The Supreme Court’s decision in Union of India vs. Rajeev Bansal (Civil Appeal No. 8629 of 2024) has resolved the ongoing controversy about reassessment proceedings initiated consequent to the notices issued between April 1, 2021, and June 30, 2021, under Section 148 of the Income Tax Act. These notices were issued following the extension provided under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) for completion of action needed during the period 20 March 2020 to 31 March 2021
First Round of Litigation
Initially, several High Courts ruled in favor of taxpayers, holding that the reassessment notices issued during the period April 1, 2021, and June 30, 2021, were invalid. The courts reasoned that the new reassessment provisions, introduced by the Finance Act, 2021, effective from April 1, 2021 (new regime), were not followed. However, in Union of India v. Ashish Agarwal, the Supreme Court, using its discretionary jurisdiction under Article 142 of the Constitution, deemed these notices as show-cause notices under the new regime (Section 148A(b)). The Court directed that taxpayer be given the material relied upon by the Revenue, an opportunity to respond and the procedure prescribed under the new reassessment provisions be followed. All legal contentions were kept open for both sides.
Second Round of Litigation
This led to the issuance of fresh reassessment notices, which taxpayers challenged on the grounds that they were time-barred and lacked the proper sanction from the specified authorities as prescribed under the new regime. Taxpayers argued that TOLA did not apply after April 1, 2021, and hence, notices issued after this date were invalid considering the new regime’s limitation of 3 years (for cases involving income escapement of less than ₹50 lakh) or 6 years (for amounts exceeding ₹50 lakh). These arguments were accepted by several High Courts, including those in Bombay, Delhi, Gujarat, Allahabad, and Rajasthan.
Supreme Court’s Ruling
In Rajeev Bansal, the Supreme Court overruled the High Court decisions, holding that the extension of time granted under TOLA for issuing reassessment notices up to June 30, 2021, applied even under the new regime, provided that the actions pertained to assessments becoming time-barred between March 20, 2020, and March 31, 2021 (the “Covid exclusion period”). The Court has held that notices issued during the period April 1, 2021 to June 30, 2021 (subsequently deemed as show-cause notice under the new regime (Section 148A(b)), will have to be read in context of the new regime effective April 1, 2021 and the directions issued by the Court in Ashish Agarwal.
In this context, where the alleged income escapement is less than ₹50 lakhs, the re-assessment for AY 2016-17 and AY 2017-18 would have become time-barred on March 31, 2020 and March 31, 2021, respectively. For cases exceeding the ₹50 lakh threshold, AY 2013-14 and AY 2014-15 would have similarly become time-barred on March 31, 2020, and March 31, 2021, respectively. Since notices for AY 2016-17 and AY 2017-18 (under the 3-year limitation) and AY 2013-14 and AY 2014-15 (under the 6-year limitation) could have been issued during the period from March 20, 2020 to March 31, 2021, TOLA extended the limitation period to June 30, 2021.
However, for AY 2015-16, where the 3/6-year limitation periods expired on March 31, 2019 and March 31, 2022, the issuance of reassessment notices did not fall within the Covid exclusion period ( March 20, 2020 to March 31, 2021). Therefore, the issuance of notices for this year falls outside the scope of TOLA and must be addressed separately based on its own merits—a position that was conceded by the Revenue before the Supreme Court.
A significant outcome for taxpayers is the court’s determination that the extension provided by TOLA is subject to the limitations and sanctions of the appropriate authority, as prescribed under the new regime. Regarding limitation periods, the Court clarified that TOLA only extends the deadline for completing the process until June 30, 2021, but it does not extend the statutory limitation period itself. This means that all the steps required prior to issuing a notice under Section 148—such as providing a show-cause notice (SCN) and supporting material to the taxpayer, evaluating their reply, obtaining approval from the specified authority, and issuing a valid notice—must be completed within the extended timeline.
Furthermore, in determining the limitation period, the Court ruled that the time between the issuance of the deemed notice under Section 148A(b) and the taxpayer’s response to the SCN should be excluded from the limitation period, as provided in the third proviso to Section 149 (due to a stay of proceedings and additional time granted to the taxpayer to furnish a response). For example, if a notice under Section 148A(b) is issued on June15, 2021, since the limitation period expires on June 30, 2021, the balance of 16 days will be available to the Revenue after the taxpayer gives his response to complete the proceedings and issue the notice.
Finally, the court noted that the new regime requires a higher level of approval from the sanctioning authority compared to the earlier regime, which is favorable to the taxpayer. Therefore, after April1, 2021, prior approval must be obtained from the appropriate authorities as specified under Section 151 of the new regime.
Conclusion
The Supreme Court’s decision in Rajeev Bansal balances the interests of both the Revenue and taxpayers by upholding the reassessment notices issued under TOLA’s extended timeline, while also ensuring that such notices follow the stricter procedural safeguards under the new regime. This ruling provides clarity on the application of TOLA and the new reassessment provisions, reaffirming that while the extension period applies, the limitation and procedural requirements of the new regime must still be followed. Taxpayers whose notices were issued after April 1, 2021, without meeting these criteria may still find relief on the ground of lacking jurisdiction, but those notices issued within the extended timeline and in compliance with the new regime will have to be defended on merit.
Contributed by Yatin Sharma.
Yatin is a Partner with Aureus Law Partners with more than two decades of experience in Tax, Corporate and Exchange Control Laws. He is a qualified Chartered Accountant, Lawyer and an Insolvency Resolution Professional .
Please feel free to reach out to us at aureus@aureuslaw.com should you require any assistance on the topic of this conversation.
2024-10-07