• The provisions relating to reopening of assessments, as they stood prior to the Finance Act, 2021, were contained in Sections 147 to 151 of the Act[1] (‘Old Law’). Under the Old Law, if the AO[2] had reasons to believe that an income chargeable to tax has escaped assessment, then the AO could reopen the assessment by issuing a notice u/s. 148 of the Act. Such notice could have been issued within 4 / 6 years from end of relevant assessment year.
• e.f. 1 April 2021, the Finance Act, 2021 substituted the entire scheme of reopening[3] of assessment under the Act (‘New Law’). That is, the reopening provisions under the Old Law were repealed and substituted by the new provisions. The New Law inter-alia provided new period of limitation for issuance of notice for reopening – being 3 years and 10 years. There was also embargo put on the revenue to reopen an assessment if as on date of issuance of reopening notice under New Law, the limitation period of 6 years u/s. 149(1)(b) of Old Law, has already expired.
• TOLA[4] inter-alia relaxed the time periods for compliance of various actions under the Act. It provided that if the due date for compliance of any action is falling within 20 March 2020 to 31 March 2021, then such an action can be done by 31 March 2021. This compliance date was further extended to 30 April 2021[5] and thereafter, to 30 June 2021[6].

History of litigation & controversy:

• The Revenue[7] was under the erroneous belief that the reopening provisions under Old Law, would remain in force after 1 April 2021, on account of extensions of time limits provided under TOLA. Accordingly, post 1 April 2021, for various AYs[8], reopening notices were issued under the Old Law. These notices were litigated and the SC[9] in Ashish Agarwal[10] finally held that the Revenue ought to have followed the New Law for issuance of any reopening notice after 1 April 2021. But to protect the interest of revenue, the SC invoked its powers under Article 142 of the Constitution of India and held that the reopening notices issued under Old Law were deemed as “show-cause notice u/s. 148A(b) of the Act”. Further, the Income-tax Department was directed to provide the relied upon information / material and the assessees were granted 2 weeks’ time to file their replies against the reopening of assessment.
• Pursuant to Ashish Agarwal, the Revenue issued notices at or around 31 May 2022 providing the relied upon information / material to the assessees. In response to which, the Assessees filed their responses inter-alia objected to reopening. Thereafter, during the month of June 2022 to September 2022, the orders u/s. 148A(d) and notices u/s. 148 of the Act, were passed / issued for various AYs such as AY 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18.
• These reopening notices were challenged before different HCs on the ground that (i) reopening notices are barred by limitation because the time period of 6 years u/s. 149(1)(b) of the Old Law for AYs 2013-14, 2014-15 and 2015-16 has already expired as on date of issuance of reopening notice between June 2022 to September 2022; (ii) Post 1 April 2021, TOLA does not apply to Section 149(1) of New Law and extend the time limit of 6 years under Old Law; and (iii) sanction of appropriate authority u/s. 151 has not been obtained. The HCs[11] accepted these contentions and quashed the reopening notices.
• The Revenue challenged the HC judgements before the SC.

Analysis and conclusion of SC:

