UNION OF INDIA & ORS. versus RAJEEV BANSAL (03/10/2024) — Supreme Court headnote

AI-generated headnote. Verify against the judgment before relying on it. Paragraph numbers refer to the judgment.

Summary

The Supreme Court held that TOLA continues to apply to the Income Tax Act after the Finance Act 2021 substituted Sections 147 to 151, extending to 30 June 2021 reassessment time limits and sanctions under Sections 149 and 151 that fell due between 20 March 2020 and 31 March 2021. Ashish Agarwal covers all notices issued under the old regime between 1 April 2021 and 30 June 2021; its legal fiction stopped the limitation clock, and new-regime Section 148 notices are valid only if issued within the surviving time under the Act read with TOLA.

Issues

Whether TOLA and the notifications under it apply to reassessment notices issued after 1 April 2021, when the Finance Act 2021 substituted the reassessment provisions of the Income Tax Act.
How the first proviso to Section 149(1)(b) of the new regime operates for past assessment years, and whether TOLA can be read into it.
Whether TOLA extends the time for obtaining sanction of the specified authority under Section 151.
Whether the directions in Union of India v. Ashish Agarwal extend to all reassessment notices issued under the old regime between 1 April 2021 and 30 June 2021.
Whether the Section 148 notices issued under the new regime between July and September 2022 pursuant to Ashish Agarwal were within time.

Provisions considered

Section 3(1), Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020Relaxes any time limit under a specified Act that fell between 20 March 2020 and 31 March 2021 (extended by notification to 30 June 2021), notwithstanding the specified Act. Held to apply to the Income Tax Act as substituted and to override Section 149 only to relax the time to issue Section 148 notices. (¶¶ 7, 8, 9, 61, 62, 63, 65, 66, 67, 68, 71, 72)
Section 149(1) and its first proviso (as substituted by the Finance Act 2021), Income Tax Act, 1961The new regime applies to past years: three years in all cases, beyond that only if escaped income is Rs. 50 lakh or more. The first proviso bars a notice for past years unless the six-year limit of old Section 149(1)(b) survives when it is issued, read with TOLA. (¶¶ 45, 46, 48, 49, 50, 51, 52, 53, 54, 60, 65, 69)
Section 149, third proviso, Income Tax Act, 1961Excludes from limitation the time allowed to the assessee to reply to a Section 148A(b) notice and any period during which Section 148A proceedings are stayed by a court order; the Ashish Agarwal directions were treated as such a stay. (¶¶ 95, 96, 105, 107, 110)
Section 151 (old and new regimes), Income Tax Act, 1961Sanction by the specified authority, which depends on time elapsed since the assessment year, is a jurisdictional precondition. TOLA extends the time for sanction under new Section 151(i) to 30 June 2021 where the three-year limit fell in the TOLA period; under old Section 151(2) only to 31 March 2021. (¶¶ 73, 74, 75, 76, 77, 78, 81)
Sections 148 and 148A (as substituted by the Finance Act 2021), Income Tax Act, 1961Ashish Agarwal waived prior approval for Section 148A(a) and 148A(b), but approval of the authority under new Section 151 remained necessary before an order under Section 148A(d) and a notice under Section 148. (¶¶ 10, 79, 80, 81, 101)
Article 142, Constitution of IndiaDirections under Article 142 supplement the legal framework to do complete justice and are not ratio under Article 141; Ashish Agarwal used this power to deem old-regime notices to be Section 148A(b) show cause notices without impairing assessees' substantive defences. (¶¶ 82, 83, 84, 85, 86, 87, 93)

Held

Substituting Sections 147 to 151 by the Finance Act 2021 repealed the old provisions from 1 April 2021; thereafter the Income Tax Act must be read with the substituted provisions, which also apply to past assessment years. (¶¶ 57, 58, 59, 60, 68, 114)
TOLA and the Income Tax Act operate in distinct fields and must be read harmoniously. TOLA continues to apply after 1 April 2021 to any action under the substituted provisions that fell for completion between 20 March 2020 and 31 March 2021, extending the time to 30 June 2021, though it cannot extend the life of the old regime. (¶¶ 63, 64, 65, 66, 67, 68, 69, 114)
Section 3(1) of TOLA overrides Section 149 only to relax the time for issuing a Section 148 notice; it does not extend the three-year limit of new Section 149(1)(a) or the six-year limit of old Section 149(1)(b), and has no application where the time limit expired before 20 March 2020. (¶¶ 65, 71, 72, 114)
Under the first proviso to new Section 149(1)(b), a notice for a past year can issue only if the six-year limit under old Section 149(1)(b) survives; on the Revenue's concession, notices relying on that limit must be dropped if the escaped income is below Rs. 50 lakh. (¶¶ 46, 49, 52, 53)
TOLA extends the time for sanction under Section 151: under new Section 151(i), where the three-year limit fell between 20 March 2020 and 31 March 2021, sanction may be granted until 30 June 2021; under old Section 151(2), where the four-year limit fell in that window, only until 31 March 2021. (¶¶ 76, 77, 78, 114)
The Ashish Agarwal directions apply across India to all the roughly ninety thousand notices issued under the old regime between 1 April 2021 and 30 June 2021, not only to notices challenged in court. (¶¶ 89, 90, 91, 92, 114)
The fiction in Ashish Agarwal deemed old-regime notices to be Section 148A(b) show cause notices from their date of issue without wiping them out; the period until the Revenue supplied the material, plus the two weeks for the assessee's reply, is excluded from limitation under the third proviso to Section 149. (¶¶ 99, 100, 101, 102, 105, 106, 107, 110, 114)
The fiction stopped the limitation clock on the date of the deemed notice; after the assessee's reply, the Revenue had only the surviving time (from the deemed notice date to 30 June 2021) to decide under Section 148A(d) and issue a new-regime Section 148 notice with proper sanction. Notices issued beyond that time are time-barred and liable to be set aside. (¶¶ 108, 109, 110, 111, 112, 113, 114)

Result

Revenue's appeals allowed; the High Court judgments in Rajeev Bansal, Keenara Industries, J M Financial, Siemens Financial Services, Geeta Agarwal, Ambika Iron and Steel, Twylight Infrastructure, Ganesh Dass Khanna and those following them set aside to the extent inconsistent with this judgment; assessees' appeals governed by these reasons; transfer petitions disposed of.