Case Note & Summary
The petitioner, a Public Sector Undertaking engaged in general insurance, challenged the reopening of its assessment for Assessment Year 2013-14. For that year, it filed an original return declaring nil income on 28 November 2013 and a revised return declaring a loss of Rs.94,06,18,248 on 9 June 2014. The return was selected for scrutiny and the Assessing Officer completed assessment under Section 143(3) on 29 February 2016, determining total income of Rs.8,70,72,56,878 after making additions of Rs.9,64,78,75,129. The Commissioner of Income Tax (Appeals) granted substantial relief on 19 March 2018, and the Income Tax Appellate Tribunal dismissed the Revenue's appeal on 11 August 2020. A first reopening under Section 148 was initiated on 30 March 2017 and culminated in a reassessment order dated 29 December 2017, adding Rs.85,65,42,069; the petitioner's appeal against that order remained pending before CIT(A). Subsequently, after the Finance Act, 2021 substituted Sections 147 to 151 and inserted Section 148A with effect from 1 April 2021, the Assessing Officer issued a notice dated 29 June 2021 under the unamended Section 148. The petitioner filed objections and, upon non-response, filed Writ Petition No.3119 of 2021. The Bombay High Court in Tata Communications Transformation Services Ltd. v. ACIT quashed such notices by common judgment dated 29 March 2022. The Supreme Court in Union of India v. Ashish Agarwal modified the High Court judgment, directing that the notices be deemed show-cause notices under Section 148A(b), that the Assessing Officer supply information and material within thirty days, that the assessee reply within two weeks, and that the Assessing Officer then pass an order under Section 148A(d) before issuing Section 148 notice; all defences including limitation under Section 149 remained available. Pursuant to this, the CBDT issued Instruction No.1 of 2022 dated 11 May 2022. The Assessing Officer then issued a notice dated 30 May 2022, mentioning a transaction with Renuka Mata State Urban Co-operative Credit Society Limited and alleged tax evasion regarding exemption. The petitioner responded on 6 June 2022 and raised objections on 14 June 2022. The Assessing Officer furnished purported reasons on 14 June 2022 and 16 June 2022. The petitioner filed detailed objections on 30 June 2022. The Assessing Officer passed an order under Section 148A(d) on 27 July 2022, accepting the petitioner's explanation regarding Renuka Mata Society and dropping that ground, but proceeded on other recorded reasons dated 8 February 2021 concerning disallowance of provisions for IBNR/IBNER as unascertained liability, disallowance of reinsurance premium ceded to foreign insurers for non-deduction of tax under Section 195 read with Section 40(a)(i), and addition of Reserve for Unexpired Risk of Rs.30,75,00,000 to book profits under Explanation 1(b) to Section 115JB. Thereafter, the impugned notice under Section 148 dated 28 July 2022 was issued. The petitioner contended that the reopening was illegal, without jurisdiction, arbitrary, in violation of natural justice, and ultra vires the Act, as the mandatory procedure under the amended provisions was not followed, the information and material were vague and incomplete, and no income had escaped assessment. The available excerpt of the judgment ends at paragraph 12 while discussing the reasons dated 8 February 2021, and therefore the final decision of the High Court is not ascertainable from the provided text.
Headnote
A) Income Tax - Reassessment Procedure - Mandatory compliance with amended Sections 147-151 and 148A - Income Tax Act, 1961 Sections 147, 148, 148A, 149, 151 - The Assessing Officer issued reopening notice dated 29 June 2021 under unamended Section 148 after 1 April 2021, contrary to the substituted procedure; the High Court quashed such notices but the Supreme Court in Union of India v. Ashish Agarwal modified the judgment, treating the notice as a show-cause notice under Section 148A(b) and directing the Assessing Officer to supply information and consider reply before passing order under Section 148A(d) (Paras 6-7).
B) Constitutional Law - Article 142 Directions - Supreme Court's remedial order in Ashish Agarwal - Constitution of India Article 142 - The Supreme Court exercised Article 142 to modify High Court judgments, deeming Section 148 notices as show-cause notices under Section 148A(b), requiring AO to provide information within 30 days and assessee to reply within two weeks, and dispense with prior approval enquiry as one-time measure (Paras 7-8).
C) Administrative Law - CBDT Instruction No.1 of 2022 - Validity of CBDT Instruction - Income Tax Act, 1961 - Petitioner challenged Instruction No.1 of 2022 as illegal, ultra vires, arbitrary; the court was to examine whether the instruction correctly implemented Supreme Court judgment or exceeded statutory authority (Paras 1, 8).
