Repeal, Saving and Pending Assessment Proceedings

Chapter 2 - The Repeal and Commencement

The enactment of the new income-tax legislation brings about the repeal of the Income-tax Act, 1961, thereby replacing the principal statute that has governed direct taxation in India for more than six decades. Such a legislative transition is neither unprecedented nor uncommon. As tax laws evolve to reflect changing economic realities, administrative requirements and legislative policy, Parliament may choose to replace an existing enactment with a new statutory framework.

However, the repeal of an enactment is not merely a legislative formality. It raises important questions concerning the continuity of rights, liabilities and legal proceedings that originated under the repealed law. Unlike the enactment of an entirely new statute governing future transactions, the repeal of an existing law inevitably affects proceedings that are already in motion.

On the date the new Act comes into force, a large number of proceedings initiated under the Income-tax Act, 1961 may still be pending before various authorities. Assessments, reassessments, appeals, revision proceedings, rectification applications, penalty proceedings and recovery actions may continue long after the repeal has taken effect. Likewise, liabilities incurred, rights accrued and obligations arising under the repealed Act may continue to exist despite the repeal.

The immediate question, therefore, is whether the repeal of the Income-tax Act, 1961 automatically brings such proceedings and liabilities to an end. The answer, as a matter of settled legislative practice and judicial interpretation, is in the negative. Repeal of a statute does not, by itself, extinguish every right, obligation or proceeding created under that statute.

The legal consequences of repeal depend upon the legislative intent expressed in the repealing enactment. In particular, the legislature ordinarily incorporates saving provisions to preserve specified rights, liabilities and pending proceedings. In addition, general principles embodied in the General Clauses Act, 1897 operate, unless a contrary intention appears, to safeguard the continuity of legal consequences arising under the repealed enactment.

Accordingly, the repeal provision and the saving provision must be read together. While the repeal clause withdraws the earlier statute from future operation, the saving clause determines the extent to which the earlier law continues to govern existing rights, liabilities and pending proceedings. The true legal effect of repeal, therefore, cannot be understood by reading the repealing provision in isolation.

The discussion in the succeeding chapter examines these saving provisions and the legal principles governing repeal in greater detail, as they constitute the foundation for resolving virtually every transitional issue arising under the new income-tax legislation.

Chapter 3 - Saving Provisions: The Foundation of the Transitional Framework

The repeal of an enactment does not necessarily obliterate the legal consequences that arose while the repealed law was in force. If repeal alone were sufficient to terminate every pending proceeding, extinguish every accrued right and discharge every existing liability, the administration of justice would be seriously disrupted. It is for this reason that legislatures ordinarily accompany a repealing enactment with saving provisions, preserving specified rights, liabilities and proceedings notwithstanding the repeal.

Saving provisions constitute one of the most important components of transitional legislation. They ensure continuity in the administration of law by protecting legal rights and obligations that came into existence under the repealed enactment. Without such provisions, every legislative transition would create uncertainty regarding pending proceedings and vested rights.

The object of a saving provision is not to continue the repealed statute indefinitely. Rather, it preserves the operation of the repealed law to the extent necessary for enforcing rights, liabilities and legal proceedings that originated while that law remained in force. Consequently, although the repealed enactment ceases to govern future transactions, it may continue to regulate past transactions for limited purposes expressly or impliedly preserved by law.

The legislative policy underlying saving provisions is also reflected in Section 6 of the General Clauses Act, 1897, which embodies the general rule governing the effect of repeal. Unless a different intention appears from the repealing enactment, the repeal of a statute does not ordinarily:

• revive anything not in force at the time of repeal;
• affect the previous operation of the repealed enactment;
• affect rights, privileges, obligations or liabilities already acquired or incurred;
• affect penalties or punishments already incurred; or
• affect investigations, legal proceedings or remedies in respect thereof, all of which may be instituted, continued or enforced as if the repealing Act had not been enacted.

This statutory principle has consistently received judicial recognition. Courts have repeatedly held that repeal is generally prospective in its operation and does not, in the absence of a contrary legislative intention, disturb accrued rights or pending legal proceedings. Thus, the repeal of a statute does not create a legal vacuum. Instead, the repealed law continues to operate for the limited purpose of completing proceedings and enforcing rights and liabilities that have already come into existence.

While Section 6 of the General Clauses Act lays down the general rule, Parliament may modify, expand or restrict its application by incorporating specific saving provisions in the repealing enactment. Accordingly, the transitional provisions contained in the new income-tax legislation assume paramount importance. They determine the precise extent to which proceedings initiated under the Income-tax Act, 1961 are preserved and continue to be governed by that enactment.

