SC upholds 90,000 tax reassessment notices issued under old regime

Move will impact assessees who received tax notices from April to June 2021 under the old reassessment regime

The Supreme Court (SC) on Thursday upheld the position of the Revenue Department in a reassessment dispute case that may adversely impact more than 90,000 assessees who received tax notices in April-June 2021 under the old reassessment regime.

In May 2022, the court had delivered a similar judgment in an appeal by an individual (Ashish Agarwal) and has now extended the verdict to all the assessment notices.  

The new reassessment law had capped the period for issuing notices with respect to reopening past cases at three years, down from six years earlier.

Even as the new regime kicked in on April 1, 2021, the tax department had issued over 90,000 notices between April 1 and June 30, 2021, for earlier years under the old regime.

 

This created an unprecedented situation when both the old and new reassessment regimes were in force for April-June 2021.

The notices were based on the government’s notification extending the time limit to June 30, 2021, citing pandemic-related disruption. Following this, 9,000-plus writ petitions were filed in various courts, challenging the notices. 

The department had issued these notices under Section 148 of the Income-Tax Act, alleging under-reporting and misreporting of income for years before the three-year period.

“The time during which the show-cause notices were deemed to be stayed is from the date of issuance of the deemed notice between April 1, 2021 and June 30, 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,” a three-judge Bench led by Chief Justice D Y Chandrachud said in its judgment.

In the earlier judgment in May 2022, the court had held preventing a loss to the public exchequer as a reason for its verdict. 

Thursday’s judgment also set aside various high court orders that prevented the department from issuing tax notices under the old regime.

Nikhil Tiwari, tax partner, EY India, said this ruling would affect assessment years 2013-14 to 2017-18.

S R Patnaik, partner (head, taxation), Cyril Amarchand Mangaldas, said: “This issue of applicability of TOLA (Taxation and Other Laws Act) to the post-Finance Act 2021 regime had been a contentious issue wherein a lot of assessees receiving notices felt unfairly targeted. However, this judgment has now upheld all such contentious notices and all such pending assessment proceedings have been validated.”

Rishabh Malhotra, counsel, DMD Advocates, said: “This situation may lead to taxpayers receiving notices related to these reassessment proceedings, causing anxiety and confusion regarding their tax liabilities. However, taxpayers who contested the reassessments on grounds other than the time limitation may still find some relief.”