Union of India v. Ashish Agarwal: deeming 90,000 old-regime notices into the new Section 148A framework

The facts in brief

Parliament, through the Finance Act 2021, restructured the reassessment machinery of the Income Tax Act with effect from 1 April 2021. Sections 147, 148 and 149 were substituted, and a new Section 148A was inserted requiring the Assessing Officer to conduct a preliminary enquiry, supply the assessee the material relied on, and consider a reply before issuing any reassessment notice. The old Section 148 — a notice issued without any such preceding enquiry — ceased to exist in its earlier form from that date.

Despite the amendment, Revenue authorities across India issued a very large volume of reassessment notices — reported to be in the region of 90,000 — between April and June 2021 in the unamended, pre-Finance Act 2021 form of Section 148. The Revenue's position was that delegated legislation made under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 (TOLA), enacted to extend statutory timelines disrupted by the pandemic, kept the old procedure alive for these notices notwithstanding the 1 April 2021 substitution.

Assessees challenged the notices in more than 9,000 writ petitions before High Courts across the country. High Court after High Court — Allahabad, Delhi, Bombay, Calcutta, Rajasthan, Madhya Pradesh among them — took the same view: a notice issued under a provision that had been substituted out of the statute book could not survive merely because a delegated-legislation timeline extension purported to keep the old machinery running. The notices were quashed as ultra vires the amended Act.

The problem the Supreme Court faced

The Revenue's appeals against this wave of High Court judgments came before the Supreme Court together. On a straightforward application of the reasoning below, the appeals should simply have failed and the notices remained quashed, leaving Revenue to start over — where limitation permitted — under the new Section 148A procedure. That outcome would have extinguished, on limitation grounds, a very large number of reassessments that Revenue considered substantively justified, since the window to issue fresh notices compliant with the new procedure had by then largely closed for many assessment years.

The Court accepted the High Courts' reasoning that the notices, as issued, did not conform to the substituted law. It did not attempt to hold that the old Section 148 somehow survived the amendment for this cohort of notices. But rather than simply affirming the quashals and leaving the consequences to fall where they may, the Court reached for Article 142 of the Constitution — the power to pass any order necessary for doing complete justice in a cause before it — to fashion a transitional remedy that neither party had asked for in quite that form.

What the Court ordered

The Supreme Court held that the impugned Section 148 notices — issued in the unamended form after 1 April 2021 and challenged before the various High Courts — would be deemed to have been issued under Section 148A(b) of the Act as substituted by the Finance Act 2021, and treated as show-cause notices under that provision. The Assessing Officers were directed to provide the assessees with the information and material relied upon within thirty days, so that the assessees could reply within a further two weeks. The Court also dispensed, as a one-time measure applicable only to this batch of notices, with the requirement of a preliminary enquiry under Section 148A(a) before the show-cause notice stage — treating the enquiry step as effectively subsumed, given that the notices had already issued.

The order applied, in terms, to the notices that were the subject matter of the appeals and special leave petitions before the Court and the connected writ petitions. Its practical effect, given the volume of pending litigation on the same point, was treated by tax authorities and High Courts as a template applicable to the wider universe of similarly placed notices issued in the same window.

The Article 142 device and why it was controversial

The remedy is unusual because it does something an ordinary appellate order cannot: it does not simply choose between "the notice is valid" and "the notice is invalid." It re-characterises the notice as a different legal instrument altogether — one issued under a provision the Assessing Officer never actually invoked — and then imposes fresh procedural obligations that did not exist at the time the original notice was issued. That is only possible under Article 142's "complete justice" jurisdiction, which is available to the Supreme Court alone and is not confined by the ordinary rules of statutory construction that bound the High Courts below.

The device drew sustained criticism from tax practitioners and commentators. The core objection was that Article 142 was being used not to fill a gap left by silent or ambiguous legislation, but to override the plain consequence of Parliament's own express transitional choices in the Finance Act 2021 — in effect legislating a saving clause that Parliament itself had not enacted, for the benefit of the Revenue as a litigant before the Court. A second objection was practical: by validating the show-cause notices without adjudicating whether the underlying TOLA extension argument was even correct on its merits, the Court left the deeper statutory question — whether the amended timelines under Section 149 could be extended by TOLA notifications at all — unresolved and to be fought out afresh across thousands of individual reassessments.

The TOLA sequel: Rajeev Bansal

That deeper question did not go away. It resurfaced in the flood of litigation that followed Ashish Agarwal, as assessees argued that even the "deemed" Section 148A(b) notices were time-barred once the correct limitation period under the amended Section 149 was applied, and that TOLA could not extend limitation beyond what the amended Act permitted. The Supreme Court returned to this question in Union of India v. Rajeev Bansal in 2024, working through the interaction between TOLA, the amended Section 149 limitation periods, and the Ashish Agarwal deeming fiction in far greater statutory detail than the 2022 order had done. Ashish Agarwal supplied the transitional mechanism; Rajeev Bansal supplied the limitation arithmetic that mechanism left open.

Why the ruling matters

Ashish Agarwal is best understood as a pragmatic circuit-breaker rather than a considered ruling on the merits of the TOLA extension argument. It let the Revenue keep roughly 90,000 reassessments alive administratively, without the Court having to hold — contrary to what several High Courts had found — that the old Section 148 procedure was validly available after 1 April 2021. In exchange, it gave assessees the substantive protections Parliament had built into the new regime: disclosure of the material relied on and a right to reply before a reassessment could proceed. The order is repeatedly invoked in subsequent litigation less for its reasoning than for its operative directions, and its limits — what it did and did not decide about limitation — became the subject of the Court's own follow-up in Rajeev Bansal two years later.

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Sources

1. Supreme Court of India — primary judgment, Union of India & Ors. v. Ashish Agarwal, 4 May 2022: https://api.sci.gov.in/supremecourt/2021/32623/32623_2021_12_1502_35515_Judgement_04-May-2022.pdf
2. LiveLaw — "The Unfortunate Invocation Of Article 142 – Supreme Court Decision On The Reassessment Notices": https://www.livelaw.in/columns/unfortunate-invocation-of-article-142-supreme-court-decision-on-reassessment-notices-199594
3. SCC OnLine Blog — "Sustaining Incorrect Reassessment Notices: A Critique of Recent Supreme Court Decision": https://www.scconline.com/blog/post/2022/05/10/sustaining-incorrect-reassessment-notices-a-critique-of-recent-supreme-court-decision/
4. LiveLaw — "Supreme Court Decision In UOI v. Ashish Agarwal Applicable To Parties Who Challenged Notice U/S 148: Allahabad High Court": https://www.livelaw.in/high-court/allahabad-high-court/allahabad-high-court-clarifies-supreme-court-judgment-uoi-vs-ashish-agarwal-section-148-notices-income-tax-act-255464