TOLA Extends Income Tax Reasssment Timelimit; Notices Can Be Issued After 2021 Under Old Regime : Supreme Court

The Supreme Court on Thursday (October 3) set aside the judgments of the High Courts which held that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) (TOLA) 2021 will not extend the time limit for issuing notices for re-assessment under the Income Tax Act.

A bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Manoj Misra delivered the judgment allowing a batch of 727 appeals filed by the Income Tax Department against the various orders passed by the High Courts.

The conclusions of the judgment are as follows :

1. After 01.04.2021, the Income Tax Act has to be read along with the substituted provisions.

2. TOLA will continue to apply to the Income Tax Act after 01.04.2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20.03.2020 and 31.03.2021.

3. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time-limit for issuance of a reassessment notice under Section 148.

4. TOLA will extend the time limit for the grant of sanction by the authorities specified under Section 151. The test to determine whether the TOLA will apply to Section 151 of the new regime is this. If the time-limit of three years from the end of an assessment year falls between 20.03.2020  and 31.03.2021, then the specified authority under Section 151(1) has extended timelimit till 30.06.2021 to grant approval.

5. In the case of Section 151(1) of the old regime, the test is, if the time limit of four years from the end of an assessment year falls between 20.03.2020 and 31.03.2021, then the specified authority under Section 151(2) has extended time till 31.03.2021 for the grant of approval.

6. The directions in the judgment in Union of India v.Asish Agarwal(2022) will extend to all the 90,000 re-assement notices issued between 01 April 2021 and 30 June 2021.

7. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices

8. The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside.

9. The judgment in Allahabad High Court in Rajeev Bansal and other similar judgments are set aside to the extent of the observations made in this judgment.

Issue :

The case involved the question whether the Income Tax Department can re-open assessments as per the pre-2021 provisions of the Income Tax Act after April 1, 2021. The prime issue was whether the benefit of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) (TOLA) 2021 will govern the time frame prescribed for re-assessment under the first proviso to Section 149 of the Income Tax Act as amended by the Finance Act' 2021,

According to Section 149 of the Income Tax Act, before its amendment by the Finance Act 2021 (w.e.f 01.04.2021), assessments up to six years before a relevant assessment year could be sought to be reassessed if the escaped income is Rs 1 Lakh or above.

The 2021 amendment changed this period up to which the tax department can go back. According to the amended Section 149, assessments up to three years before a relevant assessment year could be reopened if the escaped income is less than Rs 50 lakhs. If the escaped income is Rs 50 lakhs or more, then the department could go back up to ten years prior to the relevant assessment year.

Also, the 2021 amendment inserted a new provision (Section 148A) which mandated that the department should send a preliminary notice before sending notice for reassessment as per Section 148.

However, in view of the COVID-19 pandemic, the Union Government by way of a notification extended the provisions of the old law and reassessment notices were issued between April 1, 2021 and June 20, 2021, as per the provisions of the old law.

In the lead case (Union of India v Rajeev Bansal), the challenge was to a judgment of the Allahabad High Court which held that the reassessment proceedings initiated with the notice under Section 148 issued between 01.04.2021 and 30.06.2021, cannot be conducted by giving benefit of relaxation/extension under the Taxation and Other Laws (Relaxation And Amendment of Certain Provisions) Act' (TOLA) 2020 upto 30.03.2021, and the time limit prescribed in Section 149 (1)(b) (as substituted w.e.f. 01.04.2021) cannot be counted by giving such relaxation from 30.03.2020 onwards to the revenue.

The High Court also held that  the benefit of TOLA' 2020 will not be available to the revenue, or in other words, the relaxation law under TOLA' 2020 would not govern the time frame prescribed under the first proviso to Section 149 as inserted by the Finance Act' 2021,

In 2022, the Supreme Court had saved nearly 90,000 notices issued by the Income Tax Department as per the unamended law after March 31, 2021 by deeming them as preliminary notices as per Section 148A (Union of India v. Ashish Agarwal)

Case : Union of India v Rajeev Bansal C.A. No. 8629/2024 and 726 connected cases

Citation : 2024 LiveLaw (SC) 772

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