TOLA applicable to Income Tax Act beyond previously specified date: Supreme Court [Read Judgement]

In a significant relief for the Income Tax Department, the Supreme Court has ruled that the Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020 (TOLA) is applicable to the Income Tax Act beyond the previously specified date.

Chief Justice D.Y. Chandrachud stated that the rulings from the ITO Surat by the Gujarat High Court, the Rajeev Bansal judgement from the Allahabad High Court, the Siemens vs. DCIT decision by the Bombay High Court, the Ambika Anand ruling from the Orissa High Court, as well as cases involving Twilight Industries and Ganesh Das Khanna from the Delhi High Court, have all been overturned.

The dispute emerged during the COVID-19 pandemic when the government announced a temporary extension of the regulations governing the reopening of old tax returns.

This notification led to both the old and new tax laws on reassessment being regarded as concurrently valid, resulting in an influx of notices and over 10,000 writ petitions, many of which were contested by tax authorities in the Supreme Court.

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TOLA was enacted to address the significant challenges in initiating actions and complying with statutory timelines due to the COVID-19 pandemic, which began in March 2020 and affected the entire country. The provisions of TOLA provided an extended grace period for issuing notices, granting sanctions, and fulfilling other statutory requirements under the Act.

The directions established in the Ashish Agarwal case will be applicable to all 90,000 reassessment notices. Additionally, it was clarified that notices issued under Section 148 of the new regime are considered time-barred and have been annulled by the court.

Prior to the Finance Act 2021, Section 151 classified the approvals necessary for initiating reassessment actions based on the time elapsed since the end of the relevant assessment year (AY). Sub-section (1) addressed situations where a reassessment notice was issued after four years from the end of the relevant AY, requiring prior approval from the Principal Chief Commissioner and other authorities. Sub-section (2) served as a residuary clause, necessitating approval from the Joint Commissioner of Income Tax (JCIT) for cases covered under its scope.

By the Finance Act 2023, the phrase “where there is no Principal Chief Commissioner or Principal Director General” was removed from Section 151, and a proviso was added to clarify that the three-year period for Section 151(1) would be calculated according to the Third, Fourth, Fifth, and Sixth Provisos to Section 149(1) of the Act.

Furthermore, Section 151 has been revised through the Finance Act 2024 to specify that the ‘specified authority’ for sanctioning the issuance of notices will be the Additional Commissioner, Additional Director, Joint Commissioner, or Joint Director. However, the current batch of writ petitions pertains to the provisions of Section 151 as they were immediately before and after the enactment of the Finance Act 2021.

This judgement is expected to affect approximately 90,000 reassessment notices.

Chief Justice D.Y. Chandrachud emphasised that the Income Tax Act must be interpreted in accordance with the substituted provisions effective after April 1, 2021, and that TOLA will continue to apply to the Income Tax Act beyond this date.

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He also indicated that the directions established in the Ashish Agarwal case will be applicable to all 90,000 reassessment notices. Additionally, it was clarified that notices issued under Section 148 of the new regime are considered time-barred and have been annulled by the court.

The bench has nullified all decisions referenced in the impugned judgment.

To Read the full text of the Order CLICK HERE

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