Challenging Income Tax Reassessment Notices under Section 148: Procedural Lapses, Supreme Court Guidelines, and Judicial Review under Article 226

Challenging Income Tax Reassessment Notices under Section 148: Procedural Lapses, Supreme Court Guidelines, and Judicial Review under Article 226

Author – Saachi Srivastava

Abstract

The reassessment process envisaged under the Income Tax Act, 1961, has assumed significant importance in the context of maintaining the balance between revenue collection and taxpayer rights. While the 2021 Finance Act sought to bring about this shift by providing for an objective approach through Section 148A, certain procedural weaknesses have come to light, such as lack of reliance material, ambiguous order, and non-compliance with the automated faceless scheme. This paper attempts to analyse these weaknesses from the point of view of landmark cases of the Supreme Court such as Union of India v. Ashish Agarwal (2022) and Union of India v. Rajeev Bansal (2024). Furthermore, the power of the High Court under Article 226 of the Constitution of India shall be discussed.

 

Introduction: Reassessment Power vs. Taxpayer Safeguards under the Post-2021 Scheme

The reopening powers of the Revenue through Section 147 of the Income Tax Act, 1961, have been a matter of conflict with the rights of taxpayers in the past. Before April 1, 2021, the procedure was dependent on the discretionary power of the Assessing Officer, which led to arbitrariness in the opening of cases and litigation. However, the Finance Act, 2021 brought about changes in the system by inserting Section 148A and making amendments in other sections. It was intended to bring objectivity in the pre-check process instead of subjective discretion in order to strengthen the rights of taxpayers through information and objections prior to proceeding under Section 148.

The implementation of the revised scheme has seen administrative problems arising, especially from the conduct of the Assessing Officers. The officers have been observed to make procedural mistakes like a lack of reliance on documents, insufficient time period for responding, and mechanical imposition of sanctions without taking note of the faceless requirement set out in Section 151A. Compliance with these procedures is necessary to ensure that the officers make a legitimate exercise of their reassessment powers; thus, this issue raises more than mere administrative problems but rather questions the jurisdiction of the officers. This essay explores the procedural weaknesses present in Section 148 notices, analyses these weaknesses against the standard set out in the Supreme Court’s guidelines, and discusses how the High Courts use their writ jurisdiction under Article 226 to strike down reassessment proceedings.

 

Statutory Mechanics of Section 148A: The Mandatory Shifted Burden on the Revenue

The inclusion of Section 148A of the Income Tax Act 1961 has transformed the process of reassessment in direct taxes by bringing it under the purview of a quasi-judicial procedure that is monitored in nature instead of being an administrative discretion that has revenue generation as its aim. Till March 31, 2021, the Assessing Officer had the liberty to issue a notice under Section 148 based on personal belief and leave the assessees to take action after filing returns.

1. Phase I (Revenue Duty): The Assessing Officer should have “valid information” concerning escapement and should serve a Show Cause Notice in accordance with Section 148A(b), along with complete disclosures.
2. Phase II (Assessee Right): The taxpayer is entitled to the statutory right of obtaining underlying essential information and investigation reports, along with a guaranteed minimum seven days’ period of response.
3. Phase III (Order Stage): The Revenue must issue a “speaking order” taking into account the objections of the assessee, and such orders are susceptible to judicial scrutiny under Article 226.

Through the statutory procedure established under Section 148A, the Parliament has created a condition precedent for jurisdiction. The reopening of an assessment is not an ex parte administrative decision anymore, wherein the primary duty of the Revenue lies in proving the existence of a prima facie case of income escapement through information.

 

Violations under Section 148A(b): The Show Cause Stage

Under Section 148A(b), the AO must issue an SCN against the assessee before issuing the Section 148 notice, on the basis of the information indicating escapement. But the fact is that at this very initial stage, the revenue authorities often make basic procedural errors.

