Income-tax Reassessment after 1 April 2021: SC’s Final Word (Ashish Agarwal Case)

Introduction

Reassessment under the Income-tax Act, 1961 is a power given to the Assessing Officer to reopen a completed assessment where income has escaped assessment. For many years, this power was governed by sections 147 to 151 in their old form. However, with effect from 1 April 2021, the entire reassessment mechanism was substantially overhauled by the Finance Act, 2021.

The objective of the new law was clear — to bring transparency, accountability, and procedural fairness into reassessment proceedings. A new section 148A was introduced, making it mandatory for the Assessing Officer to give the assessee an opportunity of being heard before issuing a notice under section 148. At the same time, stricter time limits under section 149 and higher-level approval requirements under section 151 were prescribed.

Despite this clear legislative change, a large number of reassessment notices under the old section 148 were issued by the tax department even after 1 April 2021, relying on relaxation notifications issued during the COVID-19 period. This led to widespread litigation across the country. Several High Courts quashed these notices, holding that once the new law came into force, the old reassessment provisions ceased to operate.

To resolve the resulting uncertainty and conflicting High Court decisions, the matter finally reached the Supreme Court in the case of Union of India v. Ashish Agarwal. The judgment delivered by the Supreme Court is now considered the final word on how reassessment notices issued after 1 April 2021 are to be treated under the Income-tax Act.

This article explains the new income-tax reassessment framework, the Supreme Court’s ruling, and its practical impact on taxpayers and the tax department.

New Income tax Reassessment After 1 April 2021

With effect from 1 April 2021, the reassessment provisions under the Income-tax Act, 1961 were completely substituted by the Finance Act, 2021. The earlier framework under sections 147 to 151 (old law) was replaced with a new, structured procedure, aimed at reducing arbitrary reopening of completed assessments.

Shift in legislative approach

Under the old law, the Assessing Officer could issue a notice under section 148 based on a “reason to believe” that income chargeable to tax had escaped assessment. Over time, this power was frequently challenged for being exercised mechanically, often without adequate disclosure of reasons or meaningful opportunity to the assessee.

The new reassessment law marks a clear shift from discretionary power to procedural discipline.

Section 147 – Income escaping assessment

Section 147 continues to be the charging provision for reassessment. However, after 1 April 2021, it operates subject to strict compliance with sections 148, 148A, 149 and 151. The Assessing Officer can no longer reopen an assessment merely on suspicion or borrowed satisfaction.

Section 148 – Issue of notice

Under the new regime, a notice under section 148 cannot be issued directly. It can be issued only after the Assessing Officer follows the mandatory procedure laid down in section 148A and records satisfaction through a speaking order.

This change ensures that reassessment is no longer a unilateral action.

Section 148A – Heart of the new reassessment law

Section 148A is the most significant reform in the reassessment process. It requires the Assessing Officer to:

1. Conduct an enquiry, if required, with prior approval of the specified authority
2. Provide the assessee with information suggesting escapement of income
3. Give the assessee an opportunity of being heard by issuing a show-cause notice
4. Pass a reasoned order under section 148A(d) deciding whether reassessment should be initiated

This provision makes natural justice an integral part of reassessment proceedings.

Section 149 – New limitation period

Under section 149, the time limit for reopening an assessment has been substantially curtailed. As a general rule, reassessment proceedings cannot be initiated beyond three years from the end of the relevant assessment year.

Reopening beyond three years and up to ten years is permitted only where the Assessing Officer possesses information suggesting that income chargeable to tax, exceeding ₹50 lakh, has escaped assessment and is represented in the form of an asset, as explained under section 149.

This change protects taxpayers from indefinite exposure to reassessment and ensures that reopening of completed assessments is subject to strict statutory safeguards.

For the purposes of section 149, the term “asset” has been given an extended meaning under the Explanation. It is not restricted only to immovable property.

As per the Explanation to section 149, the expression “asset” includes:

1. Immovable property, being land or building or both
2. Shares and securities
3. Loans and advances
4. Deposits in bank accounts

Accordingly, for reassessment beyond three years and up to ten years to be valid, the Assessing Officer must possess information suggesting that income chargeable to tax exceeding ₹50 lakh has escaped assessment and is represented in any of the above forms of assets.