D) Income Tax - Reopening grounds - IBNR/IBNER, reinsurance premium, URR - Income Tax Act, 1961 Sections 147, 148, 195, 40(a)(i), 115JB Explanation 1(b) - The recorded reasons dated 8 February 2021 sought to disallow provisions for IBNR/IBNER as unascertained liability, disallow reinsurance premium ceded to foreign insurers for non-deduction of tax under Section 195 read with Section 40(a)(i), and add back Reserve for Unexpired Risk to book profits under Explanation 1(b) to Section 115JB; these issues formed the basis of the impugned reopening (Paras 10-12).
E) Income Tax - Reassessment after prior scrutiny - Change of opinion - Income Tax Act, 1961 Sections 147, 148 - Petitioner contended that no income escaped assessment as the issues were already examined in original assessment and first reassessment, and reopening was based on change of opinion; respondent maintained there was tangible material (Paras 4-5, 10-12).
Issue of Consideration
Whether the reopening notice dated 28 July 2022 issued under Section 148, the order dated 27 July 2022 under Section 148A(d), and CBDT Instruction No.1 of 2022 dated 11 May 2022 are legal, valid, and in accordance with the substituted provisions of Sections 147-151 and 148A of the Income Tax Act, 1961.
Final Decision
The excerpt of the judgment provided does not contain the final operative decision; the available text ends at paragraph 12 while discussing the respondent's order under Section 148A(d) and the reasons dated 8 February 2021. Therefore, the final holding of the Bombay High Court is not available in the provided material.
Law Points
- Reopening under Section 148 must follow amended procedure under Finance Act 2021
- notices under unamended Section 148 after 1 April 2021 deemed show-cause under Section 148A(b)
- Assessing Officer must provide information and consider objections before passing order under Section 148A(d)
- CBDT Instruction must conform to statutory provisions and Supreme Court judgment
- all defences under Section 149 remain available
Case Details
2024 LawText (BOM) (01) 207
Writ Petition No. 1945 of 2023
K. R. Shriram, Dr. Neela Gokhale
Mr. P.J. Pardiwalla, Senior Advocate with Mr. Harsh Kapadia i/b Mr. Atul K. Jasani for petitioner; Mr. Akhileshwar Sharma for respondents
The New India Assurance Company Limited
Assistant Commissioner of Income Tax Circle-3(2)(1), Mumbai; The Principal Chief Commissioner of Income Tax, Mumbai; Union of India
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Nature of Litigation
Writ petition under Article 226 of the Constitution of India challenging reassessment proceedings and CBDT Instruction.
Remedy Sought
Petitioner sought quashing of notice dated 28 July 2022 under Section 148, order dated 27 July 2022 under Section 148A(d), and CBDT Instruction No.1 of 2022 dated 11 May 2022, as illegal, without jurisdiction, arbitrary, in violation of natural justice, and ultra vires the Income Tax Act, 1961.
Filing Reason
Reopening of assessment for AY 2013-14 despite prior scrutiny and first reassessment, allegedly without following the mandatory procedure under the amended provisions introduced by Finance Act 2021, and based on vague and impermissible reasons.
Previous Decisions
Original assessment completed under Section 143(3) on 29 February 2016; CIT(A) allowed substantial relief on 19 March 2018; ITAT dismissed Revenue appeal on 11 August 2020; first reassessment order dated 29 December 2017 added Rs.85,65,42,069; appeal against reassessment pending before CIT(A); earlier writ petition No.3119 of 2021 disposed of by common judgment dated 29 March 2022 in Tata Communications Transformation Services Ltd. v. ACIT quashing the notice; Supreme Court in Union of India v. Ashish Agarwal modified the High Court judgment and directed treating the notice as a show-cause notice under Section 148A(b).
Issues
Whether the reopening notice dated 28 July 2022 under Section 148 was issued after valid compliance with the procedure under Sections 147, 148A, 149 and 151 of the Income Tax Act, 1961?
Whether the order dated 27 July 2022 passed under Section 148A(d) was vitiated by non-consideration of material objections and violation of principles of natural justice?
Whether CBDT Instruction No.1 of 2022 dated 11 May 2022 was ultra vires the Income Tax Act and contrary to the Supreme Court's judgment in Ashish Agarwal?
