In a major decision that impacts thousands of taxpayers, the Supreme Court has upheld the validity of nearly 90,000 reassessment notices issued by the Income Tax Department after April 1, 2021. These notices, issued under the old provisions of the Income Tax Act, were validated despite multiple high courts ruling against their continuation past the deadline.
The controversy centered on the application of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA) of 2021. This legislation was enacted during the COVID-19 pandemic to extend deadlines for income tax compliance due to operational disruptions caused by the pandemic.
A bench led by Chief Justice D Y Chandrachud and including Justices J B Pardiwala and Manoj Misra resolved critical legal questions concerning the interplay between the Income Tax Act, TOLA, and the Finance Act. The bench clarified, “After April 1, 2021, the Income Tax Act has to be read along with the substituted provisions and TOLA will continue to apply to the Income Tax Act after April 1, 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between March 20, 2020, and March 31, 2021.”
This ruling set aside decisions from the Bombay, Gujarat, and Allahabad High Courts, which had quashed the reassessment notices citing that new provisions were more beneficial to taxpayers and were intended to protect their rights.
The crux of the issue dealt with by the Supreme Court was whether the reassessment notices issued under Section 148 of the Income Tax Act between July and September 2022 were valid. The court affirmed that the provision of TOLA “overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for the issuance of a reassessment notice under Section 148 IT Act.”
This decision comes after over 9,000 pleas were filed in various high courts challenging the reassessment notices. Many judgments were previously issued in favor of the taxpayers, prompting the revenue department to escalate the matter to the apex court.
The Centre had initially issued a notification under TOLA on June 24, 2020, extending the deadline for compliance actions under specified acts until March 31, 2021, in response to the disruptions caused by the nationwide lockdown starting in March 2020.
