The Supreme Court recently held that 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 if any action or proceeding related to the reassessment falls for completion between March 20, 2020 and March 31, 2021 [Union of India and ors v Rajeev Bansal]

The Finance Act of 2021 substituted the provisions dealing with the reassessment procedure under the Income Tax Act, with effect from April 1, 2021.

TOLA was enacted during the COVID-19 pandemic to relax time limits specified under the Income Tax Act and came into force with retrospective effect from March, 31, 2020.

"Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre- conditions due to the difficulties that arose during the COVID-19 pandemic," as per the Court.

A Bench of Chief Justice of India (CJI) DY Chandrachud with Justices JB Pardiwala and Manoj Misra said the two enactments operate in separate and distinct fields.

"The purpose of the Income Tax Act is to levy tax on income and raise revenues for the functioning of the Government. On the other hand, the purpose of TOLA is to provide relaxation of the time for completion of any actions or proceedings falling for completion within a particular period."

However, the Court held that TOLA overrides the Income Tax Act when it comes to relaxation of time limits to issue reassessment notices.

"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," the Court said.

The judgment came in a case arising from reassessment notices issued under Section 148 of the Income Tax Act for the assessment years 2013-14 to 2017-18.

These notices were challenged on the ground that they were time-barred, with the primary issue being whether the reassessment notices issued after April 1, 2021, could be considered valid under the Finance Act, 2021 which substituted provisions of the Income Tax Act.

The Court examined whether the relaxation provided under TOLA could extend the time limits for issuing reassessment notices.

The Allahabad High Court and various other courts had held that the reassessment notices issued after April 1, 2021 could not be saved by the provisions of TOLA as the 2021 Finance Act did not include any specific clause to extend the time limits under the unamended Act.

This led to the instant appeals before the Supreme Court, where the Income Tax Department argued that the reassessment notices were valid and that the relaxations under TOLA should apply.

The Supreme Court in its verdict allowed the appeals and held that:

- After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions;

- TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20 March 2020 and 31 March 2021;

- 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;

- TOLA will extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has extended time till 30 June 2021 to grant approval;

- In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has extended time till 31 March 2021 to grant approval;

- The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021;

- The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and

- The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA; All notices issued beyond the surviving period are time barred and liable to be set aside;

Additional Solicitor General N Venkataraman appeared for the Income Tax Department.

Senior Advocates Percy Pardiwalla, V Sridharan, Tushar Hemani, Saurabh Soparkar, and K Shivram with advocates Manish Shah, Darshan Patel, Suhrith Parthasarthy, Dharan Gandhi, and Ved Jain appeared for the assessees.

[Read Judgment]