a re-assessment notice from the Assessing Officer to reopen the assessment for different assessment years. This notice, after the aforesaid Supreme Court’s ruling, will be deemed as show-cause notice under Section 148A. The concerned Assessing Officer within 4 weeks from the date of the judgment of the Supreme Court (say, on June 1, 2022) hands over the relevant material to X Ltd. on the basis of which the Assessing Officer has formulated a view that there is an income escapement in this case. X Ltd. by its reply to the show-cause notice on May 15, 2022 intimates to the Assessing Officer (along with documentary evidence) that there is no escapement of income in its case. However, the Assessing Officer rejects the objection raised by the assessee and issues a fresh Section 148 notice to X Ltd. to reopen the assessment for different assessment years. This notice is issued along with the order under Section 148A(d) on June 30, 2022.
In the paras given below, an attempt has been made to examine whether the notice dated June 30, 2022 is within the time limit given under Section 149.
By virtue of the third proviso of Section 149(1), the time allowed to the assessee (as per show-cause notice under section 148A) shall be excluded to determine the time limit under Section 149(1). In this case, (deemed) Section 148A show-cause notice was issued on June 21, 2021. The Assessing Officer has issued notice under Section 148 on June 30, 2022. The period from June 21, 2021to June 30, 2022 may be excluded to find out whether (or not) the notice dated June 30, 2022 is within the statutory time limit narrated by Section 149. Consequently, the new notice issued on June 30, 2022 may be effectively taken as issued on June 21, 2021.
Category 1 – If income escaping assessment is less than Rs. 1 lakh
| Different cases | Assessment Year | Last date to issue notice (after considering the extension given by TOLA) | Whether notice could be issued in the extended period under the old law? | Whether notice could be issued under the new law? | Validity of notice | |
| Under old law | Under new law | |||||
| Case 1 | 2012-13 | March 31, 2017 | March 31, 2016 | No | No | Time barred |
| Case 2 | 2013-14 | March 31, 2018 | March 31, 2017 | No | No | Time barred |
| Case 3 | 2014-15 | March 31, 2019 | March 31, 2018 | No | No | Time barred |
| Case 4 | 2015-16 | June 30, 2021 | March 31, 2019 | Yes | No | Time barred |
| Case 5 | 2016-17 | June 30, 2021 | June 30, 2021 | Yes | Yes | Valid |
| Case 6 | 2017-18 | March 31, 2022 | June 30, 2021 | Yes | Yes | Valid |
| Case 7 | 2018-19 | March 31, 2023 | March 31, 2022 | Yes | Yes | Valid |
| Case 8 | 2019-20 | March 31, 2024 | March 31, 2023 | Yes | Yes | Valid |
| Case 9 | 2020-21 | March 31, 2025 | March 31, 2024 | Yes | Yes | Valid |
Cases 1, 2, 3 and 4- In these cases, notices cannot be issued on June 21, 2021 under the new law. Consequently, these notices are time barred.
Cases 5, 6, 7, 8 and 9 –In these cases, notices can be issued on June 21, 2021 under the new law as well as under the old law. Therefore, these notices are valid and not time barred.
Category 2 – Income escaping assessment is Rs. 1 lakh or more but less than Rs. 50 lakhs
| Different cases | Assessment Year | Last date to issue notice (after considering the extension given by TOLA) | Whether notice could be issued in the extended period under the old law? | Whether notice could be issued under the new law? | Validity of notice | |
| Under old law | Under new law | |||||
| Case 10 | 2012-13 | March 31, 2019 | March 31, 2016 | No | No | Time barred |
| Case 11 | 2013-14 | June 30, 2021 | March 31, 2017 | Yes | No | Time barred |
| Case 12 | 2014-15 | June 30, 2021 | March 31, 2018 | Yes | No | Time barred |
| Case 13 | 2015-16 | March 31, 2022 | March 31, 2019 | Yes | No | Time barred |
| Case 14 | 2016-17 | March 31, 2023 | June 30, 2021 | Yes | Yes | Valid |
| Case 15 | 2017-18 | March 31, 2024 | June 30, 2021 | Yes | Yes | Valid |
| Case 16 | 2018-19 | March 31, 2025 | March 31, 2022 | Yes | Yes | Valid |
| Case 17 | 2019-20 | March 31, 2026 | March 31, 2023 | Yes | Yes | Valid |
| Case 18 | 2020-21 | March 31, 2027 | March 31, 2024 | Yes | Yes | Valid |
Cases 10, 11, 12 and 13- In these cases, notices cannot be issued on June 21, 2021 under the new law. Consequently, these notices are time barred.
Cases 14, 15, 16, 17 and 18 – In these cases, notices can be issued on June 21, 2021 under the new law as well as under the old law. Therefore, these notices are valid and not time barred.