 

Failure to Share Underlying Material

There exists a procedural flaw in Section 148A(b) notices in relation to the practice of furnishing vague summaries along with non-disclosure of critical information, such as Insight Portal information and audit notes by the Revenue Department. The High Courts have dismissed the claim by the Revenue Department that furnishing summaries alone is enough, since it would be essential for the evidential basis of such claims. This amounts to a violation of the Audi Alteram Partem rule since the underlying document is necessary to allow for an effective response. In Union of India v. Ashish Agarwal (2022), it was made clear by the Supreme Court that this material is necessary in order to hold a fair trial.

 

Unreasonable Timelines

Clause (b) of Section 148A clearly requires that the AO should allow a response period “not being less than seven days and but not exceeding thirty days” after serving the notice.

• Strict Statutory Floor: The requirement for the minimum 7-day rule is a mandatory statutory floor and cannot be treated as a flexible guideline. Offering fewer than 7 days (for example, by serving an SCN which allows 3-4 days for responding) will amount to a statutory breach.
• Service vs. Issuance: The 7 days should be calculated from the day the assessee receives or the day when the notice is actually served on him, and not from the day when the notice was prepared and issued internally by the AO.
• Judicial Impact: In High Courts, writ petitions for Certiorari will normally be filed where there is a failure to offer the minimum statutory period of 7 days. Without such period, the AO loses his jurisdiction to proceed further under clause (d) of Section 148A.

 

Violations under Section 148A(d): The Order Stage

When an assessee raises objections as per Section 148A(c), then Section 148A(d) provides that the AO shall consider whether it is a fit case to serve a notice u/s 148, depending on the facts available on the record, including the assessee’s reply.

 

Passing Non-Speaking and Template Orders

The Section 148A(d) order is a quasi-judicial process that impacts the taxpayer because of the resultant reassessment. But the orders under Section 148A(d) are prepared using standard templates and thus lead to procedural mistakes. Taxpayers, who provide facts and evidence that the transactions which were identified are not income, receive a perfunctory response from the AOs, claiming that the evidence has been taken into consideration but was deemed inconclusive, and the case continues with the issuance of the Section 148 order. The High Courts have rejected non-speaking template orders because such acts by the AOs are deemed a jurisdictional defect.

 

Statutory Mechanics of Improper Sanctions & Faceless Non-Compliance

Two important flaws within jurisdiction in the post-2021 scheme include a violation of the statutory sanction provision of Section 151 and failure to comply with faceless assessment provisions of Section 151A. When such violations occur, the Assessing Officer does not have the jurisdiction to make any notice under Section 148 void.

 

Improper Sanctions under Section 151

As per the provisions of the Income Tax Act, the Assessing Officer has no power to review the assessment independently. In this regard, Section 151 makes it clear that approval by a “Specified Authority” is essential.

A) Wrong Sanctioning Authority

Section 151 mentions the “Specified Authority” based on the period that has passed from the Assessment Year (AY). In case the period has been 3 years or less, the approval must be taken from the Principal Commissioner, Commissioner, Principal Director, or Director. However, if the period exceeds 3 years, the approval is to be taken from a higher authority, which includes the Principal Chief Commissioner, Chief Commissioner, Principal Director General, or Director General. It often happens that in case of reassessment after 3 years, the approval is taken from lower authorities. However, there is a misconception in relation to TOLA wherein the revenue authorities claim that through the provision of extension in TOLA, the Joint Commissioners were able to authorise such acts beyond the 3-year deadline. But High Courts have consistently held that even if the TOLA extends the deadline, it does not affect the hierarchy of the sanctioning officers prescribed under Section 151. Hence, the act of the lower-ranking officer in authorising something without prior authorisation from a higher-tier officer is inherently jurisdictional, thus invalidating the Section 148 notice.

B) Mechanical Approvals & Lack of Mind Application

Sanction as Per Section 151 Is a Quasi-Judicial Process: The sanctioning authority has to independently scrutinise the record and decide as to whether the same is a “fit case” for giving the notice.