Section 151 – Approval by specified authority

The requirement of sanction has been strengthened. Approval must now be obtained from a specified authority, which varies depending on the number of years elapsed from the relevant assessment year. This ensures accountability at senior levels before reopening assessments.

Objective of the new reassessment regime

The overall intent of the new law is to:

• Reduce unnecessary litigation
• Prevent mechanical reopening of assessments
• Ensure fairness, transparency, and accountability
• Balance revenue interests with taxpayer rights

However, despite this clear statutory framework, reassessment notices issued after 1 April 2021 under the old law became the root cause of major litigation — which ultimately led to the Supreme Court’s intervention.

Supreme Court Ruling: Union of India v. Ashish Agarwal (2022)

From 1 April 2021 onwards, reassessment under the Income-tax Act is governed by the new framework introduced by the Finance Act, 2021. However, the Income-tax Department continued to issue reassessment notices under the old section 148, relying on the extension of time limits granted during the COVID-19 period under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.

This action triggered widespread litigation across the country. Several High Courts examined the validity of such notices and consistently held that once the new reassessment provisions came into force, the old reassessment law ceased to apply. Accordingly, reassessment notices issued under the old law after 1 April 2021 were held to be invalid and without jurisdiction.

Aggrieved by these decisions, the Union of India carried the matter to the Supreme Court, resulting in the landmark judgment in Union of India v. Ashish Agarwal.

Issue before the Supreme Court

The central issue before the Supreme Court was whether reassessment notices issued after 1 April 2021 under the old reassessment provisions could be sustained in law, merely because the time limits had been extended during the pandemic.

The Court was required to examine the interaction between the new reassessment regime introduced by Parliament and the executive relaxation notifications issued earlier.

Decision of the Supreme Court

The Supreme Court categorically held that the old reassessment provisions could not be continued or revived after 1 April 2021. Once the new law came into force, reassessment proceedings had to be governed only by the substituted provisions.

However, considering the peculiar facts and to avoid serious disruption to public revenue, the Court exercised its powers under Article 142 of the Constitution. As a one-time measure, the Court directed that all reassessment notices issued under old section 148 after 1 April 2021 shall be treated as show-cause notices under section 148A(b) of the new law.

The Assessing Officer was directed to:

• furnish the information and material relied upon,
• grant the assessee a reasonable opportunity of being heard, and
• pass a speaking order under section 148A(d) before issuing any fresh notice under section 148.

What the judgment does not validate

The Supreme Court made it expressly clear that:

• the old reassessment law was not revived,
• reassessment proceedings must strictly comply with the new statutory scheme,
• limitation under section 149 remains fully applicable, and
• each case must independently satisfy the conditions prescribed under the Act.

The judgment does not grant automatic approval to reassessment proceedings and does not prevent assessees from raising all permissible legal and factual objections, including limitation and lack of jurisdiction.

Importance of the ruling

The ruling in Ashish Agarwal is a transitional and equitable solution, not a substantive dilution of taxpayer safeguards. It reinforces that section 148A is mandatory and that reassessment proceedings must follow due process of law.

The decision now stands as the final authority on the validity of reassessment notices issued after 1 April 2021 and forms the foundation for all subsequent reassessment litigation.

Impact of the Judgment

The Supreme Court’s decision in Union of India v. Ashish Agarwal has a direct and practical impact on reassessment proceedings initiated after 1 April 2021. While the judgment provided temporary relief to the tax department, it also reaffirmed that taxpayer safeguards under the new law cannot be diluted.

Impact on reassessment notices issued after 1 April 2021

All reassessment notices issued under old section 148 after 1 April 2021 do not survive in their original form. Such notices are no longer valid as reassessment notices. Instead, they are treated only as show-cause notices under section 148A(b).

This means that:

• the earlier notice cannot directly lead to reassessment,
• the Assessing Officer must now follow the complete procedure prescribed under section 148A, and
• a fresh decision must be taken after considering the assessee’s reply.

Impact on limitation under section 149

The Supreme Court has expressly clarified that its judgment does not override the statutory limitation prescribed under section 149. Accordingly, reassessment proceedings can continue only if they satisfy the new limitation regime, including the requirement that income escaping assessment beyond three years must exceed ₹50 lakh and be represented in the form of an asset.

