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In one of its kind and peculiar judgement, the hon’ble Supreme Court, on 4.5.2022, in a batch of Civil Appeals, with the case of Union of India & Ors. Vs. Ashish Aggarwal, Civil Appeal No. 3005/2022, as the lead case, has upheld the validity of all the respective re-assessment notices, hitherto, issued under old section 148, on or after 1.4.2021 and up to 30.6.201, by holding them as deemed to have been issued under the new section 148A, of the Income Tax Act, as per the provisions of the Finance Act, 2021.

It is pertinent to mention here that hitherto, the hon’ble High Courts, in the undermentioned judgements, have quashed the respective reassessment notices, issued under old section 148, on or after 1.4.2021, and uptill 30.6.2021, as bad in law:

1. Allahabad High Court in the case of Ashok Kumar Agarwal v UOI [2021] 131 taxmann.com 22;

2. Delhi High Court in the case of Mon Mohan Kohli v ACIT and others (WP(C) No. 6176/2021);

3. Rajasthan High Court in the case of Bipip Infra Private Limited vs ITO (S.B. Civil Writ Petition No 13297/2021);

4. Calcutta High Court in the case of Manoj Jain v Union of India & Ors. (WPA No. 11950 of 2021);

5. Tata Communications Transformation Services Vs. ACIT (Bombay HC), in Writ Petition No. 1334 of 2021 dated 29.03.2022;

6. Vellore Institute of Technology Vs. CBDT (Madras HC), in W.P. No. 15019/2021 dated 04.02.2022.

Invocation of Article 142 of the Constitution of India by the hon’ble Supreme Court

However, the Hon’ble Supreme Court, has now modified all the above judgements of the hon’ble High Courts, by invoking the special power enshrined under Article 142 of the Constitution of India.

The Hon’ble Supreme Court has exercised its power under Article 142 of the Constitution of India, and has passed the captioned judgement dated 4.5.2022, holding it as applicable on PAN India basis also holding that the respective judgements passed by different hon’ble High Courts, on this issue, shall stand modified, as under:

(i)        The respective impugned section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and treated to be show cause notices in terms of section 148A(b). The respective assessing officers shall within thirty days from 4.5.2022, provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within two weeks thereafter;

(ii)       The requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a) be dispensed with as a one­time measure vis­à­vis 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;

(iii)      The assessing officers shall thereafter pass an order in terms of section 148A(d) after following the due procedure   as required under section 148A(b) in respect of each of the concerned assessees;

(iv)      All the defences which may be available to the assessee under section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021, are kept open and/or shall continue to be available and;

(v)       The present order shall substitute/modify respective judgments and orders passed by the respective High Courts quashing the similar notices issued under unamended section 148 of the IT Act irrespective of whether they have been assailed before this Court or not.

Key Observations of the Hon’ble Supreme Court

In its judgement, the hon’ble Supreme Court has made some significant observations as under:

i) “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.”

ii) “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.”

iii) “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.”

iv) “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.”

v) “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 defenses, 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 Hon’ble Supreme Court finally concluded its judgement by observing that:

“We are also of the opinion that if the aforesaid order is passed, it will strike a balance between the rights of the Revenue as well as the respective assesses as because of a bonafide belief of the officers of the Revenue in issuing approximately 90000 such notices, the Revenue may not suffer as ultimately it is the public exchequer which would suffer.”

Downside of the SC Judgement for the Respective Assessees

As per the SC Judgement, all such impugned Notices, issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, shall now be deemed to be issued under new section 148A, as per the Finance Act 2021, and the assessing authorities are supposed to issue the consequential Notices u/s 148, after complying with the requirements of section 148A, and other amended provisions of section 147-151 of the Act.

This in turn implies that the validity of all such impugned notices, although originally issued under old section 148, shall now be governed by the amended reassessment provisions in sections 147-151, as per the Finance Act, 2021.

Thus, the hitherto applicable mandatory condition of formation of an independent reason to believe, of escapement of income, by the jurisdictional AO, for the validity of such impugned notices issued under old section 148, which otherwise, would have been available, as an adequate safeguard, to the respective assessees, had this SC judgement would not have deemed such notices as issued under the new section 148A, will not be available to the respective assessees, now.

Also, the hitherto applicable, additional mandatory condition of establishment of failure on the part of the assessee to disclose fully and truly all material facts, as per Explanation to old section 147, for entitling the assessing authority, to reopen the case, beyond four years and up to six years, will not be available to the assessee, now.      

