Supreme Court upholds validity of 90,000 IT reassessment notices issued after April 1, 2021

New Delhi: In a relief to the Income Tax Department, the Supreme Court has upheld the validity of nearly 90,000 reassessment notices issued by the revenue department after April 1, 2021, under old provisions.

The top court on Thursday set aside the verdicts of several high courts that had held that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA) of 2021 will not extend the time limit for issuing reassessment notices under the Income Tax Act.

TOLA was brought in during the Covid-19 pandemic to extend time limit for income tax compliances.

A bench comprising Chief Justice D Y Chandrachud and Justices J B Pardiwala and Manoj Misra dealt with two legal questions related to the interplay of three Parliamentary statutes, the Income Tax Act, the TOLA and the Finance Act.

The issues, adjudicated upon by the top court, read: "Whether TOLA and notifications issued under it will also apply to reassessment notices issued after April 1, 2021 and whether the reassessment notices issued under Section 148 of the new regime between July and September 2022 are valid." The CJI, writing the 112-page judgement, held, "We conclude that: a. After April 1, 2021, the Income Tax Act has to be read along with the substituted provisions and TOLA will continue to apply to the Income Tax Act after April 1, 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between March 20, 2020 and March 31, 2021." The bench held that the provision 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 IT Act".

Over 9,000 pleas were filed in different high courts challenging the re-assessment notices and several judgements were passed in favour of the taxpayers leading the revenue department to move to the apex court.

The Centre, which announced a complete lockdown for the entire nation containing the spread of Covid-19 in March 2020, came out with TOLA and this Act of 2021 with a retrospective effect extended the time limits for "completion or compliance of actions under the specified Acts till June 20, 2020".

Later, on June 24, 2020, the Centre issued a notification under the TOLA to extend the time limit for completion or compliance of actions under the specified Acts till March 31, 2021.

The top court allowed the appeal of the Income Tax Department.

The reassessment notices issued by the IT department pertained to assessment years from 2013-14 to 2017-18. And the amount involved may run into thousands of crores rupees.

The top court was to adjudicate whether the IT department can re-open assessments after April 1, 2021, as per the pre-amended provisions of the I-T Act.

The bench had to determine whether the benefit of the TOLA, granting relaxation of time limits under specific acts during the pandemic, would govern the time frame for reassessment.

The high courts at Bombay, Gujarat and Allahabad had quashed all the reassessment notices on various grounds.

Their main contention was the new provisions were more beneficial and were meant to protect the rights and interests of taxpayers.

These high courts had held that TOLA would not extend the time limit for issuing reassessment notices.

The apex court held that after April 1, 2021, the substituted provisions of the Income Tax Act would apply retrospectively, even for past assessment years.

As a result, the new reassessment regime must be read alongside TOLA, which temporarily extended time limits due to the pandemic.

The IT department was permitted 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 top court clarified that TOLA could not extend the operation of the old reassessment regime beyond the timeline specified in the amended Section 149.

Section 149 of the IT Act, deals with the time limit for issuing income tax notices to assesses and says "No notice under section 148 shall be issued for the relevant assessment year...".