Interpreting Reassessment Provisions – UOI vs. Rajeev Bansal & Ors (SC)

Interpreting Reassessment Provisions – UOI vs. Rajeev Bansal & Ors – Civil Appeal No 8629 of 2024 (SC)

The primary issue is whether reassessment notices issued after April 1, 2021, but under the old reassessment regime, are valid. Several High Court judgments held that the new law must be followed for any reassessment after this date, and the old provisions no longer applied in the absence of a saving clause.

The Supreme Court’s decision clarified that:

• After April 1, 2021, the reassessment provisions of the Income Tax Act must be read with the newly substituted provisions.
• TOLA continues to apply to extend the time limits for certain actions, but not beyond the new law’s requirements.
• The directions in the Ashish Agarwal case (regarding notices treated as show-cause notices) apply to all reassessment notices issued between April 1 and June 30, 2021.

Reassessment notices issued under the old regime, without complying with the new Section 148A, are invalid.

Union of India & Ors. Vs Rajeev Bansal (Supreme Court of India); Civil Appeal No. 8629 of 2024; 03/10/2024

1 Introduction:

The case of UOI vs Rajeev Bansal & others involves the interplay of three Parliamentary statutes: the Income Tax Act, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020, and the Finance Act, 2021.

2. Legal History in the case:

Various High Court decisions on the issue regarding reopening of assessment, in accordance with the old provisions existing prior to 01/04/2021, but notices issued after 01/04/2021 are as under:

2.1 Decisions against Revenue:

(a) Ashok Kumar Agarwal [2021] 131 taxmann.com 22 (Allahabad)

By virtue of Finance Act, 2021 provisions of sections 147 and 148 as existed upto 31-3-2021, stood substituted along with new provisions enacted by way of section 148A and in absence of any saving clause, to save pre-exisiting provisions, revenue could only initiate reassessment proceedings on or after 1-4-2021 in accordance with substituted law, thus, reassessment notice issued under section 148 on or after 1-4-2021 without complying with substituted provisions of section 148A was to be quashed

(b) Mon Mohan Kohli [2021] 133 taxmann.com 166 (Delhi)

By virtue of section 3(1) of TLA Act, 2020, Central Government was empowered to issue notification for extending time limits for completion of actions laid down in specified Acts but was not empowered to postpone applicability of provisions enacted by legislature, thus, Explanation A(a)(ii)/A(b) to Notification No. 20/2021, dated 31-3-2021 and Notification No. 38/2021, dated 27-4-2021 were beyond power to extend erstwhile sections 147 to 151 beyond 31-3-2021 and defer operation of substituted provisions enacted by Finance Act, 2021 till 30-6-2021 and were to be declared ultra vires TLA Act, 2020 and consequently, null and void

(c) Bagaria Properties and Investment (P.) Ltd. 134 taxmann.com 196 (Calcutta)

Where Assessing Officer issued reassessment notice under section 148 on or after 1-4-2021 without complying with substituted provisions of section 148A which came into force on 1-4-2021 as per amended Finance Act, 2021, same was to be quashed

(d) Bpip Infra (P.) Ltd. [2021] 133 taxmann.com 48 (Rajasthan)

INCOME TAX : Where Assessing Officer issued reassessment notice under section 148 on or after 1-4-2021 without complying with substituted provisions of section 148A which came into force on 1-4-2021 as per amended Finance Act, 2021, same was to be quashed

(e) Sudesh Taneja [2022] 135 taxmann.com 5 (Rajasthan)

Where Assessing Officer issued reassessment notice under section 148 on or after 1-4-2021 without complying with substituted provisions of section 148A which came into force on 1-4-2021 as per amended Finance Act, 2021, same was to be quashed

Explanations to Notifications dated 31-3-2021 and 27-4-2021 issued by CBDT which extended applicability of provisions of sections 148, 149 and 151 as they stood as on 31-3-2021, before commencement of Finance Act, 2021, beyond period of 31-3-2021 were unconstitutional and were to be declared invalid

(f) Vellore Institute of Technology [2022] 135 taxmann.com 285 (Madras)

Where Assessing Officer issued reassessment notices under section 148 on or after 1-4-2021 in reference to unamended provisions without complying with substituted provisions of section 148A which came into force on 1-4-2021 as per amended Finance Act, 2021, same were to be set aside

2.2 Decision in favour of the revenue:

(g) Palak Khatuja [2021] 130 taxmann.com 44 (Chhattisgarh)

Where assessee challenged section 148 notice issued on 30-6-2021 on grounds that same was issued without following procedure under section 148A which came into force on 1-4-2021 by Finance Act, 2021, in view of fact that Ministry of Finance had, in exercise of powers conferred under TLA Act, 2020, issued notification extending time-limit for issuance of section 148 notice prevailing prior to amendment of Finance Act, 2021 up till 30-6-2021, no interference was required to be made in notice issued under section 148 on 30-6-2021

3. Issues raised before the Hon’ble Supreme Court :

(a) Whether TOLA and notifications issued under I.T. will also apply to reassessment notices issued after 1 April 2021; and

(b) Whether the reassessment notices issued under Section 148 of the new regime between July and September 2022 are valid.

