Introduction
In a landmark decision in Union of India & Ors. v. Rajeev Bansal[i], the Hon’ble Supreme Court examined the complex interaction between the Income-tax Act, 1961 (‘Act’), the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (‘TOLA’), and the Finance Act, 2021 (‘FA21’). The case involved reassessment notices issued after 01.04.2021 – a period in which the FA21 amendments significantly restructured the reassessment procedure under ss. 147 to 151 of the Act. Following decisions from various High Courts that quashed these notices, the Supreme Court reviewed whether TOLA could extend deadlines for reassessment notices issued during this transitional legislative period. This decision thus attempts to clarify the delicate balance between legislative intent and procedural fairness in interpreting statutory time limits within India’s tax framework.
The Court essentially reinforced the principle that statutory time limits hold substantial jurisdictional weight, particularly in tax law. Simultaneously, it acknowledged the unique administrative challenges posed by COVID-19, which led to interim adjustments through TOLA. By referring to legislative history, principles of statutory interpretation, and the scope under a. 142 of the Constitution, the Supreme Court appears to have aimed to harmonize the rights of taxpayers with the procedural responsibilities of the Revenue.
Brief Facts
As a backdrop, the Act sets out the procedure for reassessment through ss. 147 to 151 (the ‘Old Regime’). In response to the COVID-19 pandemic, the government introduced TOLA, extending statutory deadlines for assessment and reassessment actions between 20.03.2020 and 31.03.2021. The FA21 amendments, effective from 01.04.2021, introduced substantial changes to ss. 147 to 151 of the Act (the ‘New Regime’).
After 01.04.2021, the Revenue issued reassessment notices under the Old Regime provisions, which assessees challenged across various High Courts. The High Courts consistently ruled against these notices. They invalidated them on the ground that the FA21 amendments required strict adherence to the new provisions, with no saving clause permitting the continuation of the Old Regime. The High Courts further concluded that TOLA could not retroactively revive the old law following substantive amendments by FA21, as the absence of specific transitional provisions indicated the legislative intent for the new provisions to completely replace the old.
Subsequently, in Union of India v. Ashish Agarwal[ii], the Supreme Court addressed procedural complexities arising from reassessment notices issued after 01.04.2021 under the old regime. The Court exercised its Article 142 jurisdiction to ‘deem’ these reassessment notices as issued under s. 148A(b) of the New Regime. The Supreme Court agreed with the High Courts on extending the benefits of the new regime to taxpayers. Still, it differed on the strict interpretation of TOLA, emphasizing that the Revenue had acted in bona fide reliance on the Old Regime due to the timing of the amendments and, therefore, refrained from invalidating these notices altogether.
Following this decision, the Central Board of Direct Taxes (‘CBDT’) issued instructions[iii] clarifying that all reassessment notices issued between 01.04.2021 and 30.06.2021 would be considered as issued under s. 148A(b) of the Act. The issues before the Supreme Court in this matter were twofold: (i) whether TOLA and its notifications applied to reassessment notices issued after 01.04.2021, and (ii) whether reassessment notices issued under s. 148 of the new regime between July and September 2022 were valid.
Held
The Supreme Court allowed the Revenue’s appeals, holding that TOLA could apply to all reassessment notices issued after 01.04.2021 but only to extend the deadlines for actions initially due between 20.03.2020 and 31.03.2021 and must follow the requirements under the new regime. It also ruled that reassessment notices issued under s. 148 between July and September 2022 were invalid if they did not comply with the prescribed time limits under the new regime and TOLA’s extensions, which only allowed deadlines up to 30.06.2021.
The Court held that s. 3(1) of TOLA would override s. 149 of the Act only to extend the time limit for issuing reassessment notices under s. 148. Additionally, the Court ruled that the period during which show-cause notices (‘SCNs’) were pending must be excluded from limitation calculations, ensuring compliance with TOLA’s extended deadlines. Based on this, the Court stated that notices failing to meet the new regime’s conditions within the prescribed period would be deemed time-barred and invalid.