It follows that the answer to virtually every transitional question - whether relating to assessments, reassessments, appeals, penalties, rectification, revision or recovery - lies in a combined reading of the repeal clause, the saving provisions contained in the new enactment and the principles embodied in Section 6 of the General Clauses Act, 1897. These provisions together form the legal bridge between the repealed Income-tax Act, 1961 and the new legislative framework.

Chapter 4 - Pending Assessment Proceedings

4.1 Introduction

One of the most immediate practical consequences of the repeal of the Income-tax Act, 1961 is its impact on assessment proceedings that remain pending on the date the Income-tax Act, 2025 comes into force. Across the country, numerous assessments may be at different stages - some where notices have already been issued, others where hearings are in progress and still others awaiting completion after remand by an appellate authority. The transition to a new enactment inevitably raises questions regarding the continuity and validity of such proceedings.

The repeal of the 1961 Act does not, by itself, render pending assessment proceedings infructuous. Such proceedings derive their continuity not from the repealed enactment alone, but from the operation of the saving provisions contained in the new legislation, read in conjunction with the principles embodied in Section 6 of the General Clauses Act, 1897. Consequently, the repeal and the saving provisions must be construed together to determine whether, and to what extent, pending assessments may continue after the commencement of the Income-tax Act, 2025.

For the purposes of this discussion, a "pending assessment proceeding" refers to any assessment lawfully initiated under the Income-tax Act, 1961 which has not attained finality before the commencement of the new Act. The expression would ordinarily include cases where statutory notices have been issued, assessment proceedings are in progress, hearings are continuing, remand proceedings are pending or an assessment is yet to be completed in accordance with law.

The central question, therefore, is not whether the 1961 Act has been repealed, but whether the legislature intended pending assessment proceedings to survive that repeal. The answer lies in the saving provisions of the Income-tax Act, 2025, interpreted in the light of the settled principles discussed in the preceding chapter.

4.2 Legal Position

The legal position governing pending assessment proceedings is founded upon a well-established principle of statutory interpretation: the repeal of an enactment does not ordinarily terminate proceedings validly initiated under the repealed law unless the legislature expressly or by necessary implication provides otherwise.

Accordingly, where assessment proceedings have been lawfully commenced under the Income-tax Act, 1961 and remain pending on the commencement of the Income-tax Act, 2025, the repeal of the former enactment does not, by itself, invalidate or abate those proceedings. Their continuance depends upon the saving provisions contained in Section 536 of the Income-tax Act, 2025, read with Section 6 of the General Clauses Act, 1897.

As discussed in the Practitioner's Reference Box, the Supreme Court has consistently held that repeal ordinarily preserves accrued rights, existing liabilities and pending legal proceedings unless the repealing statute manifests a contrary legislative intention. The object of a saving provision is to ensure continuity of legal administration and to prevent the disruption of proceedings already lawfully initiated.

Applying these principles, an Assessing Officer who has validly assumed jurisdiction under the Income-tax Act, 1961 would ordinarily be competent to continue and conclude a pending assessment in accordance with the transitional provisions of the new enactment. Equally, the assessee retains all substantive and procedural rights available in respect of such proceedings, unless the new legislation expressly provides otherwise.

It is, however, important to distinguish between the continuance of a proceeding and the law governing its future conduct. While the saving provision may preserve the proceeding itself, questions relating to procedure, limitation, jurisdiction, statutory forms or other transitional matters must be examined in the light of the specific provisions of the Income-tax Act, 2025. The answer will ultimately depend upon the language employed by the legislature and the extent to which the new Act expressly preserves or modifies the operation of the repealed law.

The practical implication is that every pending assessment requires a careful examination of the transitional provisions. Practitioners should avoid assuming that all aspects of the repealed enactment continue unchanged, or conversely, that every procedural provision of the new Act automatically applies. The applicable legal regime must be determined by reading the repeal clause, the saving provision and the relevant transitional provisions harmoniously.

Chapter 5 - Pending Reassessment Proceedings

5.1 Introduction

Reassessment has traditionally been one of the most litigated areas of income-tax law. Unlike an ordinary assessment, reassessment involves reopening the tax position of an earlier year and is therefore dependent upon satisfaction of the jurisdictional conditions, limitation provisions and procedural safeguards prescribed by the statute.

The commencement of the Income-tax Act, 2025 on 1 April 2026 adds a transitional dimension to reassessment proceedings. The Income-tax Act, 1961 stands repealed, yet reassessment proceedings concerning tax years beginning before 1 April 2026 may continue and, importantly, may in appropriate cases even be initiated after that date under the statutory framework of the repealed Act.

The transition therefore does not create a simple division between proceedings initiated before and after 1 April 2026. The more relevant inquiry is which tax year is involved, what proceeding is being undertaken and what Section 536 preserves in relation to that proceeding.

This distinction is fundamental to understanding reassessment during the transitional period.

