Supreme Court: TOLA Overrides Income Tax Act To Relax Time Limits For Reassessment Notices
Supreme Court: TOLA Overrides Income Tax Act To Relax Time Limits For Reassessment Notices
The Supreme Court has recently ruled that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) will continue to apply to the Income Tax Act after April 1, 2021, in cases where any action or proceeding related to reassessment is set for completion between March 20, 2020, and March 31, 2021.
The Finance Act of 2021 substituted the reassessment procedure provisions under the Income Tax Act, effective April 1, 2021. TOLA was enacted during the COVID-19 pandemic to relax the time limits specified under the Income Tax Act and took effect retrospectively from March 31, 2020.
The Court noted that Parliament enacted TOLA to protect revenue interests, ensuring that assessing officers could comply with preconditions despite the challenges posed by the pandemic. A bench led by Chief Justice of India (CJI) DY Chandrachud, alongside Justices JB Pardiwala and Manoj Misra, clarified that TOLA and the Income Tax Act operate in distinct domains. The Income Tax Act's primary objective is to levy taxes and generate government revenue, while TOLA aims to extend deadlines for completing certain actions or proceedings.
The Supreme Court held that TOLA supersedes the Income Tax Act concerning the relaxation of time limits for issuing reassessment notices. The Court stated that "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."
This judgment arose from challenges against reassessment notices issued under Section 148 for the assessment years 2013-14 to 2017-18, where the notices were contended to be time-barred. The core issue was whether reassessment notices issued post-April 1, 2021, could remain valid under the provisions of the Finance Act, 2021.
Previously, the Allahabad High Court and other courts had ruled that reassessment notices issued after April 1, 2021, could not be saved by TOLA's provisions, as the Finance Act, 2021, did not include a specific clause to extend time limits under the unamended Act. This led to appeals before the Supreme Court, where the Income Tax Department argued for the validity of the reassessment notices and the applicability of TOLA relaxations.
In its decision, the Supreme Court allowed the appeals, stating:
• After April 1, 2021, the Income Tax Act must be read in conjunction with the substituted provisions.
• TOLA remains applicable to the Income Tax Act post-April 1, 2021, for any actions or proceedings falling between March 20, 2020, and March 31, 2021.
• Section 3(1) of TOLA overrides Section 149 of the Income Tax Act regarding the relaxation of time limits for reassessment notices issued under Section 148.
• TOLA extends the time limit for the sanction granted by the authority specified under Section 151. If the three-year time limit from the end of an assessment year falls between March 20, 2020, and March 31, 2021, then the specified authority under Section 151(i) is granted an extension until June 30, 2021, for approval.
• For Section 151 of the old regime, if the four-year limit from the end of an assessment year falls within the specified period, the authority has until March 31, 2021, to grant approval.
• The directions from the Ashish Agarwal case will apply to the approximately 90,000 reassessment notices issued under the old regime during the period from April 1, 2021, to June 30, 2021.
• The time during which show cause notices are deemed stayed is from the issuance date of deemed notices (between April 1 and June 30, 2021) until the assessing officers provide relevant information and material to the assesses, plus a two-week response period for the assesses.
• Assessing officers must issue reassessment notices under Section 148 of the new regime within the time limits set by the Income Tax Act and TOLA; any notices issued beyond the permissible period are considered time-barred and subject to dismissal.
