Reassessment dispute case: SC rules in favour of Revenue Department

The Supreme Court (SC) on Wednesday ruled in favour of the Revenue Department in the reassessment dispute case. The top court reversed the earlier high court orders that had quashed income-tax notices issued after March 31, 2021, under the old reassessment regime.

The SC ruling has come as a setback for thousands of taxpayers who had got favourable orders from several high courts on reassessment.

The apex court held that notices issued under the old regime will not be invalid and shall be deemed to have been issued under new provision of the reassessment regime introduced in the Finance Act, 2021.

…..“in order to strike a balance between the rights of I-T and taxpayers and to prevent the loss of public exchequer, the Supreme Court, as one-time exception has directed that notices issued earlier under Section 148 to be deemed to have been issued under Section 148A of the Act under the new law,” the Supreme Court said in the order.

The new reassessment law had capped the period for issuing notices with respect to reopening past cases at three years, down from from six years earlier. 

Even as the new regime kicked in from April 1, 2021, the tax department had issued over 90,000 notices between April 1 and June 30, 2021, for earlier years. 

The notices were issued based on the government’s notification extending the time limit to June 30, 2021, citing the second wave of the pandemic. Following this, 9,000 plus writ petitions were filed in many courts challenging validation of the notices. 

The tax department had issued these notices under section 148, alleging under-reporting and misreporting of income for years prior to the last three assessment years.

"Introduction of section 148A ( new regime) of the IT Act can be said to be a game changer with an aim to achieve the ultimate object of simplifying the tax administration, ease compliance and reduce litigation," the apex court said.

Change in law for reassessment has been made by the legislature for the benefit of taxpayers and the I-T department cannot be left remediless due to a bona-fide mistake of extending time limits by a notification and issuing such reassessment notices on or after April 1, 2021, under the old reassessment law, when new law had become applicable, it said. 

It also directed the tax department to give sufficient opportunity to taxpayers.

“The judgment of SC is a landmark in the history of income tax jurisprudence, as it has invoked Article 142 of the Constitution, modifying and in a way reversing the orders passed by several courts,’’ said Rakesh Nangia, chairman, Nangia Andersen India.

This ruling is on a special review petition filed by the Centre after three high Courts — Delhi, Allahabad and Rajasthan — quashed the notices issued by the tax department. Other high courts followed suit preventing the tax department from reopening cases for reassessment.

“Revenue cannot be without remedy and at the the same time, a one-time opportunity for defence must be provided to assessees, thus upholding democracy, fairness and above all striking balance,’’ said Mumbai-based chartered accountant Mitil Chokshi.

In the past, apex court has invoked Article 142 in some historical cases with wide ramifications such as Ayodhya Ram Janmabhoomi land dispute, Bhopal gas tragedy and coal block allocation, Nangia pointed out.