TOLA Overrides The Income Tax Act Only To The Extent Of Relaxing The Time Limit For Issuance Of A Reassessment Notice: Supreme Court

While hearing the Union of India & Ors. vs. Rajeev Bansal case on October 03, 2024 (Yesterday), the Supreme Court (SC) of India held that the TOLA (Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020), will continue to apply to the Income Tax Act after April 01, 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between March 20, 2020 and March 31, 2021. The three-judge bench set aside the decision of High Courts which stated that the TOLA will not extend the time limit for issuing notices for re-assessment under the Income Tax Act. “The TOLA was enacted in the backdrop of the COVID-19 pandemic to provide relaxation of time limits specified under the provisions of the Income Tax Act and certain other legislations as defined under Section 2(1)(b) of TOLA.” Parliament enacted TOLA on September 29, 2020, which came into force with retrospective effect from March 31, 2020.

The SC bench of Chief Justice of India DY Chandrachud, Justice JB Pardiwala, and Justice Manoj Misra said, “Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre-conditions due to the difficulties that arose during the COVID-19 pandemic.” While hearing the matter, the top court stated that the two enactments, the TOLA and the Income Tax Act, operate in separate and distinct fields. It said, “When enacting a statute, the legislature often endeavors to ensure that the provisions of one legislation do not conflict with provisions of another legislation. The purpose of the Income Tax Act is to levy tax on income and raise revenues for the functioning of the Government. On the other hand, the purpose of TOLA is to provide relaxation of the time for completion of any actions or proceedings falling for completion within a particular period.” After hearing the arguments and contentions, the SC bench concluded the following:

• “After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions;
• 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;
• 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;
• 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;
• 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;
• The directions in Ashish Agarwal…will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021;
• 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…, and the period of two weeks allowed to the assesses to respond to the show cause notices; and
• 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.”

Further, the SC said, “The judgments of the High Courts rendered in Union of India v. Rajeev Bansal, Keenara Industries Pvt. Ltd. v. ITO, Surat, J M Financial and Investment Consultancy Services Pvt. Ltd. v. ACIT, Siemens Financial Services Pvt. Ltd. v. DCIT, Geeta Agarwal v. ITO, Ambika Iron and Steel Pvt Ltd v. PCIT, Twylight Infrastructure Pvt Ltd v. ITO, Ganesh Dass Khanna v. ITO, 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.” Accordingly, the appeals filed by the Revenue were allowed.