5.2 Reassessment - A Traditionally Litigious Jurisdiction

The power of reassessment permits the Revenue to revisit income chargeable to tax for an earlier year. Because the exercise of that power may disturb the finality otherwise attached to completed tax proceedings, the statutory conditions governing reassessment assume particular importance.

Over the years, reassessment litigation has involved questions concerning limitation, validity and service of notice, statutory approvals, compliance with prescribed procedure, opportunity of hearing and the existence of the jurisdictional conditions necessary for reopening.

The transition to the Income-tax Act, 2025 does not displace these questions. Instead, it introduces an additional inquiry: which enactment governs the reassessment?

That question must be answered before applying the substantive and procedural provisions governing reopening.

5.3 The Statutory Bridge - Section 536

The starting point is Section 536 of the Income-tax Act, 2025.

Section 536 repeals the Income-tax Act, 1961 but simultaneously establishes an extensive saving framework. The Income Tax Department describes this provision as the mechanism through which the old and new tax regimes coexist during the transitional period.

Of particular importance is Section 536(2)(c). It preserves the application of the repealed Act to, first, proceedings pending on the commencement of the Income-tax Act, 2025, and second, proceedings initiated on or after 1 April 2026 in respect of a tax year beginning before 1 April 2026.

The provision expressly encompasses proceedings such as assessment, reassessment, recomputation, rectification, penalty, reference, revision and appeals. Such proceedings are to be carried out according to the procedure specified in the repealed Act.

This is a particularly significant feature of the transitional framework. The legislature has not merely preserved proceedings already pending when the new Act commenced. It has expressly contemplated the initiation of proceedings after commencement where they concern earlier tax years.

5.4 Reassessment Already Pending on 1 April 2026

The comparatively straightforward situation is where reassessment proceedings had already commenced under the Income-tax Act, 1961 and remained pending on 1 April 2026.

Such proceedings continue under the 1961 Act.

The official reassessment FAQs illustrate the position with a case where proceedings commenced before 1 April 2026 but the reassessment order is passed thereafter. The proceeding nevertheless continues under the old Act because Section 536(2)(c) expressly preserves it.

Accordingly, the commencement of the 2025 Act does not require the Assessing Officer to abandon the existing proceeding and initiate another proceeding under the new enactment.

Nor does the proceeding migrate midway into the reassessment provisions of the Income-tax Act, 2025.

The old statutory framework continues to govern that reassessment.

5.5 Fresh Reassessment After 1 April 2026 for an Earlier Tax Year

This is where the statutory language assumes particular importance.

It might ordinarily be argued, as a general proposition concerning repeal, that a repealed enactment cannot be invoked for the assumption of fresh jurisdiction unless the power to do so has itself been saved.

Section 536(2)(c), however, addresses precisely that situation.

It expressly preserves proceedings initiated on or after 1 April 2026 where they concern a tax year beginning before that date. The Department has accordingly clarified that reassessment for an earlier assessment year may be initiated after 1 April 2026 under the Income-tax Act, 1961, provided the conditions governing reopening under that Act are satisfied.

Thus, the mere fact that a reassessment notice is issued after repeal does not make the notice jurisdictionally invalid.

The correct inquiry is different: was the reassessment permissible under the provisions of the Income-tax Act, 1961 as preserved by Section 536?

This distinction is important for litigation. A challenge based solely upon the date of repeal may fail where Section 536 expressly preserves the power. But all other jurisdictional conditions governing reassessment under the old Act remain capable of examination.

5.6 The Tax Year Becomes the Critical Dividing Line

The transitional scheme places considerable importance upon whether the relevant tax year begins before or on or after 1 April 2026.

The Department's FAQs state that the reassessment provisions of the Income-tax Act, 2025 - Sections 279 to 286 - apply to Tax Year 2026-27 and subsequent tax years. For a tax year beginning before 1 April 2026, the reassessment provisions of the old Act continue to apply.

Therefore, practitioners should avoid determining the applicable law merely from the date appearing on the reassessment notice.

A notice issued in a later financial year may nevertheless be governed by the Income-tax Act, 1961 if it concerns an earlier tax year falling within the saving provision.

This is one of the central features of the transitional regime: the date of the proceeding and the tax year to which the proceeding relates perform different functions.

Both must therefore be identified before the governing reassessment provisions can be determined.

5.7 Procedural Safeguards Continue with the Saved Proceeding

Section 536 preserves the applicability of the old Act; it does not create an independent reassessment jurisdiction divorced from the conditions of that Act.

Accordingly, where reassessment relating to an earlier tax year is undertaken under the preserved framework of the Income-tax Act, 1961, the statutory requirements governing that reassessment remain relevant.

