“Supreme Court Ruling on Reassessment Procedures: Clarification on Extended Deadlines Under TOLA and Finance Act 2021”

The judgment from the Supreme Court of India in the case of Union of India & Ors. vs. Rajeev Bansal and related appeals primarily deals with the reassessment procedure under the Income Tax Act and the interplay between three significant statutes: the Income Tax Act, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA), and the Finance Act of 2021.

Key Issues Addressed in the Judgment:

  1.  Background of Reassessment Procedures:

  •  The Income Tax Act provides for reassessment of income that has escaped assessment. Sections 147 to 151 of the Act, before their amendment in 2021, governed this process.

  •  With the onset of COVID-19, TOLA was enacted to provide relaxation in timelines for various statutory compliances, including reassessment actions under the Income Tax Act.

  2.  Impact of TOLA on Reassessment Procedures:

  •  TOLA extended the deadlines for various tax-related actions that fell during the pandemic. Specifically, TOLA allowed reassessment notices to be issued until June 30, 2021, in cases where they would have otherwise been barred by limitation.

  3.  Finance Act 2021 and Reassessment Regime:

  •  The Finance Act 2021 introduced substantial changes to the reassessment provisions under the Income Tax Act. One of the most critical changes was that reassessment notices could only be issued after prior approval of the specified authority and based on concrete information suggesting income had escaped assessment.

  4.  Main Contentions of the Case:

  •  One of the central disputes in this judgment revolves around the extension of the deadline for issuing reassessment notices. The respondents (Rajeev Bansal and others) argued that the reassessment notices issued post the June 2021 deadline under the old regime were invalid due to the changes introduced by the Finance Act 2021.

  •  The government, on the other hand, contended that TOLA extended the timelines, allowing them to issue reassessment notices until June 30, 2021, and that the Finance Act 2021 should not retroactively affect their rights to reassess under the previous provisions.

Judgment Highlights:

  1.  Legality of Notices Issued under the Old Regime:

  •  The Supreme Court concluded that the reassessment notices issued between April 1, 2021, and June 30, 2021, were valid due to the relaxation provided by TOLA. However, the Court clarified that post-June 30, 2021, all reassessment actions must comply with the Finance Act 2021.

  2.  Harmonious Construction:

  •  The Court emphasized the principle of harmonious construction, which states that when two statutes overlap, they should be interpreted in a way that gives effect to both. In this case, the Court tried to balance the old reassessment regime under the Income Tax Act with the new provisions introduced by the Finance Act 2021, while respecting the extended timelines under TOLA.

  3.  Article 142 of the Constitution:

  •  To prevent confusion, the Court exercised its powers under Article 142, which allows it to pass orders for doing complete justice. The Court extended the benefit of a previous ruling in Ashish Agarwal’s case to the present reassessment notices, thereby providing a legal framework for how the reassessment notices issued during the transitional period should be treated.

Conclusion:

The Supreme Court’s judgment is a significant clarification on the application of reassessment provisions under the Income Tax Act, particularly in the context of legislative changes brought about by TOLA and the Finance Act 2021. The Court upheld the validity of reassessment notices issued before June 30, 2021, under TOLA but stipulated that any notices issued thereafter must comply with the new regime under the Finance Act 2021.

The judgment harmonizes the transition between the old and new reassessment procedures, ensuring that the revenue authorities’ powers to reassess income that has escaped assessment are not unduly curtailed while safeguarding taxpayers’ rights under the new legal framework.