Supreme Court decision on reassessment : What is the Time Limit for Passing the order ?

Supreme Court decision on reassessment

The famous Supreme Court decision on reassessment in the case of Union of India vs. Ashok Agarwal [2022] 138 64 (SC) wherein the Hon’ble Supreme Court held that all the notices issued/ served during the period between 1-4-2021 to 30-6-2021 on the assessee under section 148 under old law should be considered as issued u/s 148A.

The Apex Court directed tax authorities to take steps as per the newly enacted law u/s 148A read with section 149 and then finally serve a notice u/s 148 wherever they found fit. CBDT subsequently issued an instruction 1 of 2022 to its officer wherein they directed that notice u/s 148 may not be issued for certain assessment years. As far as, the issue of the time limit to pass the assessment order consequential to SC judgment is concerned, the said instruction has nothing.

The issue for this post is not a discussion on the judgment of the Supreme Court referred to above but a new issue that perplexes thousands of assessees and the assessing officer as well. 

What is the time-barring limit for those cases subject to the Supreme Court’s judgment in Ashish Agarwal cases?

Supreme Court decision on the reassessment- final direction

Para 10 of the order of the Apex Court in sub-para (1) declared all notices issued between ist April 2021 to 30th June 2021 as notice issued u/s 148A(b) of the Income Tax Act and finally directed that a notice “may “be issued u/s 148 after that only.

(iii) 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 notice under section 148 (as substituted);

Conclusion Regarding Valid Notice u/s 148

The following are the conclusion on the valid notice and the financial year ( FY ) in which said valid notice u/s 148 was served.

  1. The notice u/s 148 that was served between 1st April 2021 to 30th June 2021 is pronounced invalid and bad in law. This is what the assessee raised before High Courts, and finally, Apex Court too agreed with various High Court’s views.
  2. The Apex Court, by its power under section 142 of the constitution, converted the said legally invalid notice u/s 148 as a notice u/s 148A of the Act.
  3. Then, as per direction, the department completed the procedure u/s 148 and finally issued notice u/s 148 

Time Limit to Pass Assessment Order

First of all, the judgment above does not set anything as far as a time limit to pass the reassessment order consequent to a valid reassessment notice u/s 148 served in terms of the Apex Court order. Therefore, the law enshrined under Income Tax Act( the Act after this) to fix the time period shall follow.

Section 153 of the Act fixes limit for completion of assessment, reassessment and recomputation. The sub-section 2 of section 153 provides the time limit to pass a reassessment order as under :

(2) No order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of nine months from the end of the financial year in which the notice under section 148 was served:Provided that where the notice under section 148 is served on or after the 1st day of April, 2019, the provisions of this sub-section shall have effect, as if for the words “nine months”, the words “twelve months” had been substituted.

So, the law applicable for determining the time limit i.e, section 153(2) lays down  12 months from the end of the financial year, in which a valid notice u/s 148 was served.

The Apex Court set a time limit of 30 days from 4th May 2022 (date of order) for issuing all the relevant materials based on which notice u/s 148 was issued. Further, Hon’ble Court also set a time of two weeks from the service of such relevant information notice to the assessee.

Therefore, all the notices u/s 148 are issued under the new law provision (and per the direction of the Supreme Court) in the Financial year 2022-23.

Therefore, unless the assessee brings out before the court that the notices issued by the department were not as per the direction of the Supreme Court or newly enacted section 148A read with section 149, the financial year in which a valid notice u/s 148 is served shall be FY 2022-23 .

For this reason, the last date to pass the reassessment order for all the cases where a notice u/s 148 was served as per direction of SC in the aforesaid case shall be 31st March 2024 as the FY in which valid notices were served is FY 2022-23.

Whether section 153(6) has an impact on the time limit?

Some may argue that section 153(6(i) of the Act set the rules for not considering specific periods for computation of time limit to pass assessment or reassessment orders based on direction by various appellate authorities. For ready reference, the said provision is extracted below :

(6) Nothing contained in sub-sections (1) and (2) shall apply to the following classes of assessments, reassessments and recomputation which may, subject to the provisions of sub-sections (3), (5) and (5A), be completed— 

(i) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, section 254, section 260, section 262, section 263, or section 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act, on or before the expiry of twelve months from the end of the month in which such order is received or passed by the Principal Commissioner or Commissioner, as the case may be; 

If we read this provision closely, following parameters are set for its application

  • There must be an order for either u/s 250, section 254, section 260 or section 263 or 264
  • There is a direction of courts or appellate authorities, in such orders, because of which, the AO passes a consequential assessment or reassessment order. 
  • In that case, the time limit is 12 months from the date of receipt of such an order is received.

Comparing Supreme Court decision on reassessment section 156(6)(i)

If we analyze the provision u/s 153(6) with respect to the Supreme Court order referred above, it is clear the provision is inapplicable for the following reasons

  1. All the orders of High Courts, which were the subject matter of Supreme Court appeal, were passed on Writ Jurisdiction. The Supreme Court passed the impugned order using its power under section 142 of the constitution and not u/s 260 of the Act. Therefore, the first conditions set in section 153(6)(i) that orders must be passed u/s 250 or sec.254 or sec. 260 or sec. 263 or sec. 264 is not satisfied.
  2. Secondly, the order of the Apex Court was on the issue of the validity of the notice issued u/s 148 only. In none of the cases any assessment order was passed, and the Hon’ble Supreme Court also did not, anywhere in the order, give any direction for passing the assessment order in a manner.

For these reasons, any reference to section 153(6) for computing the time limit to pass the reassessment order in this special case is without any basis. 

Can the assessee raise the contention that since the notice was served in 2021, case time bars on 31st march 2023?

The assessee went to court saying that the notice served after 1st Aprile 2021 without following the procedure set u/s 148A is illegal. the High Court concurred, and Supreme Court also accepted the view of the High Court that the notice served u/s 148 was illegal. Using its constitutional power, it converted that notice as notice u/s 148A.

The effect of the two actions-one declaring the notice u/s 148 as illegal and then giving it a new avatar-deemed notice u/s 148A – by the hon’ble Supreme Court, one thing is clear. There was no notice u/s 148 served. So, the Financial Year 2021-22 can not be taken for computing time limitation given u/s 153(2) of the Act.

Since the assessee has already raised the contention that the notice served in FY 2021 was illegal, now it can not consider the time limit by referring to that invalid notice