The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, commonly referred to as TOLA, was introduced to provide relief in compliance timelines due to the outbreak of the COVID-19 pandemic. Parliament enacted TOLA with retrospective effect from 31 March 2020. This Act applied to a range of specified laws, including the Income Tax Act, and gave legal backing to the extension of time limits for various statutory and regulatory compliances.
Under Section 3(1) of TOLA, the government was empowered to extend the time limit for the completion or compliance of actions under the specified laws. Initially, the period from 20 March 2020 to 31 December 2020 was extended to 31 March 2021. This provision allowed the government to issue notifications for further extensions when required.
Reforms Introduced by the Finance Act 2021
The Finance Act, 2021, introduced substantial amendments to Sections 147 to 151 of the Income Tax Act, significantly altering the reassessment framework. These changes came into effect from 1 April 2021, following the President’s assent on 28 March 2021.
Under the old regime, the reassessment notice under Section 148 could be issued within four years from the end of the relevant assessment year. This period could be extended to six years if the escaped income was greater than one lakh rupees. Under the new regime introduced by the Finance Act, 2021, the time limit was reduced to three years. However, it could extend up to ten years in cases where the income escaping assessment exceeded fifty lakh rupees and was represented in the form of an asset.
There were also changes in the approving authorities under Section 151. In the earlier regime, the Joint Commissioner of Income Tax could approve notices within four years, while the Principal Commissioner was required after four years. In the amended framework, the Principal Commissioner could approve within three years, and the Principal Chief Commissioner after three years.
A procedural innovation was also brought in through Section 148A, requiring that before issuing a notice under Section 148, the assessing officer must conduct an enquiry and share the information with the assessee. The assessee was to be allowed to respond, and only after considering the reply could an order under Section 148A(d) be passed.
The First Proviso to Section 149 introduced a saving clause stating that no notice for reassessment could be issued for the assessment year 2021–22 or prior if it was already time-barred under the old regime on the date of issuance.
CBDT Notifications Extending Time Limits
Following the powers conferred under TOLA, the Central Board of Direct Taxes issued notifications to extend various compliance deadlines.
Notification No. 20/2021, dated 31 March 2021, extended the compliance period under the Income Tax Act to 30 April 2021. Later, Notification No. 38/2021, issued on 27 April 2021, further extended the period to 30 June 2021. Importantly, these notifications stated that the provisions of the Income Tax Act as they existed on 31 March 2021 would continue to apply to reassessment notices issued between 1 April 2021 and 30 June 2021.
The explanation attached to these notifications clarified that not only was the time limit extended, but also that the legal framework for reassessment as of 31 March 2021 would govern any notices issued during the extended period.
Legal Challenges to the CBDT Notifications
Various stakeholders challenged the validity of the reassessment notices issued during the period from 1 April 2021 to 30 June 2021, citing that the Finance Act, 2021, had brought into effect an entirely new regime from 1 April 2021. The contention was that since the old provisions ceased to exist after that date, the reassessment notices issued under the old law, even during the extended period, were invalid.
One of the earliest significant rulings came from the Allahabad High Court in the case of Ashok Kumar Agarwal. The court held that the notifications could not extend the operation of the old regime beyond 31 March 2021, especially in the absence of any saving clause in the Finance Act, 2021. Therefore, the reassessment notices issued under the old law after 1 April 2021 were considered invalid.
Similarly, the Delhi High Court in Mon Mohan Kohli held that while the power to reassess continued beyond 1 April 2021, the procedure had fundamentally changed. Consequently, notices under the old regime issued after that date were quashed.
Supreme Court Decision in Ashish Agarwal
In the landmark case of Union of India v. Ashish Agarwal, the Supreme Court addressed the conflicting views of various High Courts. It upheld the implementation of the new reassessment regime from 1 April 2021. However, to mitigate the disruption caused by thousands of notices issued under the old regime during the transitional period, the court used its powers under Article 142 to convert all such notices into deemed notices under Section 148A(b) of the new regime.
This judgment had a stabilising effect, preserving both the taxpayers’ right to procedural safeguards under the new law and the Revenue’s reassessment efforts. Importantly, the court did not decide whether TOLA could be applied to extend deadlines under the new law.