Accordingly:

• reassessment beyond three years from the end of the relevant assessment year is not permitted, unless
• the case satisfies the ₹50 lakh threshold and other conditions specified under section 149(1)(b).

Cases failing the limitation test remain invalid in law, notwithstanding the Supreme Court’s directions.

Impact on ongoing and pending proceedings

In cases where reassessment proceedings were kept pending due to interim orders or High Court judgments, the Assessing Officer is required to:

• supply the information and material relied upon,
• allow the assessee to file objections, and
• pass a speaking order under section 148A(d).

Any reassessment initiated without compliance with these steps is liable to be quashed.

Impact on rights of taxpayers

The judgment preserves the right of the assessee to challenge reassessment proceedings on all available grounds. Taxpayers can still raise objections relating to:

• limitation under section 149,
• absence of jurisdiction,
• lack of information suggesting escapement of income, and
• mechanical or non-reasoned orders under section 148A(d).

The Supreme Court has not curtailed the right to judicial review.

Impact on future reassessment proceedings

The ruling makes it clear that section 148A is not a procedural formality, but a mandatory safeguard. Going forward:

• reassessment without following section 148A will not survive,
• approvals under section 151 must be meaningful, and
• reassessment powers must be exercised sparingly and responsibly.

Overall effect of the judgment

The decision strikes a balance between revenue interests and taxpayer protection. While it avoids invalidation of thousands of notices on technical grounds, it also ensures that reassessment proceedings strictly adhere to the new statutory framework.

The judgment has effectively settled the law on reassessment after 1 April 2021 and will govern all future reassessment actions under the Income-tax Act.

Key Takeaways

1. New reassessment law applies from 1 April 2021
   With effect from 1 April 2021, reassessment proceedings under the Income-tax Act are governed exclusively by the substituted provisions introduced by the Finance Act, 2021. The old reassessment regime has no application beyond this date.
2. Section 148A is mandatory
   No reassessment notice under section 148 can be issued without first following the procedure prescribed under section 148A, including granting the assessee an opportunity of being heard and passing a reasoned order under section 148A(d).
3. Old section 148 notices issued after 1 April 2021 are not valid reassessment notices
   Such notices survive only because of the Supreme Court’s one-time intervention and are treated merely as show-cause notices under section 148A(b).
4. Limitation under section 149 remains fully applicable
   The Supreme Court judgment does not extend or relax statutory time limits. Reassessment beyond the prescribed period, including cases failing the ₹50 lakh threshold, remains barred by limitation.
5. Taxpayer rights are preserved
   Assessees retain the right to raise all legal and factual objections, including lack of jurisdiction, limitation, and non-compliance with section 148A. The judgment does not curtail judicial review.
6. Reassessment must now be reasoned and accountable
   Mechanical reopening of assessments is no longer permissible. Approvals under section 151 must be meaningful, and reassessment powers must be exercised in accordance with law and principles of natural justice.
7. Supreme Court ruling is a transitional solution, not a dilution of safeguards
   The decision in Union of India v. Ashish Agarwal smoothens the transition to the new law but firmly establishes that future reassessments must strictly comply with the new statutory framework.

Final Note

The Supreme Court has now settled the legal position on income-tax reassessment after 1 April 2021. Both taxpayers and tax authorities must proceed on the footing that procedural compliance is no longer optional, and reassessment is subject to strict statutory control.

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Sources & References

1. Supreme Court of India
   Union of India & Ors. v. Ashish Agarwal (2022) 444 ITR 1 (SC)
   – Landmark judgment settling the validity of reassessment notices issued after 1 April 2021 and clarifying the application of sections 148A and 149.
2. Income-tax Act, 1961 – Statutory Provisions
   Sections 147, 148, 148A, 149 and 151 as substituted by the Finance Act, 2021, including the Explanation to section 149 defining “asset”.
3. Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA)
   – Basis for extension of time limits relied upon by the tax department during the COVID-19 period.

Disclaimer:
This article is for informational and educational purposes only. It does not constitute legal or tax advice. Readers are advised to consult a qualified tax professional before taking any action based on the contents of this article.