Silver lining/ Upside of the SC Judgement

Useful Conclusions on Time Lines for Validity of Impugned Re-Assessment Notices & the Scope of the Term “Information” for enabling Reopening u/s 148, as per the SC Judgement

The Hon’ble Supreme Court in the captioned judgement has clearly mandated that the respective impugned section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021, and shall be treated as show cause notices in terms of section 148A(b). The respective assessing officers shall within thirty days from 4.5.02022, provide to the assessees the information and material relied upon by the Revenue, so that the assessees can reply to the notices within two weeks thereafter.

It has also been stipulated that all the defences which may be available to the assessee under section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021, are kept open and/or shall continue to be available.

Thus, even though the impugned Notices issued under old section 148 have now held as deemed to be issued under section 148A, as inserted by the Finance Act, 2021, and as such, have been saved from being quashed outrightly, but at the same time, their validity has also been made subject to the condition of their issuance, within the time period as specified under the amended provisions of section 149 of the Income Tax Act, as per the Finance Act, 2021.

Time Period for Issuance of Notice u/s 148 [Section 149 as amended by Finance Act 2021]

a) Notice u/s 148 is to be issued within 3 years from the end of the relevant assessment year. However, there is an exception to this provision as under:

b) Notice for reassessment u/s 148 could be issued after three years and uptill ten years if the Assessing officer has in possession, books of accounts/documents/evidence which reveal that income chargeable to tax, exceeding fifty lakh rupees, in an assessment year, represented in the form of an asset, has escaped assessment.  

Therefore, this in turn implies that all such notices issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, and now held as deemed to be issued under new section 148A, as per the Finance Act 2021, shall be considered as legally valid only if they pertain to assessment year 2018-19 and onwards, if the amount of alleged escaped income is less than or equal to Rs. 50 lakhs in an assessment year.

However, if the amount of alleged escaped income exceeds Rs. 50 lakhs, in an assessment year, then such Notices issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, and now held as deemed to be issued under new section 148A, as per the Finance Act 2021, shall be considered as legally valid only if they pertain to assessment year 2011-12 and onwards.

However, the Notices issued under unamended section 148, on or after 1.4.2021 and up to 30.6.2021, for Assessment Years  2013-14 & 2014-15, should be considered as invalid by virtue of First Proviso to amended Section 149 of the Income Tax Act, as per the Finance Act 2021, which provided the granfathering relief during the transition to the new reassessment regime. It is pertinent to mention here that No Notices under the unamended section 148 were issued for the AY 2011-12 and AY 2012-13, during the impugned three month time period (1.4.2021 till 30.6.2021), as these two assessments years were already time barred as per the unamended section 149 of the Income Tax Act.

Reason to Believe vs Information in Possession

In the new re-assessment regime, applicable w.e.f. 1.4.2021, as per the amended provisions in the Finance Act 2021, the well-settled and established legal position in respect of mandatory condition of formation of an independent reason to believe, of escapement of income, by the jurisdictional assessing authority, has been replaced with the condition of possession of an information with the assessing authority, as per the risk management strategy of CBDT or the final audit objection of C&AG, suggesting that income of the assessee has escaped assessment.

Since, the impugned Notices issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, as per the SC judgement, shall now be deemed to be issued under new section 148A, as per the Finance Act 2021, the mandatory condition of formation of reason to believe of escapement of income by the jurisdictional AO (hitherto applicable, for the validity of the impugned Notices u/s 148, before the SC Judgement), shall now be replaced with the condition of possession of an information, as per the risk management strategy of CBDT or the final audit objection of C&AG, suggesting that income of the assessee has escaped assessment.

Therefore, if the assessing authority, is not able to establish that it is in possession of an information, as per the risk management strategy of CBDT or the final audit objection of C&AG, suggesting that income of the assessee has escaped assessment, then all such Notices which shall now be issued by the assessing authorities under the new section 148, in consequence of the SC judgement deeming the impugned Notices issued under old section 148, as issued under the new section 148A, are amenable to be considered as bad in law.

More Litigation Ahead

The Finance Act, 2022 has expanded the scope and coverage of the meaning of the term “Information” by amending Explanation 1 to section 148.

As per amended Explanation 1 to Section 148, “Information” means:

• any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;

• any audit objection to the effect assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or

• any information received under an agreement referred to in section 90 or section 90A of the Act; or

• any information made available to the Assessing Officer under the scheme notified under section 135A; or

• any information which requires action in consequence of the order of a Tribunal or a Court.

