[Opinion] The Reassessment Conundrum Under the Income Tax Act 2025

Bijoy Das – [2026] 186 taxmann.com 182 (Article)

Can Section 148 Proceedings Initiated Under the 1961 Act Survive the Repeal? The GM Polyplast Constitutional Challenge, the ‘Deemed Information’ Fault Line, and Five Unresolved Issues for Practitioners

1. The Problem – Thousands of Legacy Notices at a Constitutional and Transitional Crossroads

On 1 April 2026, the Income-Tax Act, 1961 stood repealed by Section 536(1) of the Income-Tax Act, 2025. With 536 sections, 16 schedules, and a comprehensive savings architecture under Section 536(2), the new Act intended a seamless transition. On the most frequently litigated question whether reassessment proceedings initiated under Section 147/148 of the 1961 Act survive the repeal the official answer is a settled yes – Section 536(2)(c) expressly provides that any proceeding pending as on 1 April 2026 shall continue and be disposed of under the 1961 Act as though the 2025 Act had not been enacted. The Income-Tax Department’s own FAQ portal, updated on 25 April 2026, confirms this with worked examples.

Yet just five days before this article was written, the Bombay High Court in G.M. Polyplast Ltd. v. Union of India (Writ Petition (L) No. 8508 of 2026, B.P. Colabawalla and Firdosh P. Pooniwalla JJ., decided 24 April 2026) granted an interim stay of a Section 148 notice issued on 30 March 2025 and issued notice to the Attorney General of India. The Court found that the petition raised “arguable questions” on the constitutional validity of clause (iv) of Explanation 2 to Section 148 and clause (c) of the proviso to Section 148A, as they stood prior to the amendments dated 31 August 2024. The ruling signals that while Section 536(2)(c) settles the transitional continuation question, it does not cure a deeper constitutional infirmity that infected a large class of legacy Section 148 notices issued between April 2024 and March 2025.

This article analyses the two-level problem – first, the Section 536(2)(c) savings architecture and its five transitional fault lines; and second, the constitutional challenge raised in G.M. Polyplast against the pre-August 2024 ‘deemed information’ provisions and its implications across the stock of legacy reassessment notices. Together, these two levels define the ‘reassessment conundrum’ the largest class of pending direct tax litigation entering the ITA 2025 era.

2. The Section 536(2)(c) Savings Architecture

Section 536 of the Income-Tax Act, 2025, titled ‘Repeal and Savings’, is the transitional backbone of the new Act. Sub-section (1) repeals the 1961 Act with effect from 1 April 2026. Sub-section (2) contains 22 sub-clauses addressing specific transitional situations. The provision was notably reinforced by sub-section (4), which applies Section 6 of the General Clauses Act, 1897 to cover any unforeseen situation not directly addressed by sub-section (2) ensuring that rights and obligations accrued under the 1961 Act are preserved beyond what is explicitly stated.

For reassessment proceedings, the operative sub-clauses are Section 536(2)(a), (b), and (c). Sub-clause (a) preserves the ‘previous operation’ of the repealed Act and anything duly done or suffered thereunder. Sub-clause (b) preserves any right, privilege, obligation or liability acquired, accrued or incurred under the 1961 Act. Sub-clause (c) the most directly relevant provides that any proceeding pending as on 1 April 2026 before any income-tax authority, tribunal or court shall be continued and disposed of under the 1961 Act as though the 2025 Act had not been enacted.

The practical effect, as confirmed by the CBDT FAQ dated 25 April 2026, is comprehensive:

(i) a Section 148A(1) notice issued before 1 April 2026 continues under the 1961 Act even if the Section 148A(3) order and Section 148 notice are passed after 1 April 2026;

(ii) fresh reassessment proceedings for Assessment Years up to 2026-27 may be initiated under the 1961 Act after 1 April 2026;

(iii) the approval hierarchy under Section 151 of the 1961 Act governs even post-1 April 2026 reassessments for prior years; and

(iv) the return filed in response to a Section 148 notice must follow 1961 Act forms, not the new Tax Year framework.

3. The GM Polyplast Constitutional Challenge – What the Court Actually Held

The GM Polyplast ruling arises from a Section 148 notice issued on 30 March 2025 – three days before the ITA 2025’s effective date for Assessment Year 2021-22. The notice relied on Explanation 2 to Section 148 (as it stood prior to 31 August 2024), which deemed the Assessing Officer to have ‘information’ in cases where:

(i) a search under Section 132 or requisition under Section 132A was initiated;

(ii) a survey under Section 133A was conducted;

(iii) assets, documents or liabilities discovered in a search/survey on a third party related to the assessee; or

(iv) information was received under an agreement referred to in Section 90/90A.

The deeming mechanism was a legal fiction – the AO need not have actual evidence; the fact of a search, survey, or third-party discovery was itself treated as ‘information suggesting income has escaped assessment’.

The Finance (No. 2) Act, 2024, with effect from 31 August 2024, significantly amended Explanation 2. The post-amendment version tightened the threshold – the AO must now have specific ‘information’ as defined under Section 148 itself, rather than relying on the deeming fiction. The government’s own amendment implicitly acknowledged that the pre-August 2024 version had provided overly broad deeming powers. This is the interpretive foundation of the GM Polyplast petitioner’s challenge – if the government found it necessary to tighten the deemed-information provision in August 2024, the pre-August 2024 version was defective and notices issued under it are constitutionally suspect under Article 14 as arbitrary and unreasonable.

The Bombay High Court, through Justices B.P. Colabawalla and Firdosh P. Pooniwalla, found that the petition raised ‘arguable questions’ of constitutional validity – the standard for issuing Rule and granting interim stay. Three features of the Order deserve attention:

(i) the Court issued notice to the Attorney General of India, indicating the constitutional question is significant enough for Union of India’s highest law officer to defend;

(ii) the Court granted a stay, preventing the Revenue from proceeding with the reassessment pending final adjudication; and

(iii) the Court noted the specific targeting of the pre-31-August-2024 version – implicitly recognising that the post-August 2024 position may not suffer the same infirmity.