The Impact of the Finance Act, 2021 on Reassessment: Delhi HC Sets Aside Reassessment Due to Non-Compliance with Sections 148A and 151 under the Income-tax Act, 1961

Introduction

The legal framework surrounding the reassessment process under the Income-tax Act, 1961 (‘Act’), underwent significant changes with the enactment of the Finance Act, 2021 (‘FA2021’). One of the most crucial amendments was to s. 148 of the Act, which governs the reassessment of income. This included the introduction of s. 148A and other related amendments, thereby introducing enhanced procedural scrutiny to the reassessment process. Under the revised provisions, the Assessing Officer (‘AO’) is now required to provide the taxpayer with reasons and the material relied upon by the Revenue before issuing a notice under s. 148. This is in line with the intention to offer taxpayers an opportunity to respond to the proposed reopening of assessments. The amendments were designed to strengthen the procedural safeguards, especially in cases where reassessments involve income below a certain threshold.

Following these amendments, litigants across the country have approached the Hon’ble Courts to seek clarification on the procedural correctness of reassessment notices issued under the old regime. In this context, the Delhi High Court’s ruling in Rohit Kumar v. Income Tax Officer Ward 54 (1) Delhi[i] assumes great significance. The case addresses the application of the amended provisions under s. 148A of the Act, examining whether the proper procedures were followed in the issuance of reassessment notices, particularly in cases where notices were issued after the amendments came into effect. The case also delves into the role of digital signatures in the issuance of notices and scrutinizes the competency of authorities responsible for granting approvals under the new regime. This judgment marks an important milestone in understanding the practical implementation of the 2021 amendments and clarifies the procedural safeguards that have been put in place for the protection of taxpayers’ rights.

Brief Facts

• Mr. Rohit Kumar ('petitioner/assessee') received a notice under s. 148 of the Act for the assessment year (‘AY’) 2015-2016. The primary issue arose from the fact that the notice was digitally signed on 09.04.2021 but bore the date 31.03.2021.

• The petitioner argued that, since the notice was digitally signed after 01.04.2021, the reassessment procedure introduced by the FA2021 should have been followed. Specifically, compliance with s. 148A of the Act, which came into force with the amendments, was required. Consequently, the petitioner filed a writ petition before the Delhi High Court challenging the validity of the notice.

• The Delhi High Court vide an interim order dated 15.02.2022, allowed the AO to proceed with the assessment but prohibited its implementation until the final adjudication of the writ petition. In terms of the interim order, the Income Tax Officer ('respondent') concluded the assessment and passed the final assessment order dated 31.03.2022.

• During the arguments, the petitioner relied on the Delhi High Court’s ruling in Suman Jeet Agarwal v. Income Tax Officer[ii] to argue that the date of the digital signature should be taken as the effective date of the notice.

• The respondent, on the other hand, contended that the reassessment notice, although issued after the amendment, could still be valid under the old regime as the reopening period for AY 2015-2016 had not expired by 31.03.2022.

• The respondent further argued that since an order of assessment had already been passed before the Supreme Court’s judgement in Union of India v. Ashish Agarwal[iii], there was no need to retrace the steps and issue a notice under Section 148A(b) of the Act. To support this argument, the respondent relied on the decision of the Court in Anindita Sengupta v. Assistant Commissioner of Income Tax[iv].

• The petitioner made additional submissions stating that the notice was issued for an amount below the Rs. 50 lakh threshold for reassessment under the amended s. 149(1)(b) of the Act, thereby rendering the reassessment invalid.

• Lastly, the petitioner raised the issue of approval by the appropriate authority as mandated under s. 151 of the Act for the reassessment notice. It was argued that the approval was granted by the Joint Commissioner, a level of authority that was not competent under the amended provisions of s. 151.

Held

• The Delhi High Court allowed the writ petition filed by the petitioner and quashed the impugned notice dated 31.03.2021 (digitally signed on 09.04.2021) referable to s. 148 of the Act and the final assessment order passed on 31.03.2022 on the ground that it was based on an invalid reassessment notice.