The Finance Act 2022, has further widened the time limit for issue of notice u/s 148, to provide that a notice under section 148 can be issued after three years and uptill ten years, where the Assessing Officer has in his possession books of account/documents/evidence which reveal that the income chargeable to tax, represented,

a. in the form of an asset; or

b. expenditure in respect of a transaction or in relation to an event or occasion; or

c. an entry or entries in the books of account,

which has escaped assessment amounts to or likely to amount to fifty lakh rupees or more, in any or all of such assessment years.

The hon’ble Supreme Court, in the captioned judgement, has very clearly stipulated that the timelines for issuance of Notice u/s 148, as per the amended provisions of the Finance Act, 2021, are to be adhered to, by the concerned revenue authorities, and all other applicable provisions as per the amended sections 147-151 of the Income Tax Act, as per the Finance Act, 2021 are to be complied with.

However, one grey area is somehow, still left. As per the SC Judgement, all such impugned Notices issued on or after 1.4.2021 and uptill 30.6.2021, under the old section 148, shall now be deemed to be issued under new section 148A, as per the Finance Act 2021, and the assessing authorities are supposed to issue the consequential Notices u/s 148, after complying with the requirements of section 148A, and other amended provisions of section 147-151 of the Act.

Thus, all such consequential notices u/s 148 shall now be issued at present, i.e., on or after 1.4.2022, when the amended provisions of section 148 are in place by virtue of the Finance Act, 2022.

This peculiar situation may result in opening up of the pandora box of litigation again, if the revenue authorities, guided by their revenue targets, adopt the extended definition of the meaning of the term ‘information’ as per the amended Explanation 1 to section 148, as per the Finance Act, 2022, to include any information and any audit objection, including that of their internal audit department, and not just the final audit objection of C&AG, for reopening the cases for three years, for the impugned deemed notices u/s 148A of the Act.

Similar will be the fate of increasing litigations, if the revenue authorities, again guided by their revenue targets, for reopening the cases, beyond three years and uptill 10 assessment years, adopt the more liberal condition of presence of escaped income exceeding Rs 50 lakhs in any or all 10 assessment years and not necessarily in one assessment year, as per the amended Explanation 2 to section 148, as per the Finance Act, 2022.

However, it should be kept in mind that if the revenue authorities, attempt to adopt and make applicable, the extended scope of the term ‘information’ and the liberal criteria of spreading up of escaped income to all ten years, as per the amendments made in the Finance Act, 2022, on the ground that the Notices u/s 148, consequential to the deemed Notices u/s 148A, are now being issued on or after 1.4.2022, then the assessees shall also get the equivalent right to argue that such an interpretation will simultaneously reduce the validity of issuance of such 148 notices, issued on or after, 1.4.2022, for one more assessment year, i.e. in cases of alleged escaped income of up to Rs. 50 lakhs, to AY 2019-20.

Need of the Hour: Striking of a balance between the rights of the revenue as well as the respective assesses

However, the revenue authorities, must keep in mind that the hon’ble Supreme Court has exercised its power under Article 142 of the Constitution of India, in passing of this judgement, to strike a balance between the rights of the revenue as well as the respective assesses, and as such any further adventure in the nature of revenue collection, is not at all justified and warranted, and it will clearly defeat the very foundation and basis of bringing such amendments in the re-assessment regime, to bring in more certainty, in the completion and conclusion of assessments.

 Doctrine of ‘Complete Justice’ as per Article 142 of the Constitution of India

The Constitution of India under Article 142, grants the power to the Supreme Court for passing any decree to do “complete justice”.

Definition of Article 142 in Constitution of India

“142. Enforcement of decrees and orders of Supreme Court and unless as to discovery, etc.-

(1) The Supreme Court in the exercise of its jurisdiction may pass such decree or make such order as is necessary for doing complete justice in any cause or matter pending before it, and any decree so passed or orders so made shall be enforceable throughout the territory of India in such manner as may be prescribed by or under any law made by Parliament and, until provision in that behalf is so made, in such manner as the President may by order prescribe.

(2) Subject to the provisions of any law made in this behalf by Parliament, the Supreme Court shall, as respects the whole of the territory of India, have all and every power to make any order for the purpose of securing the attendance of any person, the discovery or production of any documents, or the investigation or punishment of any contempt of itself.”

This power under Article 142, is to be exercised by the hon’ble Supreme Court, broadly for two purposes, viz.

