CA Sunil Arora on Litigation with respect to notices under Section 148 of the Income Tax Act:

Blog by CA Sunil Arora on Litigation with respect to notices under Section 148 of the Income Tax Act:

Reassessment provisions under the Income Tax Act, 1961 have been recently witnessing huge litigation primarily arising out of notices u/s 148 issued after 31/3/2020 as well as 31/3/2021 in accordance with Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. The issue became contentious due to substitution of relevant section 147 to 151 by the Finance Act, 2021.

Thousands of writs were filed before various high Courts and after divergent views the matter ultimately culminated with the orders of the Hon’ble Supreme Court exercising its powers under Article 142 of the Constitution of India in the case of Union of India vs. Ashish Agarwal (2022) 138 Taxmann.com 64 (SC) holding that the notices issued under section 148 up to 30/06/2021 be treated as show cause notices under section 148A(b) of the amended provisions of the Act. In fact the Apex court validated all the notices issued under the old regime even after 1/4/2021 by treating them to be deemed show cause notice u/s 148A in accordance with the amended Act.

An easier way out for legislation would have been to defer the application of the new regime of reassessment proceedings to 1st of July 2021. This would have resulted in completely eliminating the controversy with respect to notices issued during the period 1st of April, 2021 to 30th of June, 2021 and obviously the huge litigation which happened with respect to the same.

Now we are witnessing the next round of litigation with respect to notices u/s 148 for AY 2013-14 and AY 2014-15 originally issued between the period 01/04/2021 and 30/06/2021 under the old regime.

The Hon. Delhi High Court vide orders dated 31st August, 2022 in the case of Salil Gulati vs. ACIT as well as in the case of Touchstone Holdings Pvt Ltd vs. ITO has upheld the reassessment proceedings for AY 2013-14 / AY 2014-15 / AY 2015-16 in a case where income chargeable to tax represented in the form of asset which has escaped assessment amounts to Rs 50 Lacs or more.

Whereas in a case where escaped income is less than Rs 50 lacs, the proceedings for the aforesaid years relying on CBDT Instructions No. 01/2022 dt 11/5/2022 have been held to be invalid vide orders dt 22nd September, 2022 in the case of Adroit Financial Services Pvt Ltd. 

Reassessment proceedings have become a hot bed for litigation and huge numbers of pleas are still being filed on various grounds before High Courts. A little more diligence or timely appropriate action would have saved so much judicial time & effort.