Supreme Court: There is no reason to penalize Revenue as 90,000 notices in good faith

Sakunjay Vyas

Published on: May,5, 2022 at 12:17 IST

The Two Judge Bench of Justice M.R. Shah and Justice B.V. Nagarathna of the Supreme Court overturned a Judgment of the Allahabad High Court, where-in High Court, had set aside the reassessment notices issued by the Revenue after 01.04.2021, under unamended Section 148 of the Income Tax Act.

The Supreme Court ruled that there is no reason to penalize the Revenue in the present case since it issued the 90,000 notices in good faith, and if the Revenue is penalized, the public treasury would suffer overall.

The Apex Court stated that Due to the remedial and benevolent nature of the new provisions made by the Finance Act, 2021, which were enacted to protect the rights and interests of the assessee, as well as the public interest, the respective High Court rulings have correctly determined that this will apply to proceedings relating to past assessment years, so long as the section 148 notice has been issued between now and 1 April 2021.

“….the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after 1st April, 2021.”

“We are in complete agreement with the view taken by the various High Courts in holding so”, the court said.

The Apex Court while providing the reasoning behind the amendments made by the parliaments stated that By substitution of sections 147 to 151 of the Income Tax Act (IT Act) by the Finance Act, 2021, radical and reformative changes are made governing the procedure for reassessment proceedings. Amended sections 147 to 149 and section 151 of the IT Act prescribe the procedure governing the initiation of reassessment proceedings.

That, therefore, Parliament thought it fit to amend the Income Tax Act to simplify the tax administration, ease compliances and reduce litigation.   

The Apex Court stated that if reassessment was allowed under the Finance Act, 2021 and sections 147 to 151 of the IT Act, the judgments of the several High Courts would not result in any reassessment proceedings taking place.

That the purpose and objective of reassessment proceedings cannot be frustrated, nor the Revenue rendered remediless.

That after the amendment came into effect on 01.04.2021, the Revenue issued the impugned notices under the unamended Section 148 due to a legitimate mistake and in light of subsequent extensions of time via various notifications

That Rather than having issued the same under the amended Act, the same should have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021.

That since the officers of the Revenue may have believed that the amendments have not yet been enforced, there appears to be a genuine nonapplication of the amendments.

“However, at the same time, the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the IT Act. The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated.”

“It is true that due to a bonafide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced w.e.f. 01.04.2021, under the unamended section 148.”

“In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021. There appears to be genuine non­application of the amendments as the officers of the Revenue may have been under a bonafide belief that the amendments may not yet have been enforced”, the Court said.

That the Apex Court further stated that we believe some leeway must be granted in that regard and that the High Courts would have been able to do so as well.

That using the facts of the present matter, the High Courts should have construed the reassessment notices issued under unamended provisions of the IT Act as those construed to have been issued under section 148A of the IT Act under the new section 148A instead of quashing and setting aside the notices issued under unamended provisions of IT Act.

That the Revenue could have proceeded further with the reassessment proceedings, assuming the assessee has complied with all the procedural requirements and defenses applicable to the assessee under sections 147 to 151 of the IT Act and other laws.

“Therefore, we are of the opinion that some leeway must be shown in that regard which the High Courts could have done so.”

“Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of IT Act, the High Courts ought to have passed an order construing the notices issued under unamended Act/unamended provision of the IT Act as those deemed to have been issued under section 148A of the IT Act as per the new provision section 148A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law”, the Court said. 

As a result, the Apex Court after going through all the facts and statements of both sides overturned the judgment of the Allahabad High Court, by stating that the appeals are partly allowed with these modifications to the decisions of the High Court:

1. That The notices issued under unamended Section 148, 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 assessing officer shall, within thirty days from today provide to the respective assessees’ information and material relied upon by the Revenue, so that the assesses can reply to the show-cause notices within two weeks thereafter;
2. That the requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a one-time measure vis-à-vis those notices which have been issued under section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts. Even otherwise, holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry if required;
3. That the assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue a notice under section 148 (as substituted);
4. That all defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in the law shall continue to be available.

The Apex Court further stated that The Bench clarified that the present order would also govern the writ petitions pending before various High Courts in which similar notices under Section 148 of the Act issued after 01.04.2021 have been assailed.