• Rubber-Stamped Approvals: In practice, sanctioning authorities often add standard, one-line endorsements like “Yes, I am satisfied,” “Approved” or “Fit case”.
• Principle of Chhugamal Rajpal: There is now a well-established line of jurisprudence, as seen in recent Section 148A cases, like Chhugamal Rajpal v. S.P. Chaliha, where a purely mechanical signature is held to be a lack of independent judgment.
• Judicial Outcome: When the record reveals that the Sanctioned Authority gave sanction to the proposals of the AO despite there being inconsistencies in the record, or lack of documents, or the time-bar objections of the assessee, the sanction will be legally invalid. Failure of a valid sanction will render the AO jurisdictionally incompetent.

 

Non-Compliance with Faceless Assessment Mandates (Section 151A)

In order to avoid personal interaction, to curb corruption, and to make the process of reassessment more transparent, Section 151A was enacted, which gives power to the CBDT to issue schemes for the purposes of automatic reassessment procedures.

Under Section 151A, the Central Government has issued the e-Assessment of Income Escaping Assessment Scheme, 2022. As per the said scheme, notices issued under Section 148 and the enquiries conducted under Section 148A have to be done through automatic central allocation conducted by NaFAC.

 

Jurisdictional Challenge: JAO vs. NaFAC

The JAOs have started sending out the notices through Section 148 without recourse to the faceless mode of notice as mandated through the NaFAC process. The Revenue claims that the JAOs enjoy the territorial jurisdiction in sending out these notices in respect of Section 148, while the taxpayers claim that as per Section 151A, there is an obligation to send out these notices in a faceless manner. Several High Court decisions through Articles 226 on judicial review have declared the notices sent out by the JAOs without recourse to the faceless mode of Section 151A as illegal for lack of jurisdiction.

 

Summary Matrix of Primary Procedural & Jurisdictional Lapses

Stage / Aspect	Statutory Provision	Nature of Administrative Lapse	Primary Judicial Consequence
Show Cause Stage	Section 148A(b)	Failure to furnish the underlying report, statement or reliance material.	Breach of natural justice (Audi Alteram Partem); taints SCN.
Response Window	Section 148A(b)	Giving lesser period than 7 days as provided by law.	Breach of mandatory procedure; strips AO of jurisdiction.
Preliminary Order	Section 148A(d)	Order passed on templates, without considering Section 148A(c).	Shows lack of application of mind; set aside u/Article 226.
Sanction Authority	Section 151	Approval from JCIT instead of PCCIT/CCIT if more than three years have passed.	Makes the notice void ab initio because of no statutory concurrence.
Sanction Quality	Section 151	Unthinking endorsements (“I am satisfied”) without looking at the records.	Shows non-exercise of mind; makes the punishment invalid.
Faceless Execution	Section 151A / Scheme 2022	Notice is issued straight from JAO and not through automated allocation by NaFAC.	Violates the mandatory faceless system; thus voided ultra vires.

 

Supreme Court Precedents & Limitation Standards: Analysing Ashish Agarwal and Rajeev Bansal

The post-2021 assessment process in the Income Tax Act, 1961 has been greatly impacted by two landmark judgments in the Supreme Court of India; the first was Union of India vs. Ashish Agarwal (2022), and the other was Union of India vs. Rajeev Bansal (2024). The two judgments dealt with the numerous litigations related to the transition from the earlier reassessment rules to the new reassessment rules that were established through the Finance Act, 2021. It is important to note that the court held that compliance with Section 148A is jurisdictional, and there are very strict time bar rules under Section 149, together with TOLA.

