Reassessment after the Finance Act, 2021: from "reason to believe" to jurisdictional gates

by Laveesh Bhandari, Prashant Narang and Aryan Pandey.

Tax statutes globally provide for reassessment power to an Assessing Officer (AO) enabling them to relook at a filed assessment. Reassessment powers are contested because they strike at the heart of finality and certainty which assessees desire. In India, reassessment is primarily dealt with in sections 147- 153 of the Income Tax Act, 1961.

For a long time, AOs could reopen an assessment if they had “reason to believe” that income had escaped assessment. The Finance Act, 2021 marked a shift in this standard, requiring the AO to instead possess “information suggesting escapement of income.” A zoomed out view indicates that the shift is about pairing a redefined trigger with rule-bound, record-verifiable jurisdictional gates that determine whether reopening can proceed at all.

Owing to the broad nature of the “reason to believe” standard, courts naturally stepped in to tighten the procedural and substantive boundaries of reassessment proceedings conducted under this standard. The paper discusses this in detail in section 2.1. A pattern emerged where the majority of reassessments were quashed by the courts on grounds such as non-application of mind, lack of tangible material, mere change of opinion etc. Each of these grounds questioned the AO’s formation of belief and sought a rational connection between the material relied on and the belief formed.

Seen in this light, the Finance Act, 2021 was a significant redesign of the framework. It inserted procedural safeguards which now introduce a mandatory pre-notice process. This provides the assessee with all the relevant information on the basis of which the reassessment was initiated. It also limited the timelines for opening a reassessment by making them shorter. It also revised the approval hierarchy under section 151. The Finance Minister’s budget speech also highlighted the fact that this was done so that taxpayers don’t have to remain under uncertainty for a long time.

Five years on, in this working paper, we ask what the redesign has actually done in practice at the Income-tax Appellate Tribunal (ITAT) level.

What we did

We undertook a doctrinal analysis of the reassessment provisions under the Income Tax Act, 1961. We combined this with a structured review of the ITAT decisions on reassessments that were available on Manupatra. We compared two periods: 2019, which represented how the practice was during the pre-amendment regime and 2025, which represented the post-amendment regime at a greater adjudicatory maturity.

A single ITAT order often deals with notices sent to the assessee for several assessment years, and the reasons on which the reassessment gets decided can differ for different assessment years. This resulted in 136 assessment years arising out of 101 orders in 2019 and 217 assessment years arising out of 178 decisions in 2025. The object of the exercise was to identify which statutory provision was getting litigated and what that revealed about how the reassessment architecture has changed after the Finance Act, 2021.

Outcome

Reassessment Outcome	2019 (n=136) %	2025 (n=217) %
Upheld	20.58	1.84
Quashed	72.79	80.64
Remanded	2.94	13.36
Miscellaneous	3.67	4.14

We observed that quashing rates in fact increased in the post-amendment regime; this indicates that more assessments are being struck down at the ITAT level. The sharpest decline is in the upheld rate and a necessary extension of that is that the revenue faces a direct loss of projected collection. This also means increased litigation cost for the department with no recovery.

Grounds

We also coded the dataset on the grounds for quashing, mapping the reason for quashing to the section it relates to. Again, because a single quashing may rest on multiple statutory grounds, each coded separately, the denominators here differ: 103 recorded grounds in 2019 and 187 in 2025.

Section	2019 instances (of 103)	2019 %	2025 instances (of 187)	2025 %
147	73	70.87	2	1.07
148	11	10.67	23	12.30
148A	—	—	2	1.07
149	5	4.85	59	31.55
151	14	13.59	64	34.22
151A	—	—	37	19.79

We noted that in 2019 quashings were largely done questioning the reasoning of AO’s assessment or a default in the notice (these two account for nearly 81% of the cases). However, by 2025, we see that grounds for invalidations lean towards procedural checks like time limit, sanctioning authority. The paper notes that some of this can be attributed to the combined impact of two landmark Supreme Court judgements in Ashish Agarwal and Rajeev Bansal.

Section 151A which accounts for 20% of the cases in 2025 is a result of impetuous drafting of law. A scheme titled ‘e-Assessment of Income Escaping Assessment Scheme’ was introduced by CBDT for enhancing transparency and objectivity in the reassessment regime. The scheme allowed automated allocation of S.148 notices routed through NFAC; however, Sections 148 and 148A continued to vest the power to issue notice in the ‘Assessing Officer,’ without excluding the Jurisdictional Assessing Officer (JAO). The legislative intent was thus not clear and it led the courts to guess what the lawmakers meant, leading to contradictory jurisprudence across High Courts. The Finance Act, 2026 has inserted a clarificatory provision in the form of Section 147A with retrospective effect from 1 April 2021.

What this means

The 2021 design shift moves reassessment from a broad standard to a rule. Rules have both pros and cons, on one side they lower decision costs and provide more certainty, on the other hand they don’t fare well in edge cases. Early numbers suggest that the shift from standards to rules is working for the assessee as fewer numbers of reassessments are getting upheld. For the revenue’s side, the paper points out that tax administration is a principal-agent relationship and when reassessments fail on procedural grounds at ITAT level, the cost falls on the exchequer, with no consequences for the department.

The paper ends with flagging that discretion has not been eliminated totally and rather it has moved upstream. What counts as “information suggesting escapement” is contingent on CBDT’s risk management strategy which is an algorithmic screening framework. The authors do not address the effects of upstream discretion or the patterns it might generate, suggesting these issues be explored in future empirical research.

The paper is available on the TrustBridge website, and the dataset is publicly available here.

Laveesh Bhandari is President and a Senior Fellow at CSEP. Prashant Narang and Aryan Pandey are researchers at TrustBridge Rule of Law Foundation.

Source: https://blog.theleapjournal.org/2026/08/reassessment-after-finance-act-2021.html