Explained| Why Supreme Court Allowed Benefit Of TOLA In Extending Timelimits For Issuing Income Tax Reassessment Notices

The Supreme Court in its recent decision allowed the revenue authorities to issue notices for reassessment under the Income Tax Act for the period between 01.04.2021 and 30.06.2021 by granting the benefit of time extensions under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) (TOLA) 2021. Here is a detailed breakdown of the key issue involved and the analysis of the Court in allowing a batch of 727 appeals filed by the Income Tax Department against the various orders passed by the High Courts. The impugned orders of the High Courts refused to extend the benefit of TOLA in reassessment proceedings initiated with the notice under Section 148 issued between 01.04.2021 and 30.06.2021. The bench comprising Chief Justice of India DY Chandrachud, Justice JB Pardiwala and Manoj Misra had delivered the judgment What Was The Question Of Law? The case involved the question 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 prime issue was whether the benefit of TOLA 2021 would 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 (w.e.f 01.04.2021), 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 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 prior to 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 (issue of notice where income escaped assessment). Additionally S. 151 deals with sanctions by specified authorities required for issuance of notice under S. 148 and S. 148A.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. Decoding The Changes In Time Limits As Per The New v. Old Regime Under S. 149 Of Income Tax Act The Court dissected that under S.149 of the Old Regime, two main time limits were prescribed for issuing reassessment notices - (1) 4 years for all situations and (2) Upto 6 years if the amount of income escaped was one lakh rupees or more However, under the S.149 of the New Regime that was enacted from April 1, 2021, two main alterations to time limits have been done : (1) General time limit reduced from 4 years to 3 years. S. 149 (1) of New Regime reads : . (1) No notice under section 148 shall be issued for the relevant assessment year, - (a) If three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) If three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in possession of books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year: Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April 2021, if such notice could not have been issued at that time on account of being immediately beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021:”The Court placed reliance on its decision in CTO v. Biswanath Jhunjhunwalla ( (1996) 5 SCC 626), where the notification of extension of the time limit for the Tax Commissioner to revise any assessment from 4 to 6 years (from date of assessment) was challenged. It was argued that the notification could not be applied to the assessments which had attained finality because of the expiry of the period of four years. Therein, the Court upheld the notification and ruled that “if the legislative intention is clear and the language is unambiguous, full effect must be given to the legislative intention by reading the notification as applying not only to the incomplete assessments but also to assessments that had reached finality because of lapse of the earlier prescribed period.” Applying the same, the Court presently held that notices must be evaluated based on the law in effect when they are issued. This means that the...

Explained| Why Supreme Court Allowed Benefit Of TOLA In Extending Timelimits For Issuing Income Tax Reassessment Notices

Anmol Kaur Bawa

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