Whether the reasons recorded for reopening, including disallowance of IBNR/IBNER provisions, reinsurance premium for non-deduction of tax, and addition of Reserve for Unexpired Risk to book profits, constituted valid reasons to believe that income had escaped assessment?
Submissions/Arguments
Petitioner argued that the reopening notice, order under Section 148A(d), and CBDT Instruction were illegal, without jurisdiction, arbitrary, ultra vires, and violative of natural justice; respondent failed to follow the substituted procedure under Finance Act 2021; the notice dated 29 June 2021 was issued under unamended provisions and therefore invalid; the so-called information and material were vague, incomplete, and never communicated before; no income escaped assessment as the issues were already examined in original and first reassessment; and the reasons dated 8 February 2021 were communicated only on 14 June 2022 without underlying information.
Revenue contended that there were reasons to believe that income for AY 2013-14 escaped assessment; the reasons included disallowance of provisions for IBNR/IBNER as unascertained liability, disallowance of reinsurance premium ceded to foreign insurers for non-deduction of tax under Section 195 read with Section 40(a)(i), and addition of Reserve for Unexpired Risk of Rs.30,75,00,000 to book profits under Explanation 1(b) to Section 115JB; Revenue also alleged a transaction with Renuka Mata State Urban Co-operative Credit Society Limited and tax evasion regarding exemption, but later accepted the assessee's explanation and dropped that ground; respondent maintained that the Supreme Court's Ashish Agarwal judgment permitted re-initiation as a show-cause notice under Section 148A(b).
Ratio Decidendi
Not mentioned in the provided excerpt; however, the court noted the Supreme Court's direction in Union of India v. Ashish Agarwal that reopening notices issued under unamended Section 148 after 1 April 2021 are to be deemed as show-cause notices under Section 148A(b), with a requirement for the Assessing Officer to supply information and material relied upon, consider the assessee's reply, and pass an order under Section 148A(d) before issuing a valid Section 148 notice; all defences including limitation under Section 149 remain available.
Judgment Excerpts
The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of section 148A(b).
All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.
Petitioner is a Public Sector Undertaking operating under the control of Ministry of Finance, Government of India, viz., respondent no.3. Petitioner is engaged in the business of General Insurance in India and outside India.
Respondent no.1 without following the statutory procedure stipulated under Sections148, 148A, 149 and 151 of the Act, issued the notice dated 29 th June 2021 under Section 148 of the Act, seeking to reopen petitioner's assessment for AY 2013-14.
Procedural History
Original return for AY 2013-14 filed on 28 November 2013 declaring NIL income; revised return filed 9 June 2014 declaring total loss of Rs.94,06,18,248; scrutiny assessment completed under Section 143(3) on 29 February 2016 with total income of Rs.8,70,72,56,878; appeal to CIT(A) disposed on 19 March 2018 granting substantial relief; Revenue appeal to ITAT dismissed on 11 August 2020; first reopening notice dated 30 March 2017 led to reassessment order dated 29 December 2017 adding Rs.85,65,42,069 and reassessing total income at Rs.9,56,37,98,947; petitioner filed appeal on 29 January 2018 before CIT(A), which remained pending; after Finance Act 2021, respondent issued notice dated 29 June 2021 under unamended Section 148; petitioner's objections dated 26 July 2021 were not responded to, leading to Writ Petition No.3119 of 2021; High Court by common judgment dated 29 March 2022 in Tata Communications quashed the notice; Supreme Court in Union of India v. Ashish Agarwal on 4 May 2022 modified the judgment and directed treating the notice as show-cause under Section 148A(b); CBDT issued Instruction No.1 of 2022 dated 11 May 2022; respondent issued notice dated 30 May 2022 with allegations regarding Renuka Mata Society and tax evasion; petitioner replied on 6 June 2022 and raised objections on 14 June 2022; respondent furnished reasons on 14 June and 16 June 2022; petitioner filed detailed objections on 30 June 2022; respondent passed order under Section 148A(d) on 27 July 2022 dropping the Renuka Mata ground but proceeding on other reasons; impugned notice under Section 148 dated 28 July 2022 was issued; present writ petition filed challenging the notice, order, and CBDT Instruction.
Acts & Sections
- Income Tax Act, 1961: 139(1), 143(2), 143(3), 147, 148, 148A, 149, 151, 195, 40(a)(i), 115JB, 246A, 253
- Companies Act, 1956: 4A
- Constitution of India: Article 142
