The Hon’ble Supreme Court[1] expounded the applicability of Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) with respect to the newly introduced scheme of income escaping assessment/re-assessment introduced into the Income Tax Act (ITA) vide Finance Act, 2021 if any action falls due during Covid-19 disruption period (March 20, 2020 to March 31, 2021)
The reassessment/income escaping assessment provisions are carried out under Section 147 of the Income Tax Act, 1961(‘ITA’) for which the period of limitation for issuance of notices is outlined in Section 149 of the ITA and the sanctioning authority is provided under Section 151 of the ITA. Owing to the COVID pandemic, the Central Government through the Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020 [TOLA] extended the time limits till 30 June, 2021 for completion or compliance of certain actions which fell for completion during the COVID-19 outbreak from March 20, 2020 to March 31, 2021(COVID outbreak period).
The Finance Act, 2021, introduced new provisions of reassessment w.e.f. April 01, 2021 in the ITA with a new process of initial inquiry, an extended period of limitation (up to 10 years) for higher income escaping threshold (more than INR 50,00,000) and different authorities for sanctioning. However, there was a limitation provided (first proviso to Section 149 in the Finance Act, 2021), wherein no notice under new provisions could be issued for preceding assessment years if such notice could not have been issued within the time limit specified (6 years) under the erstwhile reassessment regime.
The reassessment notices issued between April 01,2021 and 30 June,2021under the old regime had been challenged by the taxpayers on the premise that the Revenue authorities could no longer resort to the old regime once the new reassessment regime has been introduced via the Finance Act 2021 w.e.f. April 01, 2021.
The Supreme Court in the case of UOI v. Ashish Agarwal [2022] 444 ITR 1(SC) directed reassessment notices issued under the old regime to have been issued under Section 148A of the new regime. It further mentioned that all defenses under the applicable provisions of the ITA shall be available to the taxpayers.
In the said case, the Supreme Court ruled that the legislative intention behind the over-riding clause in TOLA is to remove any obstacles and ensure that the full benefit of the relaxation should be provided to both the assessee and the Revenue for difficulties caused by the COVID-19 pandemic. Section 3(1) of TOLA, which is only concerned with the performance of actions contemplated under the provisions of the specified Acts has to be read as a controlling provision with respect to the provisions of the ITA.
Consequently, the amendment or substitution of a provision under the specified Acts will not affect the application of TOLA, TOLA will continue to apply to the ITA after April 1, 2021 if any action or proceeding specified under the substituted provisions of the ITA falls for completion between COVID outbreak period.
Accordingly, Section 3(1) of TOLA overrides section 149 only to the extent of relaxing the time-limit for issuance of a reassessment notice.
After April 1,2021 the ITA has to be read along with the substituted provisions with respect to reassessment which apply retrospectively for past assessment years as well. As on April 1, 2021 TOLA was still in existence, and the revenue could not have ignored the application of TOLA and its notifications. Therefore, for issuing a reassessment notice under section 148 after April 1, 2021 the revenue would still have to consider the time limit specified under section 149 of the new regime and time limit for issuance of notice as extended by TOLA and its notifications. Whilst the revenue cannot extend the operation of the old law under TOLA, it can certainly benefit from the extended time limit for completion of actions falling for completion between the COVID outbreak period.
The Apex Court observed that TOLA will extend the time-limit for the grant of sanction by the authority specified under section 151 of the ITA since the grant of sanction by the appropriate authority is a pre-condition for the tax officer to assume jurisdiction under section 148 of the ITA to issue a reassessment notice.
The Court held that the deemed show cause notice would be stayed from the date of issue of such notice (between April 1,2021 and June 30, 2021) till the supply of relevant information and material by the Assessing Officers to the assessee and the period of two weeks allowed to the assessee to respond to the show cause notices. Further, the reassessment notices issued under Section 148 of the new regime, which is in pursuance of the deemed notices, ought to be issued within the time limit surviving under the ITA read with TOLA, and a reassessment notice issued beyond the surviving time limit will be time-barred.
The Supreme Court in the decision continues its endeavor to provide equity to both Revenue and taxpayers. The Assessee will have to map the Supreme Court decision to the factual matrix of their respect cases to strategize the way forward premised on other legal defenses which would continue to be available to them.
[1] Union of India and Others v. Rajeev Bansal [2024] 167 taxmann.com 70