1. to grant relief to do “complete justice” in a given case dehors the applicable statutory provisions and;

2. to issue directions to fill, what the court perceives as “legislative gaps”, which directions operate as the law of the land until such time that the legislature or the executive steps in.

Interestingly, uptill now, the power granted under Article 142 of the Constitution of India, has been exercised by the hon’ble Supreme Court, majorly in cases of public interest and social justice, and unrelated to tax laws.

Few of the Landmark Judgements, where the power granted under Article 142, has been exercised by the Hon’ble Supreme Court, are discussed below:

i) M Siddiq (D) The. Lrs. v. Mahant Suresh Das & Ors, 2018 (II) SCALE 667, - Supreme Court verdict in the landmark judgement in the Shri Ram Janm Bhumi, Ayodhya case , in Civil Appeal Nos. 10866-67/2010

The Hon’ble Supreme Court has invoked Article 142, while passing a unanimous judgment on Ayodhya case wherein the bench handed over the disputed land of 2.77 acres to a trust to be formed by the central government within three months for the construction of a temple, under the Acquisition of Certain Area at Ayodhya Act, 1993. Another 5 acres of land was allotted for the construction of a mosque in Ayodhya.

In the said case the Hon’ble Supreme Court described its power under Article 142, as under: “The phrase ‘is necessary for doing complete justice’ is of a wide amplitude and encompasses a power of equity which is employed when the strict application of the law is inadequate to produce a just outcome. The demands of justice require a close attention not just to positive law but also to the silences of positive law to find within its interstices, a solution that is equitable and just. The legal enterprise is premised on the application of generally worded laws to the specifics of a case before courts.”

ii) Union Carbide Corporation vs Union of India Etc on 4 May, 1989 (Bhopal Gas Tragedy)1990 AIR 273, 1989 SCC (2) 540

In another landmark judgment, the Hon’ble Supreme Court while awarding the compensation of $470 million to victims of Bhopal Gas Tragedy, has observed that:

“Perhaps, the proper way of expressing the idea is that in exercising powers under Article 142 and in assessing the needs of ―”complete justice” of a cause or matter, the apex Court will take note of the express prohibitions in any substantive statutory provision based on some fundamental principles of public policy and regulate the exercise of its power and discretion accordingly. The proposition does not relate to the powers of the Court under Article 142, but only to what is or is not ‘complete justice‘ of a cause or matter and in the ultimate analysis of the propriety of the exercise of the power. No question of lack of jurisdiction or of nullity can arise.”

iii) Manohar Lal Sharma vs The Principal Secretary & Others on 25 August, 2014 (Coal Block Allocation Case), in Writ Petition No. 120 0f 2012

The hon’ble Supreme Court has once again invoked Article 142 of the Constitution in 2014 to cancel the allocation of coal blocks granted from 1993 onwards and has also imposed a penalty of INR 295 per tonne of coal already mined.

iv) The State of Tamil Nadu represented by SEC. & ORS. vs. K. Balu & ANR. in Civil Appeal No. 12164-12166 of 2016

In December 2016, the Hon’ble Supreme Court has again invoked Article 142, for banning the sale of alcohol and ensuring that liquor vends are not visible or directly accessible from the highway within a stipulated distance of 500 meters form the outer edge of the highway, or from a service lane along the highway. As per the hon’ble Court, such a decision was taken to avoid accidents due to drunk and drive.

Landmark Judgement of the Hon’ble Supreme Court on Limiting Factors on Invocation of Article 142

The hon’ble Supreme Court, in its landmark judgement in the case of E.S.P. Rajaram & Ors vs. Union of India & Ors, dated 1.1.2001, in Civil Appeal No. 441 of 2001, has very beautifully analysed the discretion and limitations of invocation of the power granted under Article 142 of the Constitution of India and has held as under:

