2024 (4) TMI 96 - HC - Income Tax

Validity of reassessment proceedings - scope of new regime u/s 148A - As per revenue as decided in Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT held that all reassessment notices issued after 01 April 2021 would be treated as notices referable to clause (b) of Section 148A and the procedure prescribed therein being followed thereafter - respondents thus read Ashish Agarwal as mandating the aforesaid procedure being liable to be followed irrespective of the stage of the reassessment proceedings and thus extending even to situations where final orders may have come to be passed on culmination of reassessment. According to the petitioner, the judgment in Ashish Agarwal only sought to cure the procedural defects which beset notices issued after 01 April 2021 and where the Department proceeded on the assumption that it would be the unamended reassessment provisions which would apply and the directions in Ashish Agarwal were merely intended to validate such notices and cannot possibly be read or construed as warranting the reopening of reassessment proceedings which had attained finality even though the same may have been commenced on the basis of notices issued post 01 April 2021. HELD THAT - We are of the firm opinion that Ashish Agarwal neither intended nor mandated concluded assessments being reopened . The respondent clearly appears to have erred in proceedings along lines contrary to the above as would be evident from the reasons which follow. Firstly, Ashish Agarwal was principally concerned with judgments rendered by various High Courts striking down Section 148 notices holding that the respondents had erred in proceeding on the basis of the unamended family of provisions relating to reassessment. They had essentially held that it was the procedure constructed in terms of the amendments introduced by Finance Act, 2021 which would apply. None of those judgements were primarily concerned with concluded assessments. It is this indubitable position which constrained the Supreme Court to frame directions requiring those notices to be treated as being under Section 148A(b) and for the AO proceeding thereafter to frame an order as contemplated by Section 148A(d) of the Act. Our view of the judgement being confined to proceedings at the stage of notice is further fortified from the Supreme Court providing in para 8 of the report that The respective impugned Section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the Income Tax Act as substituted by Finance Act, 2021 and treated to be show cause notices in terms of Section 148A(b). As would be manifest from the aforesaid extract, the emphasis clearly was on the notices which formed the subject matter of challenge before various High Courts and the aim of the Supreme Court being to salvage the process of reassessment. This is further evident from the Supreme Court observing that the AO would thereafter proceed to pass orders referable to Section 148A(d). We consequently find ourselves unable to construe Ashish Agarwal as an edict which required completed assessments to be invalidated and reopened. Ashish Agarwal cannot possibly be read as mandating the hands of the clock being rewound and reversing final decisions which may have come to be rendered in the interregnum. The petitioner never questioned the validity of the original notices on grounds which were urged before the various High Courts and where assessees had questioned the invocation of the unamended provisions. The petitioner chose to contest the reassessment proceedings on merits. It is also admitted before us that the petitioner was also not a party to the Man Mohan Kohli batch of matters. There was therefore no justification for the respondent to have issued notices afresh seeking to reopen proceedings which had been rendered a closure prior to the judgment rendered in Ashish Agarwal. At the cost of being repetitive we deem it appropriate to observe that the Ashish Agarwal judgment neither spoke of completed assessments nor did it embody any direction that could be legitimately or justifiably construed as mandating completed assessments being reopened and moreso where the assessee had raised no objection to the initiation of proceedings. We are also of the firm opinion that even para 25.5 of Ashish Agarwal would not sustain the stand taken by the respondent since the same clearly confines itself to decisions or judgments rendered by a High Court invalidating a notice under Section 148 and the manifest intent of the Supreme Court being that its judgment would apply and govern irrespective of whether an appeal had been laid before it. We also bear in mind the pertinent observations rendered by the Constitution Bench in High Court Bar Association 2024 (3) TMI 63 - SC ORDER when it held that a direction under Article 142 of the Constitution should not impact the substantive rights of those litigants who are not even parties to the lis - Thus we quash reassessment proceedings and impugned SCN issued u/s 148A(b), the order issued u/s 148A(d) as well as the notice referable to Section 148 - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Show Cause Notice (SCN) dated 30 May 2022 issued u/s 148A(b) of the Income Tax Act, 1961.
2. Validity of the order dated 19 July 2022 disposing of objections u/s 148A(d) of the Act.
3. Validity of the consequential notice dated 20 July 2022 issued u/s 148 of the Act for reassessment proceedings for AY 2013-14.

Summary:

1. Validity of SCN dated 30 May 2022 issued u/s 148A(b):
The petitioner challenged the SCN dated 30 May 2022, arguing that the Supreme Court's decision in Ashish Agarwal [(2023) 1 SCC 617] was misinterpreted by the respondents. The petitioner contended that Ashish Agarwal aimed to cure procedural defects in notices issued post-01 April 2021 and did not mandate reopening of reassessment proceedings that had attained finality. The Court noted that the reassessment proceedings initiated on 31 March 2021 had concluded with a final assessment order on 28 March 2022, prior to the Ashish Agarwal judgment. The Court held that Ashish Agarwal did not envisage reopening concluded assessments and the SCN dated 30 May 2022 was thus invalid.

2. Validity of the order dated 19 July 2022 disposing of objections u/s 148A(d):
The Court observed that the order dated 19 July 2022, which rejected the petitioner's objections, was based on the erroneous assumption that Ashish Agarwal required reopening of concluded cases. The Court emphasized that Ashish Agarwal was concerned with notices issued under the unamended provisions and aimed to salvage reassessment processes without affecting concluded assessments. Consequently, the order dated 19 July 2022 was quashed.

3. Validity of the consequential notice dated 20 July 2022 issued u/s 148:
The Court held that the notice dated 20 July 2022, initiating reassessment proceedings, was invalid as it stemmed from the misinterpretation of Ashish Agarwal. The Court reiterated that the Supreme Court's directions in Ashish Agarwal did not mandate reopening of concluded assessments. The notice dated 20 July 2022 was thus quashed.

Conclusion:
The Court allowed the writ petition, quashing the SCN dated 30 May 2022 issued u/s 148A(b), the order dated 19 July 2022 u/s 148A(d), and the notice dated 20 July 2022 u/s 148 of the Act. The Court clarified that Ashish Agarwal did not mandate reopening of concluded assessments and that the respondents had erred in their interpretation of the judgment.