Few provisions in the Income Tax Act have produced as much litigation — and as much confusion — as the reassessment regime under Sections 147 to 151. The Finance Act 2021 rewrote these provisions almost entirely. And then the Supreme Court, in a remarkable intervention, rewrote the transition.
If you're dealing with a Section 148 notice today — whether as a practitioner or as an assessee — you need to understand three things: what the law was, what the 2021 amendment changed, and what Union of India v. Ashish Agarwal (2022) did to both.
The Old Regime: Section 147 Pre-2021
Before the Finance Act 2021 came into force, Section 147 permitted reassessment if the Assessing Officer had "reason to believe" that income had escaped assessment. This was the bedrock requirement — and it was heavily litigated.
The phrase "reason to believe" was interpreted by the Supreme Court to require tangible material, not mere suspicion. The AO needed a live link between the material and the formation of belief. Courts struck down notices where the "reason to believe" was borrowed from audit objections, information from investigation wings without independent application of mind, or information that was already before the AO during the original assessment.
The time limits were clear: four years from the end of the relevant assessment year for ordinary cases, and up to six years in cases where income escaping assessment exceeded ₹1 lakh. Beyond six years: no reassessment.
"Reason to believe is not the same as reason to suspect. The AO must have some material on the basis of which he could form a reasonable belief — not a mere suspicion or a hunch."
— Supreme Court in CIT v. Kelvinator of India Ltd. (2010)
What the Finance Act 2021 Changed
The 2021 amendment replaced "reason to believe" with a new standard: the AO must have "information" suggesting escaped income. Section 148A was inserted as a mandatory pre-notice procedure: the AO must now conduct an inquiry, provide the assessee an opportunity to be heard, and then pass an order before issuing the notice under Section 148.
On paper, this was a taxpayer-friendly reform — it built procedural safeguards into what had previously been a unilateral process. In practice, the transition created chaos.
The amendment was brought into force on 1 April 2021. But when it was enacted, thousands of notices had already been issued under the old Section 148 in March 2021 — some say in a rush to beat the deadline. These notices were challenged across multiple High Courts on the ground that they were issued under a provision that had effectively ceased to exist.
The Supreme Court Intervenes: Ashish Agarwal (2022)
The confusion reached the Supreme Court in Union of India v. Ashish Agarwal. The question was simple but consequential: what happens to the notices issued under the old Section 148 after 1 April 2021, when the new regime was already in force?
The Court's solution was surgical. It held:
- The notices issued under the old Section 148 (post 1 April 2021) shall be treated as show cause notices under Section 148A(b) of the new regime.
- The AO must provide the assessment material to the assessee and give them an opportunity to respond under Section 148A(b).
- Thereafter, the AO must pass an order under Section 148A(d) before issuing a fresh notice under the new Section 148.
- The time limits for this exercise were prescribed by the Court itself — two weeks for the assessee to respond, and two weeks for the AO to pass the order.
In effect, the Supreme Court did not invalidate the old notices. It retrofitted them into the new procedural framework. Assessees who had won in the High Courts saw those orders set aside. The litigation was not over — it was reset.
The New Battlegrounds
Where does this leave practitioners today? Here are the live issues being litigated across tribunals and High Courts:
1. What qualifies as "information"?
The new Section 148 requires "information" — defined in the Explanation to Section 148 to include information from audit reports, ITR information, and information from intelligence or investigation units. But courts are now scrutinising whether the "information" actually existed at the time of notice, or whether it was manufactured post-facto to justify the notice.
2. The Section 148A(d) order and its amenability to challenge
The order under Section 148A(d) — the gateway to reassessment — is itself a speaking order. It must record reasons. It is amenable to challenge under Article 226. High Courts across the country are entertaining writ petitions against these orders, and the jurisprudence on what a proper 148A(d) order must contain is rapidly developing.
3. The 10-year window and the ₹50 lakh threshold
The new regime extends the reassessment window to 10 years in cases where the income escaping assessment is ₹50 lakh or more, and the escaped income relates to assets outside India or specific categories. This 10-year tail is being challenged as disproportionate and is already before several High Courts.
4. Limitation and the Ashish Agarwal transition notices
For the batch of notices that were saved by Ashish Agarwal and converted into Section 148A(b) notices, questions of limitation are acutely live. Were the original notices issued within the time limits applicable under the old regime? If not, the conversion cannot cure the defect.
Practical Takeaways
If you receive a Section 148A(b) notice today:
- Ask for the information. Under Section 148A(b), the AO is required to provide you the "information and material" relied upon. Insist on this. An order passed without providing this material is vulnerable.
- Check the limitation dates carefully. Identify whether the notice is an Ashish Agarwal conversion or a fresh notice. The applicable limitation regime differs.
- File a substantive response. The 148A(b) response is not a formality. It forms part of the record. An AO who ignores the response while passing the 148A(d) order is on shaky ground.
- Challenge the 148A(d) order if it doesn't engage with your reply. High Courts are generally receptive where the AO has simply rubber-stamped the notice without addressing the assessee's submissions.