Supreme Court Validates 90,000 Income Tax Notices – What It Means for You

Synopsis: In a crucial ruling, the Supreme Court upheld the validity of around 90,000 income tax reassessment notices issued between April and June 2021. These notices, challenged in various courts, pertain to assessment years 2013-14 to 2017-18. The Court ruled that despite the introduction of new reassessment provisions in 2021, these notices issued under old provisions remain valid due to pandemic-related extensions. The decision is a win for the tax department but means taxpayers will need to respond to these notices.

In a landmark judgment, the Supreme Court of India upheld the validity of approximately 90,000 income tax reassessment notices that were issued after April 1, 2021. These notices had been issued under the older provisions of the Income Tax Act, creating confusion among taxpayers, as the new reassessment laws had already come into effect.

The reassessment notices, covering the assessment years 2013-14 to 2017-18, were challenged in over 9,000 writ petitions across various high courts. Many of these courts had ruled in favor of taxpayers, quashing the notices. However, the Supreme Court’s recent ruling is a significant win for the Income Tax Department, allowing these reassessments to proceed.

Key Provisions Before and After the 2021 Amendment

Before the amendments introduced in 2021, the Income Tax Act allowed reassessment to be initiated up to six years if the income that escaped assessment exceeded ?1 lakh. Post-amendment, this period was reduced to three years for cases where the escaped income is below ?50 lakh, and up to 10 years for larger amounts. Additionally, the 2021 amendments introduced Section 148A, which ensures taxpayers receive a show-cause notice before reassessment, giving them a chance to respond.

Due to the COVID-19 pandemic, the government had extended the deadlines for issuing reassessment notices through the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA). This extension allowed the Income Tax Department to issue notices up until June 30, 2021, under the old provisions of the Income Tax Act.

Supreme Court’s Ruling

The Supreme Court’s decision, delivered by a bench led by Chief Justice D.Y. Chandrachud, clarifies that the reassessment notices issued during this period were valid, despite the fact that the new laws were already in force. The Court ruled that the substituted provisions of the Income Tax Act, post-April 1, 2021, must be read together with the TOLA extensions.

Chief Justice Chandrachud emphasized that the tax department's actions were within legal bounds, allowing the notices to stand for the assessment years in question. This decision overturns several high court rulings that had quashed the notices, marking a major win for the tax authorities.

Impact on Taxpayers

This ruling means that taxpayers who received reassessment notices between April and June 2021 must now respond to these notices. The Supreme Court ruling affects both individual taxpayers and businesses. Ved Jain, a former president of the ICAI, pointed out that reassessment proceedings for the years 2016-17 and 2017-18 might be invalid if proper approvals were not secured. For earlier years, however, the reassessment notices are generally considered valid.