• Union of India v. Ashish Agarwal (2022): Section 148A as a Mandatory Safeguard

Post the Finance Act, 2021, which came into effect from April 1, 2021, over 90,000 reassessment notices had been issued till 30th June 2021 under the old Section 148. These notices were opposed in High Courts, which held that when Parliament changed the reassessment provision, the Revenue could not adopt the repealed method. In the case of Union of India v. Ashish Agarwal (2022) 444 ITR 1, the Supreme Court exercised its power under Article 142, thereby striking a balance between the revenue interest and the taxpayer’s right. The Supreme Court held that all reassessments that have been made under old Section 148 in the relevant period shall be considered a show-cause notice under the new Section 148A(b). Principles of law laid down are:

1. 1. Compliance with Section 148A is compulsory, and the Revenue is not allowed to bypass the initial show-cause process even during transitional periods.
   2. The Assessing Officer should ensure that all the required information is supplied to assessees within 30 days, since answering without the evidence is considered ineffective.
   3. The Assessing Officer cannot serve a notice under Section 148 unless he has already dealt with the response of the assessee under Section 148A(c) and served an order under Section 148A(d).

• Union of India v. Rajeev Bansal (2024): Harmonising TOLA and the “Surviving Limitation Period”

In the matter of Union of India v. Rajeev Bansal (Civil Appeal No. 8629 of 2024), the Apex Court discussed the interface between the extension of time through TOLA and statutory periods under Section 149 of the Act. The Revenue argued that TOLA was an effective extension of the time periods to issue reassessment notices infinitely in all previous assessment years. On the other hand, assessees argued that the notices after April 1, 2021 were limited to 3 years in accordance with Section 149(1)(a), unless ₹50 lakh limit in Section 149(1)(b) is satisfied.

The concept of “Surviving Limitation Period” was laid down by the Supreme Court and stated that TOLA applies to actions that need to be taken between March 20, 2020 to March 31, 2021, which extend their time limit up to June 30, 2021. Furthermore, it has been said that the period between the issuance of deemed notice on April 1 and June 30, 2021 and the provision of material by the Assessing Officer (AO), including two weeks to the taxpayer, would not amount to a limitation period.

Further, it is clear from the judgment delivered by the Apex Court that once the AO had supplied all the materials required, only the “surviving time” since the date of issuing the original notice in 2021 would qualify for the purpose of issuing a fresh notice under Section 148. It is further clear from the decision that in cases of assessment years more than 3 years old, any reopening of assessment would necessarily have to be made in accordance with Section 149(1)(b).

 

Judicial Takeaways for Section 148 Challenges

These decisions provide a clear definition of the scope within which one can challenge the validity of re-assessment proceedings:

• Time-Barred Notice is Null and Void: In case a Section 148 notice is sent beyond the limitation period (after deducting the stayed period), the notice is time-barred and must be quashed on grounds of lack of jurisdiction.
• The ₹50 Lakh Monetary Ceiling is Non-Negotiable: As far as notices issued after 3 years from the close of the respective assessment year are concerned, the Tax Authority cannot use the TOLA route to avoid the ceiling of ₹50 lakhs.
• Procedural Flaw Destroys the Whole Process: The decision of passing an order under Section 148A(d) without furnishing the required material as per the Ashish Agarwal decision will nullify the entire process of Section 148 proceedings.

 

Judicial Review under Article 226: Grounds for Quashing Reassessment Notices at the Threshold

If an invalid reassessment order is issued under Section 148 or if a prejudicial preliminary order is issued under Section 148A(d), taxpayers usually resort to constitutional writs of High Courts through the writ jurisdiction provided under Article 226 of the Constitution.

The most important use of writ jurisdiction in tax administration is in preventing any unconstitutional or illegal, or jurisdictional defect-laden, reassessments from proceeding further.

 

Overcoming the Alternate Remedy Rule

The standard defence raised by the Revenue against the Article 226 petitions is that of the rule of alternative statutory remedy, where the taxpayers cannot file writ petitions before the High Court without seeking reassessment under Section 147 before approaching the Commissioner of Income Tax (Appeals) or the Income Tax Appellate Tribunal (ITAT). Nevertheless, such a rule has been negated by both High Courts as well as the Supreme Court when jurisdictional issues exist in the case. In the case of Whirlpool Corporation v. Registrar of Trade Marks (1998), it has been held that in some specific cases, such as when there is enforcement of a Fundamental Right, violation of natural justice and a jurisdictionless order, there is no bar to filing writ petitions under Article 226, despite the existence of an alternative statutory remedy. The doctrine was reaffirmed in the Supreme Court case of Calcutta Discount Co. Ltd. v. ITO (1961), according to which when there is a lack of jurisdiction in the case of an Assessing Officer (AO) to reconsider the assessment, then the taxpayer shall not suffer from the act of unauthorised reassessment.