Category 3 – Income escaping assessment is Rs. 50 lakh or more
| Different cases | Assessment Year | Last date to issue notice (after considering the extension given by TOLA) | Whether notice could be issued in the extended period under the old law? | Whether notice could be issued under the new law? | Validity of notice | |
| Under old law | Under new law | |||||
| Case 19 | 2012-13 | March 31, 2019 | March 31, 2023 | No | Yes | Time barred |
| Case 20 | 2013-14 | June 30, 2021 | March 31, 2024 | Yes | Yes | Valid |
| Case 21 | 2014-15 | June 30, 2021 | March 31, 2025 | Yes | Yes | Valid |
| Case 22 | 2015-16 | March 31, 2022 | March 31, 2026 | Yes | Yes | Valid |
| Case 23 | 2016-17 | March 31, 2023 | March 31, 2027 | Yes | Yes | Valid |
| Case 24 | 2017-18 | March 31, 2024 | March 31, 2028 | Yes | Yes | Valid |
| Case 25 | 2018-19 | March 31, 2025 | March 31, 2029 | Yes | Yes | Valid |
| Case 26 | 2019-20 | March 31, 2026 | March 31, 2030 | Yes | Yes | Valid |
| Case 27 | 2020-21 | March 31, 2027 | March 31, 2031 | Yes | Yes | Valid |
Case 19 – In Case 19, notice cannot be issued on June 21, 2021 under the old provision. Consequently, it is time barred.
Cases 20, 21, 22, 23, 24, 25, 26 and 27 – In these cases, notices can be issued on June 21, 2021 under the new law as well as under the old law. Therefore, these notices are valid and not time barred.
(The due dates in case of re-assessment pursuant to search proceedings have not been covered in this article)
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The given compilation is very helpful to understand the issue in case and consideration of period of limitation.
Further, there is no doubt to say that the Instruction No.01/2022 dated 11.05.2022 circulated by the Department of Revenue, CBDT, Ministry of Finance Government of India, creates the doubts over the procedures to be followed for issue of notice u/s 148 after due consideration of compliance as per the direction of the Hon’ble Court :
1. Impugned section 148 notices issued earlier during 01.04.2021 to 30.06.2021 shall be deemed to have been issued u/s 148A and treated as show cause u/s 148A(b)
2. Assessing officers shall within 30 days from today i.e. 4.05.2022, provide to the assessee the information and material relied upon by the revenue.
3. Assessee can reply to the notices within two weeks over the information and material
4. After due consideration of the reply assessing officer shall pass an order u/s 148A(d) , whether it is fit case or not for issu of notice u/s 148.
5. Assessee can avail the defences available u/n 149 and or which may be available under Finance Act, 2021 and in law .
Now as per Instruction the revenue department mention in para 6.2 that the extended reassessment notices are to be dealt with as under:
i. AY 2013-14, 2014-15 and 2015-16: fresh notice under section 148 of the Act can be issued in these cases, with the approval of the specified authority, only if case falls under clause (b) of sub-section (1) of section 149 as amended by the Finance Act, 2021 which fixed the period of 10 years from the end of the relevant assessment year for issue of section 148 notice if the Assessing Officer has in his possession books of accounts or other documents or evidence which reveal that the income chargeable to tax , represented in the form of asset and likely to amount to 50 lac or more for that year. However the specified authority for granting approval is PCCIT or PDGIT / CCIT or DGIT for issue of notice u/s 148 and 148A.
Further, as per the first proviso of section 149(1) as amended by Finance Act, 2021 w.e.f. 01.04.2021 which provides that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st Day of April, 2021, if such notice could not have been issued at the time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of section 149 as they stood immediately before the commencement of the Finance Act, 2021 which reads as under:
No notice u/s 148 shall be issued for the relevant assessment year if four years, but not more than 6 years , have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.
Further SC order para 8 clause (iv) and para 10 clause (iv) provides that “all the defences which may be available to the assessee under section 149 and / or which may be available under the finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021 are kept open and /or shall continue to be available.
Further as per para 7.1 of the Instruction it has mentioned that “However, it has also been noticed that notice cannot be issued in a case for AY 2013-14, Ay 2014-15 and AY 2015-16, if the income escaping assessment , in that case for that year , amounts to or likely to amount to less than fifty lacs rupees.” And if the income is likely or more than 50 lac then it will be proceed but Rs 50 lac limits given in section 149(1)(b) is in respect of the amount “represented in the form of asset” and hence if the amount is not represented the asses then there should be no proceedings.
Thus there is no doubt, as per law the assessee can take all the defences available to him whether it pertain to jurisdiction issue, or limitation in respect of reopening assessee like change of opinion. barred by limitation if assessment already passed u/s 143(3) in earlier and assessee disclosed all material facts in respect of assessment, reason to believe or suspect etc.