Before amendments made in 2021, the Income Tax Act allowed reassessments to be initiated up to six years prior if income exceeding ₹1 lakh had escaped assessment. The new provisions shortened this period to three years if the escaped income was below ₹50 lakh, while allowing reopening for up to 10 years for larger amounts
In a significant ruling, the Supreme Court upheld the validity of nearly 90,000 income tax reassessment notices issued to individuals and businesses after April 1, 2021.
These notices, spanning assessment years 2013-14 to 2017-18, had been challenged in over 9,000 writ petitions across various high courts, where many decisions had favored taxpayers. The Supreme Court’s decision marks a major win 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 filed by the Income Tax Department. The Court’s ruling centered on whether the department could reopen assessments under the pre-amended provisions of the Income Tax Act after April 1, 2021.
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Before amendments made in 2021, the Income Tax Act allowed reassessments to be initiated up to six years prior if income exceeding ₹1 lakh had escaped assessment. The new provisions shortened this period to three years if the escaped income was below ₹50 lakh, while allowing reopening for up to 10 years for larger amounts. A key addition in the 2021 amendment was Section 148A, which mandated that taxpayers receive a show-cause notice before reassessment, ensuring they had the right to respond.
However, due to the COVID-19 pandemic, the government extended deadlines for issuing notices under the old law through the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act), or TOLA. As a result, reassessment notices issued between April 1, 2021, and June 30, 2021, adhered to the pre-amended provisions.
The Supreme Court, while delivering its decision on whether the Income Tax Department can re-open assessments under pre-2021 provisions after April 1, 2021, concluded that the substituted provisions of the Income Tax Act must be read together with TOLA post-April 1, 2021. Chief Justice D.Y. Chandrachud remarked, “We conclude that after April 1, 2021, the Income Tax Act has to be read with substituted provisions, and TOLA will continue to apply to the IT Act after April 1, 2021.”
The apex court’s task was to determine whether these reassessments should follow the old law under the TOLA extension or comply with the new, taxpayer-friendly amendments. While several high courts, including Bombay, Gujarat, and Allahabad, had quashed these notices, arguing that the new provisions protected taxpayers’ rights, the Supreme Court ultimately upheld the validity of the notices for assessment years 2013-14 to 2017-18.
Ved Jain, former ICAI President, commented on the ruling, stating, “Proceedings for assessment years 2016-17 and 2017-18 will likely be invalid due to improper approvals. The Court held that the extended period for approvals applied only until June 30, 2021, and since approvals for these years were obtained from the Principal Commissioner of Income Tax (PCIT) in June/July 2022, they are not valid under Section 151(ii). Additionally, the Revenue conceded that reassessments for AY 2015-16 are time-barred as they do not fall under TOLA, rendering all proceedings for that year invalid.”