Ruling in Ashish Agarwal Case applies Only to Defective Income Tax Notices, Not to Reopening Closed Assessment: Supreme Court [Read Order]

The Supreme Court held that the ruling in Union of India v. Ashish Agarwal applies only to defective reassessment notices issued under the Income Tax Act, 1961, and does not authorise the reopening of assessments that have already attained finality.

The case arose from reassessment proceedings initiated by the Income Tax Department against United Associates and another assessee for the Assessment Year 2016-17. The Department issued notices under Section 148 in June and July 2022, followed by orders under Section 148A(d) seeking to reopen assessments that had already been concluded.

The reassessment action was justified by the Department based on its reading of the Supreme Court’s judgment in Ashish Agarwal.

Aggrieved by the reassessment notices and orders, the assessees approached the Delhi High Court. They argued that their assessments had already attained finality and that the judgment in Ashish Agarwal dealt only with defective reassessment notices issued after the Finance Act, 2021, and not with reopening of completed assessments.

Before the Delhi High Court, the Revenue argued that the Supreme Court’s directions in Ashish Agarwal permitted the Department to proceed with reassessment under the substituted provisions of law. It was argued that the judgment allowed the Revenue to cure procedural defects and continue reassessment proceedings.

The Division Bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav observed that the Ashish Agarwal judgment was confined to cases where reassessment notices had been quashed by High Courts because they were issued under the unamended law.

The High Court observed that the Supreme Court never intended to reopen assessments that had already attained finality. It explained that the judgment could not be read as turning back the clock or reversing completed proceedings, especially in cases where the assessee had not challenged the original notices.

The Delhi High Court also observed that its conclusion was supported by its earlier decision in Anindita Sengupta v. Assistant Commissioner of Income Tax, which had taken the same view on the limited scope of Ashish Agarwal. Since the Department had not appealed against that earlier judgment, the High Court held that there was no justification for reopening concluded assessments by issuing fresh notices.

The Income Tax Department challenged the Delhi High Court’s decision before the Supreme Court. The appeal was filed with a delay of more than 300 days.

A Bench of Justice Pankaj Mithal and Justice S.V.N. Bhatti observed that the impugned High Court order was based on an earlier Delhi High Court judgment which the Department had accepted and not challenged. The court observed that once the Revenue had chosen not to appeal against that earlier judgment, it could not reopen the same legal issue through a subsequent appeal.

In view of the unexplained delay and the merits of the case, the Supreme Court dismissed the Revenue’s appeal and upheld the Delhi High Court’s order.

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