Submissions made by the Revenue:

(i) The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA) was enacted to provide relief during COVID-19 by extending time limits for actions and proceedings under the Income Tax Act that could not be completed in time due to the pandemic.

(ii) Section 3(1) of TOLA overrides time limits specified under Section 148 and 149 of the Income Tax Act, allowing reassessment notices beyond the normal deadlines.

(iii) TOLA does not extend the old reassessment provisions; it merely provides relaxation to complete or comply with actions under the new reassessment regime introduced by the Finance Act, 2021.

(iv) Section 149 and TOLA can be read together, meaning reassessment notices issued between April 1 and June 30, 2021, for earlier assessment years (2013-14 to 2017-18) remain within the prescribed limitation period under TOLA.

(v) Since the new reassessment regime is part of the Income Tax Act from April 1, 2021, TOLA continues to apply to the Act even after this date.

(vi) In the Ashish Agarwal case, notices issued under Section 148 between April and June 2021 were treated as show-cause notices under Section 148A(b). Invalidating those notices now would undermine the Supreme Court’s judicial exercise in the case.

(vii) However, the Revenue conceded that notices issued for the assessment year 2015-16 after April 1, 2021, are invalid because they fall outside the limitation period.

(viii) The tabular chart for issue of the notice under old regime, as submitted before Hon’ble SC is as under:

Submission made on behalf of the taxpayer:

a. TOLA applied only until the new reassessment regime came into effect on 1 April 2021. The Revenue was required to issue notices under the new regime without relying on TOLA’s extended timelines.

b. TOLA didn’t amend the old Section 149 but extended certain time limits. The new regime’s Section 149(1)(b) does not extend these limits.

c. Notification No. 38/2021: Issued after the old regime was repealed, this notification extended time limits under the old law but cannot be applied under the new regime.

d. Categories of Notices:

• First category: For AYs 2013-2015, notices were issued after 1 April 2021 and are barred by limitation.
• Second category: For AY 2015-16, notices issued post-March 2020 require sanction under the wrong section (151(2) instead of 151(1)).
• Third category: For AYs 2016-18, notices were issued after the three-year period, and sanctions were sought under incorrect provisions of the new regime.
• Fourth category: Notices in cases not contested in court were not covered by Ashish Agarwal ruling.

e. The new regime’s limitation periods apply, and even with TOLA, notices issued beyond June 2021 (in 2022) are invalid.

f. The directions given by the Court cannot extend the period for reassessment beyond legal limits, and defences under the new regime are still available to taxpayers.

g. TOLA only applies to time limits, and since Section 151 does not prescribe such limits, TOLA is not relevant here.

The Ruling of the Hon’ble SC:

a. After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions;

b. TOLA will continue to apply to the Income Tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between 20 March 2020 and 31 March 2021;

c. Section 3(1) of TOLA overrides Section 149 of the Income Tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under Section 148;

d. TOLA will extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has extended time till 30 June 2021 to grant approval;

e. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has extended time till 31 March 2021 to grant approval;

f. The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021;

g. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and

h. The assessing officers were required to issue the reassessment notice under Section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside;

7. The judgments of the High Courts rendered in Union of India v. Rajeev Bansal (Writ Tax No. 1086 of 2022 (Allahabad High Court)) Keenara Industries Pvt. Ltd. v. ITO, Surat, R/Special CA No. 17321 of 2022 (High Court of Gujarat), J M Financial and Investment Consultancy Services Pvt. Ltd. v. ACIT, WP No. 1050 of 2022 (High Court of Judicature at Bombay), Siemens Financial Services Pvt. Ltd. v. DCIT,168 Geeta Agarwal v. ITO, [2023] 457 ITR 647 (High Court of Judicature at Bombay), Ambika Iron and Steel Pvt Ltd v. PCIT, DB Civil Writ Petition No. 14794 of 2022 (High Court of Judicature at Rajasthan), Twylight Infrastructure Pvt Ltd v. ITO, WP(C) No. 16524/2022 (High Court of Delhi), Ganesh Dass Khanna v. ITO, 2024] 460 ITR 546 (High Court of Delhi) and other judgments of the High Courts which relied on these judgments, are set aside to the extent of the observations made in this judgment.