• SC held that due to a statutory restriction[12], a reopening notice u/s. 148 for AY 2021-22 and prior to that, cannot be issued if the time limit of 6 years u/s. 149(1)(b) of Old Law has expired, as on date of issuance of such notice.
• All the notices issued under the New Law shall have to be dropped if they have been by invoking time limit of 6 years from end of the relevant AY, prescribed u/s. 149(1)(b) of Old Law and income escaping assessment is less than INR 50 lakh.
• The Finance Act, 2021 substituted the reopening provisions under the Old Law. Thus, the old provisions were repealed and substituted by new reopening provisions. If an act is amended by substitution, then any reference to such an act under any other law, must be construed as the “legislation as amended by the substitution”. Therefore, after 01 April 2021, reference to Income-tax Act under any other law means “Income-tax Act as amended by the Finance Act, 2021”.
• On Limitation and TOLA:
  • Time limit u/s. 149 to issue reopening notice effectively is 3 years for all cases and 6 years (for AY 2021-22 and prior to that) if income escaping assessment is less than INR 50 lakh.
  • Amendments by the Finance Act, 2021 in the Act does not affect TOLA. When TOLA refers to Income-tax Act that means the “Income-tax Act as amended by the Finance Act, 2021”. TOLA will continue to apply if time limit for issuance of any notice or passing of any order is falling between 20 March 2020 to 31 March 2021.
  • Section 3(1) of TOLA is a non-obstante provisions and hence, it overrides S. 149 of New Law to the extent of relaxing time limit for issuance of a reopening notice if such time limit falls within ‘TOLA period’[13].
  • TOLA does not amend the time limits for issuance of a reopening notice. It only provides an extended period for Revenue to issue a reopening notice if the time-limits for issuance of a reopening notice u/s. 148 falls within the TOLA period. TOLA is to be read with Section 149(1) of the New Law which is the legislative intent behind enactment of TOLA. For example, for AY 2013-14, the limitation to issue reopening notice is 6 years which expires on 31 March 2020. Due to TOLA, the revenue can issue reopening notice till 30 June 2021. Similarly, the time-limit of 3 years for AY 2017-18 expires on 31 March 2021 i.e., within TOLA period. Due to extensions of TOLA, this 3 years’ time limit would expire on 30 June 2021.
  • Revenue to check two things: (a) time limit provided u/s. 149(1) of New Law; and (b) extensions provided by TOLA and notifications. The combined effect of these two is the limitation period available with the Revenue to issue a reopening notice.
  • When Ashish Agarwal deems the Old 148 notices as show-cause notice u/s. 148A(b), then the show-cause notice u/s. 148A(b) is deemed to have been issued from the date of Old 148 notice.
  • During the period between the issuance of Old 148 notices (deemed as show-cause notice u/s. 148A(b)) and supply of information / material by the revenue to the assessees, the assessing officers were deemed to have been prohibited from proceeding with the reassessment proceedings. Hence, this period is to be excluded in computation of limitation period of 3 years and 10 years u/s. 149(1).
  • SC in Asish Agarwal also granted a time of 2 weeks to the assessees to file replies before the Revenue, before issuance of notice u/s. 148. Hence, this period is to be excluded in computation of limitation period of 3 years and 10 years u/s. 149(1).
  • After receipt of replies from the assessees, the limitation period started running. The balance time period within which the reopening notice could have been issued is the “surviving time limit” i.e., the difference between date of old 148 notice till 30 June 2021. For example, if old 148 notice was issued on 1 May 2021, then surviving time limit would be 61 days being the difference between 1 May 2021 to 30 June 2021.
• On Sanction and TOLA:
  • AO is required to obtain a prior approval from the specified authority u/s. 151 of the Act before issuance of notice u/s. 148.
  • Section 151 of the Act does not prescribe any time-limit within which the specified authority has to grant sanction. It links up the time limits with the jurisdiction of the authority to grant sanction. That is, the specified authority which has to grant sanction is directly co-related to the time when the notice is issued.
  • Section 3(1) of TOLA relaxes the time limit for compliance of any action which also includes sanction by a specified authority u/s. 151 of the Old Law and New Law.
  • If 4 years as per Section 149(1) of Old Law are expiring between March 2020 to March 2021, then the specified authority u/s. 151(1) of the Old Law has power to grant approval till 31^st March 2021.
  • If Principal Commissioner has to grant sanction u/s. 151(i) of New Law and 3 years are expiring between March 2020 to March 2021, then Principal Commissioner can grant sanction for any reopening notice issued till 30^th June 2021. The 3-year time-period u/s. 151(i) stood extended by virtue of TOLA.
• Judgement of Ashish Agarwal applies to all the 90,000 reopening notices issued between 1 April 2021 to 30 June 2021. The said judgement is not limited in application to only those cases which were decided by the HCs or pending before the HCs.

[1] The Income-tax Act, 1961

[2] Assessing Officer

[3] Section 147 to 151

[4] Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020

[5] Notification No. 20 of 2021 dated 31^st March 2021

[6] Notification No. 38 of 2021 dated 27^th April 2021

[7] The Income-tax Department

[8] AY 2013-14, 2014-15, 2015-16, 2016-17, 2017-18 etc.

[9] Supreme Court of India

[10] UOI v. Ashish Agarwal (2023) 1 SCC 617 dt. 04^th May 2022

[11] Union of India v. Rajeev Bansal (Writ Tax No. 1086 of 2022 (Allahabad HC)); Keenara Industries Pvt. Ltd. v. ITO, Surat (R/Special CA No. 17321 of 2022 (Gujarat HC)); J M Financial and Investment Consultancy Services Pvt. Ltd. v. ACIT, WP No. 1050 of 2022 (Bombay HC); Siemens Financial Services Pvt. Ltd. v. DCIT [2023] 457 ITR 647 (Bombay HC); Geeta Agarwal v. ITO (DB Civil Writ Petition No. 14794 of 2022) (Rajasthan HC); Ambika Iron and Steel Pvt Ltd v. PCIT (WP(C) No. 20919 of 2021) (Orissa HC); Twylight Infrastructure Pvt. Ltd. v. ITO (WP(C) No. 16524/2022) (Delhi HC); Ganesh Dass Khanna v. ITO [2024] 460 ITR 546 (Delhi HC)

[12] In terms of 01^st Proviso to S. 149(1) of New Law

[13] 20 March 2020 to 31 March 2021