Depending upon the applicable provisions and the facts of the case, these may include questions concerning limitation, validity and service of statutory notices, compliance with the prescribed pre-reassessment procedure, approval or sanction by the specified authority, opportunity of hearing and natural justice, and satisfaction of other jurisdictional conditions prescribed by the 1961 Act.

The official guidance itself makes clear that fresh reassessment of an earlier year after 1 April 2026 remains permissible only if the conditions for reopening prescribed under the Income-tax Act, 1961 are met.

The saving provision therefore preserves the statutory framework; it does not dispense with it.

5.8 Saving Does Not Mean Validation of an Otherwise Defective Proceeding

An important distinction should be maintained between preservation of jurisdiction and valid exercise of jurisdiction.

Section 536 provides statutory authority for proceedings concerning earlier tax years to continue or, where permissible, to be initiated after commencement of the new Act. But the existence of that saving provision does not necessarily answer whether a particular reassessment has been validly initiated.

For example, a proceeding may still be challenged if it is barred by limitation or if a mandatory jurisdictional requirement under the applicable provisions has not been complied with.

This principle is consistent with the broader approach reflected in the Department's transitional guidance: preservation of the old law does not revive rights or claims that had already become legally unavailable under that law.

Accordingly, Section 536 should not be treated as a curative provision for defects otherwise fatal under the statutory regime it preserves.

5.9 Chronology Remains Important - but for a Different Reason

Chronology continues to play an important role in transitional reassessment litigation, although the date of initiation alone does not determine which Act applies.

A practitioner should prepare a clear chronology identifying the relevant assessment year or tax year, the date and nature of the first statutory notice, subsequent notices and orders, approvals or sanctions where applicable, limitation dates, the stage of the proceeding on 1 April 2026 and the statutory provision invoked at each stage.

Such chronology assists in determining whether the proceeding is pending or freshly initiated, whether Section 536 applies, whether the correct statutory procedure has been followed and whether the proceeding remains within limitation.

In transitional litigation, therefore, chronology is not merely evidentiary. It can be central to determining the statutory route through which jurisdiction is exercised.

5.10 Examine Jurisdiction Before Entering the Merits

Reassessment disputes frequently involve substantial arguments on the merits - whether income escaped assessment, whether information relied upon by the Assessing Officer is correct, whether expenditure is allowable, or whether a particular receipt is taxable.

During the transitional period, however, practitioners should first identify the legal foundation of the proceeding.

The preliminary examination should ask: is the relevant tax year governed by the preserved provisions of the 1961 Act or by the reassessment regime of the 2025 Act? If the 1961 Act applies, has the reassessment been initiated and conducted within the jurisdictional and procedural framework of that Act? Has limitation been observed? Have the mandatory statutory steps applicable to the particular proceeding been followed?

Only after these questions have been examined should attention ordinarily move to the substantive merits of the proposed addition.

A transitional saving provision may answer which law applies. It does not necessarily answer whether that law has been correctly applied.

5.11 Illustrative Situations

Illustration 1 - Reassessment pending on 1 April 2026

A reassessment proceeding for an earlier assessment year was validly initiated before 1 April 2026 and remains pending on that date. The proceeding continues under the Income-tax Act, 1961 by virtue of Section 536(2)(c).

Illustration 2 - Fresh reassessment after 1 April 2026

No reassessment proceeding was pending on 1 April 2026. Subsequently, the Assessing Officer proposes to reopen an earlier assessment year. Such initiation is not prohibited merely because the 1961 Act has been repealed. Section 536(2)(c) expressly permits proceedings relating to earlier tax years to be initiated after 1 April 2026 under the preserved framework of the old Act, subject to satisfaction of its statutory conditions.

Illustration 3 - Tax Year 2026-27

Where reassessment concerns Tax Year 2026-27 or a subsequent tax year, the reassessment provisions of the Income-tax Act, 2025 apply.

These illustrations demonstrate why the transitional question cannot be resolved merely by asking whether the notice was issued before or after 1 April 2026.

5.12 Conclusion

The reassessment framework under the Income-tax Act, 2025 demonstrates the breadth of the saving mechanism adopted by Parliament.

Pending reassessment proceedings concerning earlier tax years continue under the Income-tax Act, 1961. More significantly, Section 536(2)(c) also permits proceedings concerning such earlier tax years to be initiated after 1 April 2026 and carried out under the procedure of the repealed Act.

The principal transitional controversy is therefore not simply whether a proceeding commenced before or after repeal. The more important questions are which tax year is involved, which statutory regime Section 536 preserves, and whether the jurisdictional and procedural requirements of that regime have been satisfied.

For litigation practitioners, the appropriate approach is consequently sequential: identify the tax year, identify the applicable enactment, examine jurisdiction and limitation, verify procedural compliance, then examine the merits.

That sequence may prove to be one of the most important practical disciplines in reassessment litigation during the transition to the Income-tax Act, 2025.