The Income Tax Authorities has the power to re-open old tax cases where they feel that some income which was to be taxed has been misrepresented.

RAJESHWAR PAINULI, Chartered Accountant

The Income Tax Authorities has the power to re-open old tax cases where they feel that some income which was to be taxed has been misrepresented. These power are covered under section 148/148A of the Income Tax Act 1961. Now after some practical thoughts the old section 148 was repealed and new provision u/s 148A is introduced w.e.f. 01.04.2021. The controversy is related to notice issued u/s 148 from 01.04.2021 to 30.06.2021.
The Hon’ble supreme Court invoked its power under Article 142 of Constitution to validate notices issued under section 148 as notices issued under section 148A. However the same shall be subject to amended provisions of section 149.
Earlier various High Courts had quashed reassessment notices issued u/s 148 of the act, on the ground that the same are bad in law in view of the new reassessment procedure, against such orders the Revenue had preferred an appeal before The Hon. Supreme Court. Contention raised by the Revenue: Approximately 90,000 reassessment notices have been issued under the old scheme of reassessment, various High Courts have quashed the reassessment notices under erstwhile 148 of the Income Tax Act, 1961. Observations of Hon. Supreme Court: 1. Through the Finance Act, 2021, radical and reformative changes are made governing the procedure for reassessment proceedings. 2. The Old Scheme of reassessment gave rise to numerous litigations and the reopening were challenged inter alia, on the grounds such as: a) no valid “reason to believe” ; b) no tangible/reliable material/information in possession of the AO leading to formation of belief that income has escaped assessment; c) no enquiry being conducted by the AO prior to the issuance of notice; d) reopening is based on change of opinion of the AO; and e) procedure laid down in GKN Driveshafts 1 SCC 72 not followed. 3. Under the old scheme reopening was permissible for a maximum period up to six years which has been reduced to three years in the new scheme. 4. Under the new scheme, no notice under section 148 of the IT Act can be issued without following the procedure prescribed under section 148A of the IT Act which has streamlined and simplified the procedure for reassessment. 5. It provides that before issuing any notice under section 148, the AO shall: a) Conduct an enquiry; b) provide an opportunity of being heard to the assessee; c) consider the reply of the assessee; and Report this ad d) decide, on the basis of material available on record including reply of the assessee, as to whether it is a fit case for reopening or not;; and e) pass a specific order within the time stipulated. 6. The judgments of the High Courts would result in no reassessment proceedings.
Litigations would proliferate after SC decision because of large number of unanswered questions/situations that notices u/s 148 issued on or after 1.4.21 upto 30.6.21, which notices alone infact were the subject matter of litigation before HCs, be treated as notice u/s 148A and AOs would now issue notice u/s148A(b) with material/information to assessee and after receipt of reply from assessee, would pass order u/s 148A(d). Thereafter, notice u/s 148 is required to be issued as held by SC, & served along with the order passed u/s 148A(d). SC has further held that all rights and contentions available to the assessee under the Finance Act 2021 & in law shall continue to be available.
The Article 142 of constitution is a provision which normally been invoked only in rarest of rare circumstances.