Supreme Court Upholds Validity of 90,000 Income Tax Reassessment Notices Following Pandemic Extensions

In an important decision, the Supreme Court has confirmed that nearly 90,000 income tax reassessment notices sent to people and businesses after April 1, 2021, are valid.

The court upheld these notices for the tax years from 2013-14 to 2017-18. Many of these notices were questioned in over 9,000 cases in different high courts, where many decisions favored the taxpayers.

The Supreme Court's ruling comes as a major victory for the Income Tax Department.

A bench led by Chief Justice D.Y. Chandrachud, along with Justices J.B. Pardiwala and Manoj Misra, delivered the judgment in response to 727 appeals from the Income Tax Department. The key question was whether the department could reopen assessments under the pre-amended provisions of the Income Tax Act after April 1, 2021.

Prior to the 2021 amendments, the Income Tax Act allowed reassessments for up to six years if income exceeding ₹1 lakh had escaped assessment.

The new provisions reduced this period to three years for escaped income below ₹50 lakh, while allowing reopening for up to 10 years for larger amounts.

An important addition in the 2021 amendment was Section 148A, which requires taxpayers to receive a show-cause notice before reassessment, giving them a chance to respond.

During the COVID-19 pandemic, the government made changes to give people more time for certain tax-related processes.

They did this by extending deadlines for sending out tax notices under the old law. This was done through a law called TOLA, which stands for the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act).

Basically, TOLA allowed tax officials to continue using the old rules for a longer period, helping taxpayers who might have faced difficulties during the pandemic.

Consequently, reassessment notices issued between April 1, 2021, and June 30, 2021, followed the pre-amended provisions.

The Supreme Court concluded that the amended provisions of the Income Tax Act must be considered alongside TOLA post-April 1, 2021.

Chief Justice D.Y. Chandrachud stated, "We find that after April 1, 2021, the Income Tax Act should be interpreted with the substituted provisions, and TOLA will continue to apply to the IT Act."

While several high courts, including those in Bombay, Gujarat, and Allahabad, had quashed these notices, arguing that the new provisions protected taxpayers’ rights, the Supreme Court ultimately upheld their validity for the assessment years 2013-14 to 2017-18.

During the COVID-19 pandemic, the government made changes to give people more time for certain tax-related processes.

They did this by extending deadlines for sending out tax notices under the old law. This was done through a law called TOLA, which stands for the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act).

Basically, TOLA allowed tax officials to continue using the old rules for a longer period, helping taxpayers who might have faced difficulties during the pandemic.

An expert stated that tax cases for 2016-17 and 2017-18 may not be valid because the required approvals were not completed correctly.

These approvals needed to be finished by June 30, 2021, but since they were obtained in 2022, the cases are considered invalid.

The expert also mentioned that tax cases for 2015-16 are invalid because they were submitted too late.

For the years 2013-14 and 2014-15, the notices sent between April 1, 2021, and June 30, 2021, will likely be valid.

However, notices sent in June or July 2022 need to be looked at carefully, as the Supreme Court said that the time limit does not count the time from the original notice up to June 30, 2021.

In most cases, these notices will be okay, but if action was not taken quickly after the taxpayer replied, some could still be too late.