The Court also specified that the directions in Ashish Agarwal (supra) extended to all 90,000 reassessment notices issued under the old regime between 01.04.2021 and 30.06.2021. It further set aside judgments from various High Courts, including Union of India v. Rajeev Bansal[iv], Keenara Industries Pvt. Ltd. v. ITO, Surat[v], J M Financial and Investment Consultancy Services Pvt. Ltd. v. ACIT[vi], Siemens Financial Services Pvt. Ltd. v. DCIT[vii], Geeta Agarwal v. ITO[viii], Ambika Iron and Steel Pvt Ltd v. PCIT[ix], Twylight Infrastructure Pvt Ltd v. ITO[x], Ganesh Dass Khanna v. ITO[xi], to the extent of observations made in this ruling.
The Court clarified that the FA21 amendments fully superseded the Old Regime under ss. 147 to 151 of the Act, mandating that any reassessment action after 01.04.2021 must comply with the New Regime’s procedural framework. For any notice under s. 148 of the Act, the new regime requires an SCN under s. 148A(b), an opportunity for the taxpayer to be heard, and prior approval from the specified authority under s. 151 – all prerequisites before initiating reassessment proceedings. These beneficial provisions under the new regime were consistently held to extend to taxpayers.
Regarding the applicability of Ashish Agarwal (supra), the Court refined its position to clarify TOLA’s scope and the procedural requirements of the new regime. The Court ruled that TOLA’s deadline extensions would still apply to actions due within the substituted FA21 provisions, but only for a limited period. For actions due before 01.04.2021, TOLA extended deadlines to 30.06.2021. For actions post-01.04.2021, however, it was held that TOLA could not override FA21’s new procedural requirements.
Our Analysis
While this decision highlights the Supreme Court’s commitment to balanced and equitable tax law interpretation in transitional periods, it also raises concerns about reliance on a. 142 of the Constitution to retroactively validate notices issued under the Old Regime by categorizing reassessment notices under a. 142 as valid SCNs under s. 148A(b) of the New Regime, the Court effectively bypassed limitations that might have barred many notices. This approach also broadened the applicability of Ashish Agarwal (supra) to all reassessment cases initiated after 01.04.2021, including those involving taxpayers who did not challenge notices received by them in High Courts.
However, from a purely academic standpoint, this judgment serves as a compendium of principles for interpreting tax laws and reassessment procedures under the Act. The Court reconciled conflicting provisions between the Act, TOLA, and FA21 through the principles of harmonious construction and implied repeal. Recognizing the legislative intent behind FA21, the Court ruled that while the new provisions under ss. 147 to 151 superseded the old reassessment framework, and TOLA’s deadline extensions had limited applicability. This interpretation allowed TOLA to function as a supplementary provision within the reassessment regime without contradicting it. The Court also reiterated that tax statutes require strict interpretation, governed by their literal language, unless this leads to absurdity.
The Court emphasized that assessment is a quasi-judicial function designed to ensure tax compliance when income has escaped assessment. The decision also highlighted jurisdictional consideration, affirming that statutory prerequisites strictly limit an assessing officer’s authority to reassess and that any reassessment made without meeting these foundational requirements is void and legally invalid.
End Notes
[i] 2024 SCC OnLine SC 2693, dated 03.10.2024.
[ii] (2023) 1 SCC 617.
[iii] CBDT Instruction No. 01/2022 dated 11.05.2022.
[iv] Writ Tax No. 1086/2022 (Allahabad High Court).
[v] R/Specia CA No. 17321/2022 (High Court of Gujarat).
[vi] WP No. 1050/2022 (High Court of Judicature at Bombay).
[vii] (2023) 457 ITR 647 (High Court of Judicature at Bombay).
[viii] DB Civil Writ Petition No. 14794/2022 (High Court of Judicature at Rajasthan).
[ix] WP(C) No. 20919/2021 (High Court of Orissa).
[x] WP(C) No. 16524/2022 (High Court of Delhi).
[xi] (2024) 460 ITR 546 (High Court of Delhi).
Authored by Srishty Jaura, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.