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The Supreme Court of India has delivered a landmark ruling that has significant implications for income tax assessments in the country. The Court upheld the validity of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions Act) (TOLA) 2021, which extends the time limit for issuing reassessment notices under the Income Tax Act. This decision effectively allows the Income Tax Department to re-open assessments based on the pre-2021 provisions of the Income Tax Act, even after April 1, 2021. The Court's ruling has overturned previous judgments by High Courts which had held that TOLA did not extend the time limit for reassessment notices under the amended provisions of the Income Tax Act. This legal battle centered around the question of whether the benefit of TOLA 2021 would govern the time frame prescribed for reassessment under Section 149 of the Income Tax Act, which was amended by the Finance Act 2021.
Before the amendment, the Income Tax Department had the power to reassess income up to six years before a relevant assessment year if the escaped income exceeded Rs 1 lakh. The 2021 amendment introduced a new three-year window for reassessment for escaped income less than Rs 50 lakhs, and a ten-year window for escaped income of Rs 50 lakhs or more. Additionally, the amendment mandated a preliminary notice from the department before issuing a reassessment notice. The COVID-19 pandemic prompted the Union Government to extend the provisions of the old law, leading to the issuance of reassessment notices between April 1, 2021, and June 20, 2021, based on the pre-2021 provisions. The Supreme Court's decision has validated this practice, essentially providing legal cover for the notices issued during this period. The Court's judgment has also clarified the application of TOLA in relation to various provisions of the Income Tax Act, including Section 148, which deals with reassessment notices, and Section 151, which governs the grant of sanction by the authorities. The judgment sets out specific time limits for the application of TOLA in these contexts.
The Supreme Court's decision in Union of India v. Rajeev Bansal and related cases has far-reaching implications for taxpayers and the Income Tax Department. The Court has provided a clear legal framework for the issuance of reassessment notices and has upheld the government's authority to extend the time limit for reassessment under TOLA 2021. This ruling is likely to lead to a renewed focus on reassessment proceedings, as the Income Tax Department now has the legal backing to re-open assessments based on the old regime provisions. Taxpayers will need to be vigilant and ensure that they are compliant with the provisions of the Income Tax Act to minimize the risk of reassessment. The judgment emphasizes the significance of staying informed about changes in tax laws and regulations and underscores the importance of seeking professional advice to navigate complex tax matters. The detailed copy of the judgment is still awaited, and it will provide further insights into the Court's reasoning and the specific nuances of the case.