Section 148 Reassessment After Ashish Agarwal: The Procedural Reset
The Finance Act 2021 substantially restructured the reassessment regime under the Income Tax Act, 1961. The Supreme Court's decision in Union of India v. Ashish Agarwal then complicated the question of how that restructured regime applied to notices issued in the transition period. This note maps the working position.
The pre-2021 regime
Before 1 April 2021, reassessment under Section 147 of the Income Tax Act required the Assessing Officer to have "reason to believe" that income chargeable to tax had escaped assessment, and to issue a notice under Section 148. The reasons were not required to be communicated to the assessee at the time of issue; the assessee could request the reasons after filing a return in response to the notice.
The pre-2021 regime drew sustained criticism for the absence of pre-notice procedural safeguards and the breadth of "reason to believe". The Finance Act 2021 redrew the framework.
The post-1 April 2021 regime
The amended regime introduced Section 148A, which mandates a pre-notice procedure: the Assessing Officer must conduct an enquiry under Section 148A(a), give the assessee an opportunity to be heard under Section 148A(b), and pass an order under Section 148A(d) before issuing a notice under Section 148. The "reason to believe" standard has been replaced with "information which suggests that income chargeable to tax has escaped assessment".
The limitation framework has also been overhauled. Reopening within three years requires income escapement of any amount; reopening between three and ten years requires asset-related escapement of ₹50 lakh or more (subject to specific conditions).
The transitional problem
Notices issued under the unamended regime between 1 April 2021 and the introduction of the new framework triggered immediate challenge. Multiple High Courts held that such notices were invalid — the Allahabad, Bombay, Delhi, Calcutta and Rajasthan High Courts each took variants of this position.
The Supreme Court in Union of India v. Ashish Agarwal (2022) addressed the transition. The Court held that the notices issued under the unamended regime would not be quashed; instead, they would be deemed to be notices under Section 148A(b) of the amended regime. The assessees would have the protection of the new procedural safeguards, but the notices themselves would not be invalidated for the procedural shortfall.
The post-Ashish Agarwal landscape
Ashish Agarwal effectively grafted the post-2021 procedural framework onto pre-2021 notices. The working consequence is that the Assessing Officer was required to:
- Communicate to the assessee the information underlying the notice (Section 148A(a) enquiry materials).
- Provide the assessee an opportunity to file a reply within a specified period (Section 148A(b) opportunity to be heard).
- Pass a reasoned order under Section 148A(d) deciding whether or not to issue a fresh Section 148 notice.
Where the Assessing Officer failed to comply with these steps post-Ashish Agarwal, the notice has been quashed by High Courts on the same procedural ground.
The limitation question
The most contested issue post-Ashish Agarwal has been limitation. The Supreme Court did not expressly address whether the time taken in the transition would be excluded from the limitation period. The Income Tax department's position — that the limitation period was effectively suspended during the transition — has been challenged in multiple High Courts.
The position now appears to be that the limitation period must be computed strictly under the post-2021 regime, with no automatic exclusion for the transition period. Where the transition consumed limitation, the notice is barred.
Ashish Agarwal preserved the notices but imposed the new procedural discipline. The arithmetic of limitation, however, is governed by the statute as it stood — and that arithmetic frequently fails the Department.
Working observations
For taxpayers facing reassessment notices in the transition window, three lines of attack remain available:
- Procedural compliance. Did the Assessing Officer follow the post-Ashish Agarwal protocol — Section 148A(a) enquiry, Section 148A(b) hearing, Section 148A(d) order, fresh Section 148 notice? Failure at any step is grounds for quashing.
- Limitation. Compute the limitation period strictly under the post-2021 regime. Where the period had expired before the Assessing Officer's compliance with Ashish Agarwal, the notice is barred.
- Substantive sufficiency. Does the "information" relied on by the Assessing Officer meet the post-2021 threshold? Mere suspicion, vague intelligence inputs or untested third-party material may not.
The continuing position
The Section 148 reassessment landscape continues to evolve. The Supreme Court is hearing a body of follow-on litigation on the limitation and procedural questions, and further refinement of the framework is anticipated. For now, the working position is: procedural compliance is non-negotiable; limitation is computed strictly; and the substantive sufficiency of the underlying information is a live question.