“If it is necessary to trace the source of power of this Court to issue the directions and pass the order as in paragraph 18 of M Bhaskar's case (supra) one can straightaway look to Article 142 of the Constitution. The said provision vests power in the Supreme Court to pass such decree or make such order as is necessary for doing complete justice in any case or mater pending before it. The provision contains no limitation regarding the causes or the circumstances in which the power can be exercised nor does it lays down any condition to be satisfied before such power is exercised. The exercise of the power is left completely to the descretion of the highest court of the country and its order or decree is made binding on all the Courts or Tribunals throughout the territory of India. However, this power is not to be exercised to override any express provision. It is not to be exercised in a case where there is no basis in law which can form an edifice for building up a super structure. This Court has not hesitated to exercise the power under Article 142 of the Constitution whenever it was felt necessary in the interest of justice. In the case of M S Ahlawat vs. State of Haryana and another (2000) 1 SCC 278) a bench of three learned Judges of this Court considering the power of the Court to recall its own order in a criminal case referred to the relevant observations in Supreme Court Bar Association v. Union of India (1998) 4 SCC 409) and held that under Article 142 of the Constitution the Supreme Court cannot altogether ignore the substantive provisions of a statute and pass orders concerning an issue which can be settled only through a mechanism prescribed in another statute. The following passage from the headnote of the case of Supreme Court Bar Association v. Union of India (supra) was quoted with approval : "However, the powers conferred on the Court by Article 142 being curative in nature cannot be construed as powers which authorise the Court to ignore the substantive rights of a litigant while dealing with a cause pending before it. This power cannot be used to 'supplant' substantive law applicable to the case or cause under consideration of the Court. Article 142, even with the width of its amplitude, cannot be used to build a new edifice where none existed earlier, by ignoring express statutory provisions dealing with a subject and thereby to achieve something indirectly which cannot be achieved directly. The very nature of the power must lead the Court to set limits for itself within which to exercise those powers and ordinarily it cannot disregard a statutory provision governing a subject, except perhaps to balance the equities between the conflicting claims of the litigating parties by 'ironing out the creases' in a cause or matter before it. Indeed, the Supreme Court is not a court of restricted jurisdiction of only dispute-settling. The Supreme Court has always been a law-maker and its role travels beyond merely dispute settling. It is a 'problem-solver in the nebulous areas' but the substantive statutory provisions dealing with the subject-matter of a given case cannot be altogether ignored by the Supreme Court, while making an order under Article 142. Indeed, these constitutional powers cannot, in any way, be controlled by any statutory provisions but at the same time these powers are not meant to be exercised when their exercise may come directly in conflict with what has been expressly provided for in a statute dealing expressly with the subject."[ Emphasis supplied]

Concluding Remarks:

Thus, from the above cases, it is quite clear, that in all earlier occasions, the hon’ble Supreme Court has exercised its power under Article 142 of the Constitution, only on matters of public interest and social justice.

Therefore, the date 4.5.2022, will now assume great significance, in the history of legal jurisprudence, when, the hon’ble Supreme Court, has exercised its power, under Article 142 of the Constitution of India, probably for the first time, on an issue, not related to any public interest or social justice, but on an issue, strictly pertaining to the interpretation of a Tax Provision, with the primary objective of safeguarding the revenue interests of the exchequer, in probably 90,000 odd writ petitions, in order to bring ‘Complete Justice’.

However, at present, the Balance of Justice, appears to be tilted, in favour of the Revenue Authorities, more, especially, in view of the fact, that all such impugned re-assessment notices, which hitherto, became dead, by virtue of not one, but at least eight, very comprehensively and meticulously drafted judgements of the hon’ble High Courts of Allahabad, Delhi, Rajasthan, Bombay, Calcutta and Madras, have now got the new lease of life, courtesy, the exercise of power under Article 142 of the Constitution of India, by the hon’ble Supreme Court, in order to bring ‘Complete Justice’.    

The Hon'ble Supreme Court, in its landmark judgement in the case of E.S.P. Rajaram & Ors vs. Union of India & Ors (as discussed supra), has categorigally observed that,

"The substantive statutory provisions dealing with the subject-matter of a given case cannot be altogether ignored by the Supreme Court, while making an order under Article 142. Indeed, these constitutional powers cannot, in any way, be controlled by any statutory provisions but at the same time these powers are not meant to be exercised when their exercise may come directly in conflict with what has been expressly provided for in a statute dealing expressly with the subject."

Executive Summary on Validity of Impugned Re-Assessment Notices issued under unamended section 148 and now to be considered as deemed to be issued u/s 148A(b) of the Income Tax Act:

1.Reassessment Notices for AYs 2013-14 & 2014-15 shall be considered as invalid by virtue of First Proviso to Section 149.

2. Notices for AYs 2015-16, 2016-17 & 2017-18 will survive only if the alleged escaped income represented in the form of an asset, exceeds Rs 50 lakhs, in each of such assessment year.

3. Notices for AY 2018-19 onwards, have already been issued under new provisions and as such were not the subject matter of consideration in the SC judgement.