Modified Income Tax Reassessment Proceedings under Finance Act 2021 ignored while issuing Notice: Telangana HC sets aside Notice [Read Order]

The Telangana High Court set aside the notice and consequential income tax orders as it was issued without complying with the modified income tax reassessment proceedings as per Finance Act 2021. The income tax department contravened the  Finance Act, 2021, and the Supreme Court's directives in the Ashish Agarwal case.

The counsel for the petitioner-assessee submitted that  in furtherance of Finance Act, 2021, reassessment process stood modified but the respondents have not taken care of it and therefore notices issued under Section 148 of the Income Tax Act, 1961 cannot sustain judicial scrutiny. Since notices are bad in law, the consequential orders are also bad in law.

During the hearing, the counsel for both parties acknowledged that the issue was conclusively addressed by the Court in a batch of writ petitions, including W.P.No.25903 of 2022, decided by a common order on September 14, 2023. The parties agreed to dispose of the current matter based on the precedent set by the common order.

This same Court in the said order dated 14.09.2023 in W.P.No.25903 of 2022 , held as under:

“... it is by now very clear that the procedure to be followed by the respondent-Department upon treating the notices issued for reassessment being under Section 148A, the subsequent proceedings was mandatorily required to be undertaken under the substituted provisions as laid down under the Finance Act, 2021. In the absence of which, we are constrained to hold that the procedure adopted by the respondent-Department is in contravention to the statute i.e. the Finance Act, 2021, at the first instance. Secondly, it is also in direct contravention to the directives issued by the Hon’ble Supreme Court in the case of Ashish Agarwal, supra.

For all the aforesaid reasons, the impugned notices issued and the proceedings drawn by the respondent-Department is neither tenable, nor sustainable. The notices so issued and the procedure adopted being per se illegal, deserves to be and are accordingly set aside/quashed. As a consequence, all the impugned orders getting quashed, the consequential orders passed by the respondent Department pursuant to the notices issued under Section 147 and 148 would also get quashed and it is ordered accordingly. The reason we are quashing the consequential order is on the principles that when the initiation of the proceedings itself was procedurally wrong, the subsequent orders also gets nullified automatically.”

Thus, based on the above mentioned decision by the same Telangana High Court, the bench of Justices Sujoy Paul and N. Tukaramji set aside the impugned show cause notices and consequential orders.

The Court granted liberty to both parties to take their respective stands and proceed in accordance with the law, as outlined in paragraph No.38 of the order dated September 14, 2023, in W.P.No.25903 of 2022.

Paragraph 38 of the mentioned precedent states that the Supreme Court, in the case of Ashish Agarwal, as a one-time measure exercising its powers under Article 142 of the Constitution of India, allowed the Revenue to proceed under the substituted provisions. Given that this Court allowed the petitions based on a procedural flaw, the Revenue retains the right to proceed further if they choose to do so, starting from the stage of the Supreme Court's order in the case of Ashish Agarwal.

The writ petitions were allowed with no costs, and any pending interlocutory applications were also closed.

To Read the full text of the Order CLICK HERE

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