The Supreme Court has delivered a significant ruling in favor of the Income Tax Department, allowing the reopening of 90,000 income tax return cases. These cases, linked to tax assessments from 2013-14 to 2017-18, had previously been challenged in various high courts. The reassessment notices, issued after April 1, 2021, sparked over 9,000 petitions, with many courts initially siding with taxpayers. However, the Supreme Court has now upheld the department’s authority to reopen these cases under pre-2021 laws, marking a major shift in favor of the tax authorities.
Why the Cases Were Reopened
The cases in question are being reopened due to suspected escaped income for both individual and corporate taxpayers. The amount involved is substantial, running into thousands of crores. Before the 2021 amendment to the Income Tax Act, tax authorities could reopen cases up to six years old if the escaped income was Rs 1 lakh or more. However, in the updated law, this timeline was reduced to three years for amounts below Rs 50 lakh, and up to 10 years for higher amounts.
What Changed with the 2021 Amendment?
The 2021 amendment introduced a critical new step, Section 148A, which requires tax officials to issue a show-cause notice before reopening a case. This allowed taxpayers the right to present their side and defend themselves before any reassessment. This provision was considered a major win for taxpayer rights, offering protection against arbitrary reassessments.
However, due to the COVID-19 pandemic, the government temporarily allowed tax officials to issue reassessment notices under the old rules until June 30, 2021. This extension led to the reopening of these 90,000 cases, leading to legal challenges.
High Courts vs. Supreme Court Ruling
Several high courts, including Bombay, Gujarat, and Allahabad, had earlier ruled in favor of the taxpayers, dismissing the reassessment notices. Their argument was that the new provisions of the Income Tax Act offered more protection and should be applied. They believed the time extensions granted under the old law should not have been allowed after the amendment came into effect.
However, the Supreme Court’s ruling now reverses this, stating that the old provisions are valid for the notices issued between April and June 2021. This means that the tax department can proceed with reopening cases for assessment years 2013-14 to 2017-18.
Impact on Taxpayers
For many taxpayers, especially those whose cases fall within this timeline, the reopening of old assessments could mean they will need to provide additional documentation and explanations. The reassessments could involve significant financial implications, potentially running into thousands of crores of rupees. While the reopening of cases might be a blow to taxpayers, it is set to result in substantial earnings for the government.
Expert Opinions
Legal experts believe this decision reinforces the power of the Income Tax Department to reassess past returns, even under old laws. According to Advocate Deepak Joshi, while some years, like 2015-16, may not be eligible due to time limits, the cases for 2013-14 and 2014-15 will stand valid as per the Supreme Court’s interpretation.
This ruling sets an important precedent, ensuring that tax authorities can continue to investigate past returns under the old rules, despite the new protections introduced by the 2021 amendments.
