• Notification Date: 07-10-2024
• Notification No: N/A

The Supreme Court upholds 90,000 tax reassessment notices issued under the old regime, affecting taxpayers.

A bench comprising Chief Justice of India DY Chandrachud, Justice Manoj Misra, and Justice JB Pardiwala passed its judgement on 727 appeals filed by the Income Tax Department against various high court orders. The Supreme Court had appealed. These high courts, including Bombay and Allahabad, had earlier ruled against the Revenue Department and barred it from issuing tax assessments under the old assessment system. But the Supreme Court overturned the orders. The tax authorities had issued these notices under Section 148 of the Income Tax Act, accusing them of under-declaration or misstatement of income for assessment years exceeding a period of three years.  

The Revenue Department had issued these notices under Section 148 of the Income Tax Act for under-declaring or misrepresenting income for more than three assessment years. In a significant judgment for taxpayers, the Supreme Court upheld nearly 90,000 tax reassessment notices issued by the tax authorities for assessment years 2013-14 to 2017-18. The notices were issued between April 1 and June 30, 2021, during the period of ongoing litigation. 

"The period during which the hearing notice is considered to be suspended will be comprehensive from the date of issue of the notice deemed to be suspended between April 1, 2021, and June 30, 2021, till the tax authorities provide the relevant information and materials to the taxpayer as directed by this bench of Ashish Agarwal (supra) and the period of two weeks given to the taxpayer to reply to the hearing notice," a three-judge bench headed by Chief Justice D.Y. Chandrachud said in its judgment.   

In a previous ruling in May 2022, the court cited the need to prevent losses to the state treasury as the basis for its decision. Thursday's ruling also overturned several Supreme Court orders that had prevented tax authorities from making tax assessments under the previous system.   

In May 2022, taxpayers faced a setback when the Supreme Court upheld all reassessment orders issued after March 31, 2021 (Ashish Agarwal case). Several taxpayers filed petitions in various high courts, which resulted in a Supreme Court judgment in May 2022.   

In this judgment, the Supreme Court held that these reassessment notices were technically invalid under the old regime but could be treated as hearing notices under the new regime and considered valid if processed accordingly. This decision affected around 9,000 applicants who challenged the decision.   

The Finance Act, 2021, which came into force on April 1, 2021, has brought about significant changes in the reassessment process under the I-T Act. These changes include: the time limit for issuing reassessment notices has been reduced from four years in normal cases to three years; the threshold for readmission after more than three years has been increased from Rs 1 lakh to Rs 50 in cases of loss of income; and the time limit for severe cases has been extended from 6 to 10 years.   

The Finance Act, 2024, has amended the assessment procedure to allow cases to be reopened more than three years after the end of the assessment year, subject to a maximum period of five years only in cases where the lost income is Rs 50 lakh or more. In audit cases, a time limit of six years preceding the audit year has been introduced instead of the earlier 10-year time limit to reduce tax uncertainties and disputes.   

"This (Thursday's) judgment is a result of the Supreme Court's landmark judgment in the Ashish Agarwal case," said Nikhil Tiwari, tax partner, EY India. The judgment overturns an earlier High Court ruling that had quashed these notices, providing relief to the tax authorities. "This judgment defines the scope of executive powers to vary statutory deadlines in exceptional circumstances like the pandemic," said Rakesh Nangia, chairman of Nangia Andersen India.