 

Direct Grounds for Seeking a Writ Against Section 148 Notices

The Writ of Certiorari or Prohibition may be applied to the Revenue on the following three broad grounds:

1. Absolute Absence of Jurisdiction: The jurisdiction vested under Section 147 will be void if the notice has been issued outside the three years without satisfying the provisions of Section 149. If the notice is about income escaping in an amount below ₹50 lakh or without any specified property, and does not satisfy the “Surviving Limitation Period” in the case of Union of India v. Rajeev Bansal (2024), then the Assessing Officer (AO) will lack jurisdiction, thereby requiring intervention under Article 226.
2. Denial of Principles of Natural Justice: Section 148A(b) mandates that the Revenue must furnish the documents upon which the allegation rests. The denial of these documents, providing fewer than 7 days as the statutory minimum, or issuing an order under Section 148A(d) which falls foul of the same, amounts to denial of audi alteram partem principle, hence rendering the jurisdiction void.
3. Ultra vires Action Violation of Statutes Schemes: Any administrative action which violates statutory schemes is ultra vires. Under Section 151A, in addition to the e-assessment of Income Escaping Assessment Scheme, 2022, it is provided that the notice under Sections 148/148A has to be done automatically. If the notice under Section 148 is issued by a local Jurisdictional Assessing Officer, then it is ultra vires the statute.

 

Standard of Judicial Review in Direct Tax Writs

There is an important distinction between the “Standard of Judicial Review” applied by High Courts under Article 226 and the “appellate” powers exercised by tax tribunals (ITAT).

Feature / Standard	Article 226 (Writ Review)	Appellate Authority (ITAT/CIT)
Primary Scope	Inspects Procedure & Legality	Evaluates Sufficiency of Evidence
Statutory Verification	Checks Statutory Prerequisites	Re-weighs Tax Calculations
Jurisdictional Focus	Assesses Jurisdiction Assumptions	Decides Merits of Escalated Tax

• Emphasis on Legal Process and not on Sufficiency of Evidence: In their capacity under Article 226, High Courts do not perform the function of Appellate Courts. They do not go into the legal validity of the findings arrived at or the determination of the quantum of income or the sufficiency of evidence adduced before the AO.
• Examination of Conditions Precedent: The Court is concerned only with examining whether the conditions precedent under law to assume jurisdiction have been satisfied. The Court poses certain basic legal questions:

• • Has there been valid “information”?
  • Has there been the grant of necessary “sanction” from the “Specified Authority” under Section 151?
  • Has there been issue of notice within the time limitations of Section 149?
  • Have the requirements of “natural justice” of Section 148A been adhered to?

• Quashing Administrative Misconduct: If the Court is satisfied that the Revenue assumed jurisdiction without satisfying the above statutory conditions precedent, the proceedings are quashed ab initio. The legal question is decided without having to deal with the substantive taxation issues.

 

Conclusion: Why Procedural Strictness Protects Against Arbitrary Tax Administration

Post-2021, there is an attempt to improve direct tax administration by reducing discretion and establishing statutory accountability under Section 148A in the Income Tax Act, 1961. Section 148A provides for rigorous procedural requirements that ensure the power to re-assess is exercised by the revenue in accordance with a complete statutory process. It is from compliance with the procedures that jurisdiction is obtained. Proceedings are held to be invalid in the event of non-compliance. The judgments of the Supreme Court in Union of India v. Ashish Agarwal (2022) and Union of India v. Rajeev Bansal (2024) emphasise the significance of compliance with Section 148A in the sense that administrative convenience cannot trump legal restrictions. High Courts exercise control under Article 226.