This Tax Alert summarizes a significant decision of 3 Judge Bench of Supreme Court[1] (SC) addressing the interplay between the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA), which extended certain time limits under Income Tax Law[2] (ITL), and the provisions of ITL as amended vide Finance Act (FA) 2021 dealing with reassessment of past years.
The issue of validity of reassessment notices issued during April to June 2021
were already a subject matter of appeal in the first round of litigation before
the SC in case of Ashish Agarwal[3] wherein invoking Article 142 of
the Constitution of India, the SC saved validity of notices by deeming these
notices under old reassessment regime (i.e. prior to its amendment vide FA
2021) to be pre-inquiry notices under new reassessment regime (i.e. post
amendment vide FA 2021) and allowed proceedings to continue under new
reassessment regime.
In the second round, now the issue arose whether the reassessment notices
issued in July to September 2022 post following the procedure laid down in SC
decision in Ashish Agarwal (supra)
for certain tax years (TYs) are barred by limitation period under new
reassessment regime. Various high courts (HCs) have held that TOLA does not
extend the limitation period under new reassessment regime and hence notices
issued in July to September 2022 for specific TYs were time barred.
Consequently, issue of validity of notice again reached the SC in the present
judgement wherein the SC examined two critical issues i.e. the application of
TOLA to new reassessment regime, and the validity of reassessment notices
issued between July to September 2022 post the SC decision in Ashish Agarwal (supra).
The SC, in the present judgement, accepting the tax authority’s contention,
held that TOLA is applicable to ITL (as amended by FA 2021) if any action falls
due during 20 March 2020 to 31 March 2021 (Covid-19 disruption period). The SC
further held that time limit for issuance of reassessment notice shall be
determined after factoring the period of implied stayed from date of
pre-inquiry notice till date of supply of material or information by tax
department and a two-week response period granted thereafter to taxpayer,
pursuant to directions by SC in Ashish Agarwal (supra). Basis this, reassessment notices
issued during July to September 2022 were held to be valid.
The SC also clarified that extension granted in limitation period due to
applicability of TOLA will not change the class of sanctioning authority for
issuance of reassessment notice as applicable to the taxpayer under the
applicable provisions.
[1] Union of India and Others v. Rajeev Bansal [2024] 167
taxmann.com 70
[2] Income-tax Act 1961 read with Income Tax Rules, 1962
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