Direct Tax Alert - CBDT issues Instruction for implementation of Supreme Court pronouncement on validity of reassessment notices

Background

The issue about the validity of reassessment notices issued by the tax officers between 1 April 2021 to 30 June 2021 by following the erstwhile procedure in light of the extension granted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provision) Act, 2020 (TOLA) was pending before the Hon’ble Supreme Court. Recently on 4 May 2022, the Supreme Court¹ in the case of UOI vs. Ashish Aggarwal has held that the reassessment notices issued as per the old procedure shall be deemed to be issued as per the new procedure and has directed tax officers to follow the new procedure concerning such notices. It has also directed that the decision shall apply to all similar matters pending before any authority and shall be deemed to have been adjudicated accordingly.

To give effect to this judgement, the Central Board of Direct Taxes (CBDT) has issued a detailed instruction for the tax officer that may be taken into consideration while implementing this judgement. We, at BDO in India, have analysed and summarised the said instruction and provided our comments on its impact hereunder:

      1. Scope of the judgement

The judgement applies to all the matters where extended reassessment notices have been issued irrespective of the fact whether such notices have been challenged or not.

      2. Implementation of SC Ruling

Depending upon the fiscal year (FY) under consideration, the direction of the Supreme Court shall be implemented as under:

Fiscal Year(s)	Action
FY 2012-13 to FY 2014-15	Fresh notice under section 148 of the Income-tax Act,1961 (IT Act) can be issued with the approval of specified authority under section 151(ii)2 of the IT Act if income escaping assessment amounts to INR 5 Mn or more.
FY 2015-16 and FY 2016-17	Fresh notice under section 148 of the IT Act can be issued with the approval of specified authority under section 151(i)3 of the IT Act to be read in the light of the extension granted under TOLA.

To reduce the compliance burden, it is clarified that matters from FY 2012-13 to FY 2014-15 and for which the income escaping assessment is less than INR 5 Mn, are excluded from the reassessment proceedings. A specific instruction shall be issued for disposing of such matters.

       3. Procedure to be followed by tax officers

• Since extended reassessment notices are deemed to be show cause notice under section 148A(b)⁴ of the IT Act, all requirements of the new law before that show cause notice shall be deemed to have been complied with.
• Tax officers shall provide to the taxpayers all information and material relied upon for issuance of extended reassessment notice within 30 days (i.e., on or before 2 June 2022 being 30 days from the date of the Supreme Court decision on 4 May 2022).
• Taxpayers shall have two weeks to respond as to why a notice under section 148 of the IT Act should not be issued. The time limit of two weeks shall be counted from the date of the tax officer's last communication of information and material.
• Where taxpayer requests for additional time, then the tax officer shall consider such a request on merit and time may be extended as per section 148A(b) of the IT Act.
• After receiving the reply, the tax officer shall decide based on material available on record and the taxpayer’s reply whether or not a notice under section 148 of the IT Act can be issued.
• Tax officer shall pass an order with the prior approval of the specified authority as per the new procedure within one month from the end of the month in which the reply is received from the taxpayer.
• Where no response is received, the tax officer shall pass an order within one month from the end of the month in which the original/extended time allowed to furnish the reply expires.
• Tax officer, after obtaining the approval of the specified authority under section 151 of the IT Act, shall issue a notice under section 148 of the IT Act, if it is a fit case. A copy of the order passed under section 148A(d) of the IT Act shall also be served with the notice.
• If it is not a fit case to issue a notice under section 148 of the IT Act, then the tax officer shall pass an order under section 148A(d) of the IT Act to that effect and serve it upon the taxpayer.

BDO comments

It may be appreciated that this timely guidance by the CBDT will help the tax officers in implementing the Supreme Court decision uniformly. This clarification will also act as guidance for the taxpayers in respect of various FYs.

However, the instructions have raised certain new issues viz. the last day to issue notice for FY 2012-13 and FY 2013-14 under the old procedure was 31 March 2020 and 31 March 2021 respectively. However, by virtue of TOLA, the said date was extended to 30 June 2021. As per the Instruction, tax officers can issue notices for FY 2012-13 and FY 2013-14 also under new section 149 of the IT Act where income escaping assessment amounts to INR 5 Mn or more. This appears to be contrary to the first proviso to section 149 of the IT Act, which specifically states that the FY for which the time limit for reopening expired before 31 March 2021, shall not be reopened under the new provision.

Further, for FY 2015-16 and FY 2016-17, the Instruction states that fresh notice can be issued with the approval of specified authority, under the new procedure, since these cases fall within 3 years (after taking advantage of the extension granted by the TOLA). However, the 3 years period for FY 2015-16 and FY 2016-17 has already expired on 31 March 2020 and 31 March 2021 respectively. Therefore, in view of the first proviso to section 149 of the IT Act, it appears that such notices could not be issued under the new procedure.

Since CBDT Instructions are binding on the tax officers and not on the taxpayers, the above issues may lead to litigation if not timely clarified.

Also, the instruction is silent about the material that should be given to the taxpayer since, under the erstwhile law, the requirement for reopening was reason to believe whereas, under the new law, the requirement is information to suggest that the income has escaped assessment. Hence, clarity on this aspect will be helpful.

 

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