Time limit for re-assessment under Income Tax Act will be extended: SC

In a relief to the Revenue Department, the Supreme Court on Thursday ruled that the Income Tax Act must be interpreted with the amended provisions effective from April 1, 2021, impacting approximately 90,000 reassessment notices.

The court set aside the judgments of the High Courts, which had held that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) (TOLA) 2021 would not extend the time limit for issuing reassessment notices under the Income Tax Act. By doing so, the appeals by the Revenue Department were allowed.

“After April 1, 2021, the Income Tax Act has to be read along with the substituted provisions. TOLA will continue to operate beyond April 1, 2021. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act,” the court ruled.

In this case, the government changed the rules regarding how far back tax officials could look at old tax returns, creating confusion as there were two different sets of rules: the new rules effective from April 1, 2021, and the old ones prior to this date. Many taxpayers received tax notices and filed lawsuits contending that the law of limitation applied, and that the Revenue Department didn’t have the authority to act beyond April 1, 2021. The tax department also challenged some of these lawsuits in court.

“The decision will resolve many tax disputes that have been ongoing for more than ten years. However, it will have a significant impact since about 90,000 taxpayers, including both individuals and businesses, are expected to be affected by the ruling,” said Ritika Nayyar, partner at Singhania & Co.

The court also stated that the directions in the Ashish Agarwal case will extend to all 90,000 assessment notices issued under the old regime.

“All notices issued beyond the surviving period are time-barred,” the court held.

The judgments by various High Courts, including ITO Surat (Gujarat High Court), Rajeev Bansal (Allahabad High Court), Siemens vs DCIT (Bombay High Court), Ambika Anand (Orissa High Court), Twilight Industries, and Ganesh Das Khanna (Delhi High Court), were set aside, the court added.