The Union Budget has proposed retrospective clarifications on certain income tax provisions, aiming to settle long-standing legal disputes arising from conflicting court rulings. While the government has described these changes as “clarifications” rather than amendments, tax experts say they could significantly affect a wide spectrum of taxpayers, including corporates and individuals.
Two key issues are at the centre of these clarifications. The first concerns who is authorised to issue reassessment notices under Section 148 of the Income Tax Act. The second relates to the validity of assessment orders that do not mention a mandatory Document Identification Number (DIN).
According to Gautam Nayak, tax partner at CNK & Associates, the reassessment notice issue is currently pending before the Supreme Court in more than 1,600 cases. The government has now clarified that jurisdictional assessing officers are empowered to issue such notices, with the clarification applying retrospectively from April 1, 2021.
This move follows divergent interpretations by various high courts. While the Bombay High Court in the Hexaware Technologies case ruled that reassessment notices must be issued by faceless assessment officers, other courts, including the Delhi High Court in T K S Builders and the Calcutta High Court in Triton Overseas, held that both jurisdictional and faceless officers had concurrent authority.
The second clarification addresses assessment orders invalidated solely because they lacked a DIN. Tax officials say several high-value assessments were struck down due to this procedural omission. To resolve this, the government has proposed a retrospective clarification effective from October 1, 2019, stating that an assessment will not be treated as invalid if the DIN is referenced through any official communication, even if not mentioned directly on the order.
Nayak explained that earlier rulings by the Bombay and Delhi High Courts relied on a CBDT circular that made DIN mandatory. The new clarification, however, allows assessments to remain valid as long as a DIN exists and is traceable, even if communicated separately.
Industry reactions remain mixed. Sheetal Shah, tax partner at EY India, views the move as a practical attempt to reduce unnecessary litigation. She believes the proposals reflect a shift toward substance over technicalities and could help unclog the tax dispute system.
However, not everyone agrees. Chartered accountant Ketan Vajani has strongly criticised the retrospective nature of the clarifications, calling them unfair to taxpayers. He argues that since the matter is already under consideration by the Supreme Court, the government’s move effectively pre-decides ongoing cases in its own favour.
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Vajani warned that taxpayers who had earlier received favourable judgments could now face renewed tax demands along with interest, potentially impacting genuine cases and undermining confidence in the judicial process.
As the debate continues, the proposed clarifications highlight the ongoing tension between simplifying tax administration and ensuring fairness and legal certainty for taxpayers.
