New Delhi, Oct 3 (FN Representative) The Supreme Court on Thursday 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 D Y Chandrachud, Justice JB Pardiwala and Justice Manoj 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 Bench announced that the Taxation and Other Laws TOLA applies to the Income Tax Act beyond the previously specified date. Justice Misra said that after April 1, 2021 the Income Tax Act has to be read along with substituted provisions, TOLA will continue to operate beyond April 1, 2021.
”Section 3(1) TOLA overrides section 149 of the Income Tax Act,” the bench held. The CJI said that ”the directions passed in this case (Union of India VS Ashish Agarwal) will extend to all 90,000 assessment notices issued under the old regime”. Justice Chandrachud said “All notices issued beyond the surviving period are time-barred. ” The Bench pronounced its judgment while hearing the issue of 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 Court set aside all judgments previously pronounced by other courts including ITO Surat by Gujarat High Court, Rajeev Bansal judgment by Allahabad High Court, Siemens vs DCIT Bombay High Court judgment, Ambika Anand Orissa High Court judgment, Twilight industries, Ganesh Das Khanna from Delhi High Court. The matter pertains to the issue of 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 main 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 with effect from April 01, 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 before 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 April 01, 2021, and June 30, 2021, cannot be conducted by giving the benefit of relaxation/extension under the Taxation and Other Laws (Relaxation And Amendment of Certain Provisions) Act’ (TOLA) 2020 up to March 30, 2021, and the time limit prescribed in Section 149 (1)(b) (as substituted with effect from April 01, 2021) cannot be counted by giving such relaxation from March 30, 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 served 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.