• It examined the validity of the notice issued under s. 148, particularly in light of the amended reassessment provisions of s. 148A, introduced by the FA2021. It relied on the decision of Suman Jeet Agarwal (supra) to rule that the date of the notice under s.148 should be considered as the date on which the digital signature was affixed (09.04.2021) rather than the date mentioned in the notice (31.03.2021).

• On the issue of validity of the reassessment notice issued under s. 148, the Court examined the impact of the Supreme Court’s judgements in Ashish Agarwal (supra) and Union of India v. Rajeev Bansal[v] and found that the Supreme Court’s directions in these cases, particularly with respect to the legal fiction of notices being treated under s. 148A(b) of the Act applied to notices issued after 01.04.2021. In view of the same, the Court held that while the respondents had followed some procedural steps, they had failed to fully comply with the amended requirements.

• Thus, the Court held that the reassessment notices issued post 01.04.2021 should have followed the procedure outlined under s. 148A of the Act, including the issuance of show-cause notices and provision of relevant material to the assessee. The respondent’s failure to follow this procedure rendered the notices invalid.

• On the issue of the validity of the assessment order, the Court disagreed with the respondent’s argument that no retracing of steps was needed since the assessment order had already been passed before the Ashish Agarwal (supra) judgment. The Court clarified that the assessment order in this case was made based on the interim liberty granted by the Court and, therefore, could not be considered final. It highlighted that such an order remained inchoate and was contingent on the outcome of the writ petition. The Court distinguished this case from Anindita Sengupta (supra), where a final assessment had already been passed before the Ashish Agarwal (supra) ruling. In the present case, the interim order did not carry the same finality. Consequently, the Court ruled that the reassessment procedure had to comply with the amended provisions, including s. 148A of the Act.

• The Court also considered the revised monetary threshold for reassessment notices, introduced under s. 149(1)(b) of the Act, as amended by the FA2021 and noted that the income alleged to have escaped assessment (Rs. 46,17,000) was below the Rs. 50 lakh threshold required for reassessment. Consequently, the Court held that the reassessment notice could not be sustained based on the threshold criteria.

• Lastly, on the issue of approval for the reassessment, the Court, while citing Rajeev Bansal (supra), held that the approval granted by the Joint Commissioner was insufficient under the amended s. 151 of the Act, which required higher-level authority for reassessment actions commenced after 01.04.2021. Thus, it was held that the respondent’s failure to obtain approval from the correct authority invalidated the reassessment notice.

Our Analysis

The ruling provides a critical examination of the procedural changes introduced by the FA2021, specifically in relation to the reassessment process under the Act. The judgment reinforces the need for strict compliance with the newly amended provisions, for reassessment notices issued post 01.04.2021.

A key aspect of the decision was the application of the legal fiction outlined in Ashish Agarwal (supra), which treated notices issued under the old regime as show-cause notices under s. 148A(b) of the Act. The legal fiction was crucial in determining the procedural requirements, particularly in terms of ensuring the assessee is furnished with the relevant information. The Court’s interpretation highlights how such legal fictions are to be treated strictly within their intended scope to ensure fairness to both the assessees and the Revenue. The application of the legal fiction to reassessment notices ensured that the assessees were afforded due process, enabling them to challenge jurisdictional issues effectively.

The decision also reinforces the importance of jurisdictional compliance, especially with regard to s. 151 approval. The Court aligned with the Rajeev Bansal (supra) judgment in asserting that reassessment notices could only be valid if approved by the appropriate authority. This approach ensures that the power to initiate reassessments is exercised within the boundaries of the statutory framework, safeguarding taxpayers from arbitrary actions by lower-level officers. By striking down the Joint Commissioner’s approval, the Court affirmed that the hierarchy of authority specified in the amended provisions must be adhered to, reinforcing the checks and balances essential to maintaining fairness in tax administration.

Lastly, the decision clarifies that the revised provisions regarding the pecuniary threshold and the timelines for issuing reassessment notices are not only beneficial to the assessees but also provide a safeguard against the reopening of completed assessments under dubious procedural circumstances.

End Notes

[i] 2025 SCC OnLine Del 149.

[ii] 2022 SCC OnLine Del 3141.

[iii] (2023) 1 SCC 617.

[iv] 2024 SCC OnLine Del 2296.

[v] 2024 SCC OnLine SC 2693.

Authored by Prashant Singh, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.