NEW DELHI, Oct 4: In a significant relief for the Income Tax Department, the Supreme Court has upheld the validity of approximately 90,000 reassessment notices issued after April 1, 2021, under the old provisions of the Income Tax Act. These notices were challenged in multiple high courts, which had previously ruled in favor of the taxpayers.
A bench comprising Chief Justice D Y Chandrachud and Justices J B Pardiwala and Manoj Misra set aside the high courts’ verdicts and ruled that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA) of 2021, introduced during the COVID-19 pandemic, extends the time limit for income tax reassessment notices issued under Section 148 of the Income Tax Act.
The Supreme Court examined two key legal questions:
Whether TOLA and its notifications apply to reassessment notices issued after April 1, 2021.
Whether reassessment notices issued between July and September 2022 under the new regime were valid.
Chief Justice Chandrachud, in a 112-page judgment, concluded that after April 1, 2021, the Income Tax Act must be interpreted with its substituted provisions, and TOLA would continue to apply if any action or proceeding under the substituted provisions of the Income Tax Act was due for completion between March 20, 2020, and March 31, 2021.
The court ruled that TOLA “overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice.”
This judgment came after over 9,000 pleas were filed in various high courts, including Bombay, Gujarat, and Allahabad, challenging the reassessment notices issued by the IT department. These high courts had quashed the notices, stating that the new provisions of the Income Tax Act, which were more taxpayer-friendly, should apply.
The Centre had invoked TOLA during the nationwide lockdown in March 2020 due to COVID-19. This Act extended the time limits for various compliance and reassessment actions, which the IT department sought to rely on in issuing the disputed reassessment notices.
The court clarified that while TOLA allowed the department to benefit from extended time limits for actions between March 20, 2020, and March 31, 2021, the old reassessment regime could not be extended beyond the limits set by the amended Section 149 of the Income Tax Act.
The reassessment notices issued by the IT department pertain to assessment years from 2013-14 to 2017-18, and the total amount involved could run into thousands of crores.
