As discussed in our earlier write up in the March 2023 edition of ‘What’s Up in Tax!’, the Hon’ble Supreme Court (‘SC’) in the case Union of India v. Ashish Agarwal^[1] (‘Agarwal Judgment’) held that the Revenue Department on the basis of the notifications^[2] has issued notices for reassessment under the erstwhile provisions, which is a bona fide mistake, and has revived the reassessment proceedings for all the cases.  However, while reviving reassessment proceedings, the SC in its wisdom also clarified that all defences would be available to the taxpayers, including that of the limitation under Section 149 of the Income-tax Act, 1961 (‘IT Act’), as available under the new regime. To briefly recapitulate, the new reassessment regime was made effective from April 1, 2021. Consequently, the reassessment notices issued on or after April 1, 2021, must adhere to the new reassessment regime.

While introducing the new reassessment regime, the Legislature in its wisdom and to avoid protracted litigation for the period prior to April 1, 2021, inserted a proviso to Section 149 of the IT Act, which prevents initiation of proceedings under the new law where such a notice could not have been issued under Section 148 of the IT Act, as unamended. Under the unamended law the reassessment proceedings could be issued up to a period of four years from the end of the relevant assessment year and six years where the proviso to Section 147 of the IT Act was not applicable. The Hon’ble Karnataka High Court (‘Karnataka HC’) recently dealt with this issue of limitation in a case,^[3] which was revived post the decision of the SC in the Agarwal Judgment pertaining to Assessment Year 2014-15 where such a notice was issued on June 30, 2021.

The Karnataka HC held that under the amended provisions, the time period for issuance of notice under Section 149(1)(a) of the IT Act is three years and which expired on March 31, 2018, for Assessment Year 2014-15 rendering the proceedings barred by limitation.  While examining the impact of the proviso (as contained in the amended provisions of Section 149 of the IT Act) the Karnataka HC held that where a notice could not have been issued under the old law, the extended period of limitation under the amended law would not be available. On facts, the Karnataka HC found that the proviso to Section 147 of the old law was applicable as there was no failure on the part of the taxpayer to disclose fully and truly any material fact relating to its original assessment.

[1] Union of India v. Ashish Agarwal, [2022] 444 ITR 1 (SC).

[2] Notification No. 35/2020 dated 30.06.2020; Notification No. 93/2020 dated 31.12.2020; Notification No. 20/2021 dated 31.03.2021 & Notification No. 38/2021 dated 27.04.2021.

[3] Azim Premji Trustee Co. P. Ltd. v. DCIT, [2023] 146 taxmann.com 58 (Karnataka).