Madras High Court Clarifies Reassessment Limitation and Approval Under New Regime

1. Background and Case Matrix

The Madras High Court, in the batch of writ petitions filed by D. Tamilselvi and MJR Hospitality and Services Apartments, examined the validity of reassessment proceedings, completed assessments and penalty notices for Assessment Years (AYs) 2016-17 to 2018-19. The core controversy arose from:

• The transition from the pre-01.04.2021 reassessment framework to the substituted regime;
• The legal fiction and directions laid down in Union of India Vs. Ashish Agarwal, (2023) 1 SCC 617; and
• The further clarifications on limitation and sanction under Section 149 and Section 151 by the Supreme Court in Union of India Vs. Rajeev Bansal, 2024 SCC OnLine SC 2693.

The writ petitions involved two distinct assessees and six assessment years:

1.1 Petitioner: D. Tamil Selvi

1.2 Petitioner: MJR Hospitality and Services Apartments

The assessees attacked both:

• The jurisdiction to reopen under Section 147/Section 148 (old and new regimes), and
• The competence of the sanctioning authority under Section 151 in the post-01.04.2021 regime.

The Court disposed of all six writ petitions by a common order, addressing limitation, legal fiction under Ashish Agarwal, the extended time under the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), and validity of sanction under Section 151(ii).

2. Preliminary Procedural Note

The Court recorded an important internal procedural clarification:

• A final order dated 15.09.2025 was pronounced through video conferencing in the presence of both sides.
• However, due to an administrative error, draft notes prepared before finalisation were uploaded on the web portal instead of the signed final order.
• This error came to light on 27.10.2025 when the Court asked counsel to produce the order and they could not locate a valid copy. The draft dictated notes were then traced.
• The Registry was directed to replace the draft notes with the final signed order dated 15.09.2025 and issue certified copies accordingly, if not already done.

This clarification preceded the Court’s substantive reasoning on reassessment.

3. Legislative Transition and the Ashish Agarwal Legal Fiction

3.1 Old vs New Regimes and the Transitional Confusion

• Until 31.03.2021, reassessments were governed by Sections 147–151 as they stood under the old law.
• With effect from 01.04.2021, the Finance Act, 2021 substituted these provisions and introduced the new reassessment regime, including Section 148A.
• Post-01.04.2021, several reassessment notices continued to be issued under the old Section 148, particularly between 01.04.2021 and 30.06.2021.
• These notices led to a wave of writ petitions across High Courts, yielding divergent views on their validity.

3.2 Supreme Court’s Intervention in Union of India Vs. Ashish Agarwal

To resolve this nationwide conflict, the Supreme Court in Union of India Vs. Ashish Agarwal, (2023) 1 SCC 617:

• Upheld a legal fiction treating all old-regime Section 148 notices issued between 01.04.2021 and 30.06.2021 as deemed show-cause notices under Section 148A(b) of the new regime.
• Directed that the Assessing Officer (AO) must, within 30 days, furnish to each assessee all information and material relied upon for such notices.
• Granted assessees two weeks thereafter to respond to the deemed show-cause under Section 148A(b).
• Clarified that the requirement of enquiry under Section 148A(a) was dispensed with once for these cases.
• Mandated the AO to pass orders under Section 148A(d) and then, where justified, issue a notice under the substituted Section 148.
• Crucially, preserved all defences of the assessees, including those under Section 149.

The Court explained that until relevant information and material were supplied, the deemed Section 148A(b) notices were effectively in a state of suspension, and limitation had to be computed after excluding such “deemed stay” and the two-week response period.

3.3 CBDT Instruction No. 1/2022

The CBDT, via Instruction No. 1/2022 dated 11.05.2022, operationalised the Ashish Agarwal directions: