E-Paper
SC rules in favour of revenue on 90,000 Income Tax reassessment notices
The judgment, delivered by a bench led by Chief Justice of India Dhananjaya Y Chandrachud, held that after April 1, 2021, the substituted provisions of the Income Tax Act would apply retrospectively, even for past assessment years.
New Delhi The Supreme Court on Thursday ruled in favour of the Centre in a case concerning the issuance of 90,000 reassessment notices under the old Income Tax regime.
These notices were issued after April 1, 2021, under the old reassessment scheme, and the ruling addressed the applicability of the newly amended reassessment provisions, as well as the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, or TOLA, which altered the procedure and timelines for issuing such notices.
The judgment, delivered by a bench led by Chief Justice of India Dhananjaya Y Chandrachud, held that after April 1, 2021, the substituted provisions of the Income Tax Act would apply retrospectively, even for past assessment years. This means that the new reassessment regime must be read alongside TOLA, which temporarily extended time limits due to the Covid-19 pandemic.
The Revenue was allowed to benefit from extended time limits for notices issued between March 20, 2020, and March 31, 2021, due to the challenges posed by the pandemic. However, the court clarified that TOLA could not extend the operation of the old reassessment regime beyond the timeline specified in the amended Section 149.
The bench, also comprising justices JB Pardiwala and Manoj Misra, further directed that any reassessment notice issued beyond the surviving time limits under the new regime would be invalid.
Additional solicitor general N Venkataraman appeared for the Revenue in the matter.
For taxpayers, this ruling clarifies that reassessment notices issued after April 1, 2021, will be governed by the amended provisions of the Income Tax Act, despite the Revenue’s reliance on the old reassessment regime due to TOLA’s provisions. Importantly, notices that do not meet the revised time limits will be set aside, giving taxpayers some relief from pending reassessment proceedings.
The judgment primarily dealt with the transition from the old reassessment regime to the new provisions enacted in 2021, alongside the application of TOLA.
Reassessment notices under the Income Tax Act are issued by the Revenue when it believes that some income chargeable to tax has escaped assessment for a particular year.
Prior to the amendments of 2021 in the Finance Act, reassessments were governed by Section 148 of the Income Tax Act, which allowed tax authorities to reopen assessments based on new evidence or material, subject to certain time limits. Under the old regime, reassessment notices could be issued up to six years after the end of the relevant assessment year for substantial cases involving income escaping assessment. For less substantial cases, the time limit was four years.
These notices were issued under Section 148, and approvals were required from higher authorities under Section 151 of the Act before the reassessment process could proceed.
The Finance Act of 2021 brought significant changes to the reassessment process. The time limits for issuing reassessment notices were shortened from six years to three years under the amended Section 149. For serious cases where income escaping assessment exceeded ₹50 lakh, the limit remained ten years, but with additional safeguards.
The amended provisions introduced Section 148A, which requires the tax authority to conduct a preliminary inquiry before issuing a reassessment notice. The taxpayer must be given an opportunity to be heard, and the reasons for reopening must be shared with the taxpayer before the notice is issued. Furthermore, the requirement for prior approval under Section 151 continued, but the process was refined to fit the new reassessment regime.
During the Covid pandemic, the government enacted TOLA, which extended several statutory time limits for legal and tax compliance. TOLA provided relief by extending the deadlines for reassessments, as officers faced administrative difficulties due to the pandemic. Under Section 3(1) of TOLA, the time limit for actions falling between March 20, 2020, and March 31, 2021, was extended till June 30, 2021.
This extension became critical as many reassessment notices were issued during this extended period, just as the 2021 amendments were coming into force.
The key issue before the top court was whether reassessment notices issued after April 1, 2021, under the old regime could still be considered valid, given the enactment of the new provisions.
The court ruled that after April 1, 2021, the new reassessment provisions would apply retrospectively, even to past assessment years. This means that even though the notices were issued under the old Section 148, they must comply with the requirement of the new regime (i.e., Section 148A).
It also held that the Income Tax Act, after April 1, 2021, must be read along with the substituted provisions, and reassessment notices issued under Section 148 would have to adhere to the time limits under the amended Section 149.
The court recognised that TOLA provided an extension of time due to the pandemic. Reassessment actions that were supposed to be completed between March 20, 2020, and March 31, 2021, were given extended deadlines under TOLA. Thus, the Revenue could rely on these extensions for issuing reassessment notices during the transitional period. However, the bench clarified that TOLA’s extensions could not continue indefinitely; they only provided relief for a specific period.
The court referred to its 2023 decision in the Ashish Agarwal case, where it directed assessing officers to provide taxpayers with the material on which reassessment notices were based before the taxpayers were required to respond. This procedural safeguard ensures transparency and gives taxpayers adequate time to respond to the reassessment notices. In the Thursday judgment, the bench extended the same principle to all 90,000 reassessment notices under review.
Importantly, the court clarified that any notices issued beyond the time limits set by the new regime or TOLA extensions would be considered time-barred and invalid. This brings clarity and relief to taxpayers regarding the validity of the reassessment notices they may have received.
