The Supreme Court on Wednesday invoked its extraordinary powers under Article 142 of the Constitution to uphold all reassessment notices issued after 31 March2021, by the income tax department reopening assessments going back six years.
In the budget for FY22, the government had reduced this reopening period to three years with effect from 1 April 2021, to reduce litigation. The I-T department extended the old regime till 30 June 2021, citing restrictions due to the Covid second wave and sent out a flurry of notices reopening past assessments. Taxpayers who received notices back then had appealed against the decision, saying it violated the 31 March 2021 deadline as amended by the finance bill.
The Allahabad High Court had ruled in favour of taxpayers and quashed allnotices. The department had appealed against the decision in the Supreme Court.
The Supreme Court decision is a setback to thousands of taxpayers, including businesses and individuals who will now have to gear up for reassessment proceedings if they had been served a notice. The ruling will apply to all pending writs at different high courts. About 90,000 reassessment notices were issued by the I-T department across India and about 9,000 appeals were filed in various high courts, some of which are either pending or the bench has ruled against the department.
The tax department issued these notices under Section 148, alleging improper disclosure of income for the period prior to the last three assessment years.
In an unprecedented move, the division bench of justices MR Shah and BV Nagarathna exercised extraordinary powers under Article 142 of the Constitution to hold that all reassessment notices issued under Section 148 of the Income Tax Act should be treated as notices issued under Section 148A, which was introduced in the FY22 budget.
Section 148 deals with the issuance of a notice on income that has escaped recomputation or assessment if there is "reason to believe" that's the case. Under Section 148A, the taxpayer has to be heard and approval sought from the specified authority before a notice can be issued.
"The impugned Section 148 notices issued to the respective assessees which were issued under unamended Section 148 of the IT Act, shall be deemed to have been issued under Section 148A of the IT Act as substituted by the Finance Act, 2021, and construed or treated to be show-cause notices in terms of section 148A(b)," the judgement said.
Under Article 142, the Supreme Court may pass an order as needed for exercising justice in any cause or matter pending before it. The decree is enforceable throughout India.
The apex court directed that the assessing officer shall within 30 days provide to the respective assessees information and material relied upon by the revenue department so that assessees can reply to show-cause notices within two weeks thereafter. The bench said the order will be applicable across India and all previous orders by high courts had been set aside. The order will also govern pending writ petitions pending before various high courts in which similar notices under Section 148 of the Act were issued after 1 April 2021, are under challenge.