Notification 1/2022 Issued by CBDT
In light of the Supreme Court ruling, the CBDT issued Notification 1/2022 on 11 May 2022. This notification outlined which assessment years could be covered under the reassessment process.
For assessment years 2013–14, 2014–15, and 2015–16, reassessment notices could be issued if the conditions under Section 149(1)(b) were satisfied. Specifically, the income that escaped assessment must exceed fifty lakh rupees, and the required approval under Section 151(ii) must be obtained from the Principal Chief Commissioner.
For assessment years 2016–17 and 2017–18, notices could be issued if the income escaping assessment was below or above the threshold as applicable under Section 149(1)(a) or (b), with appropriate approval under Section 151(i).
Second Round of Litigation on Extended Notices
Despite the Supreme Court’s intervention, a second wave of litigation arose concerning reassessment notices that were reissued for assessment years 2013–14 to 2017–18, following the procedure under Section 148A, as prescribed by the Ashish Agarwal judgment.
The central question was whether the benefit of TOLA could be used to validate the issuance of notices under the new regime. The Gujarat High Court in the Keenara Industries case ruled that the old reassessment provisions had ceased to exist after 1 April 2021. Therefore, notifications under TOLA could not extend their applicability beyond that date. This rendered reassessment notices under the old regime invalid.
Similarly, the Bombay High Court in the Siemens Financial Services case held that TOLA, being a subordinate legislation, could not override the Finance Act, 2021. Thus, time extensions granted under TOLA did not apply to reassessment procedures initiated after 1 April 2021.
Several other High Courts, including Allahabad, Rajasthan, Orissa, and Delhi, echoed the same reasoning. They ruled that TOLA could not be invoked to revive a repealed legal framework or to extend the applicability of provisions that had ceased to exist.
Divergence in Delhi High Court’s View
Despite the growing consensus among various High Courts, the Delhi High Court issued contrary rulings in certain cases, including Salil Gulati and Touchstone Holdings. These decisions held that reassessment notices issued between 1 April 2021 and 30 June 2021 were valid under the extended time limit granted by TOLA.
This divergence highlighted the need for a definitive resolution by the Supreme Court regarding the legal status of TOLA in the context of the amended reassessment regime under the Finance Act, 2021.
Pending Issues Before the Supreme Court
With the conflicting decisions from various High Courts, the matter was escalated to the Supreme Court to resolve the following key issues. The first question was whether TOLA applied to reassessment notices issued after 1 April 2021, especially in light of the Ashish Agarwal decision. The second question was whether reassessment notices issued between July 2022 and September 2022 under the new procedure outlined in Section 148A were valid.
The resolution of these issues had major implications for thousands of reassessment proceedings across the country and the power of the Revenue to reopen past assessments under the amended legal regime.
Supreme Court’s Key Findings on Reassessment Under New Regime
The Supreme Court, while adjudicating on the batch of appeals challenging the reassessment notices issued between 1 April 2021 and 30 June 2021, addressed the primary concern about the interpretation of the Finance Act, 2021, and the applicability of TOLA to the amended provisions.
The court reaffirmed that the Finance Act, 2021, substituted the earlier reassessment provisions with a new regime and that the old law ceased to apply after 1 April 2021. All references to the Income Tax Act post 1 April 2021 had to be interpreted as per the amended law.
The substitution of Sections 147 to 151 was complete, with no saving clause permitting a parallel operation of the old and new regimes. Hence, the issuance of reassessment notices post 1 April 2021 must be by the amended framework alone.
Applicability of TOLA to the New Regime
While the old law ceased to apply after 1 April 2021, the Supreme Court held that TOLA remained operational on that date. Therefore, the time limits prescribed under the new regime had to be read along with the extended periods permitted by TOLA.
The court clarified that TOLA could not be used to extend the operation of the repealed law, but its benefit could be used to determine the time limits under the new provisions. For instance, if the time for issuance of notice under Section 149(1)(a) expired on 31 March 2021, and the action fell within the period between 20 March 2020 and 31 March 2021, then TOLA extended the deadline up to 30 June 2021.
This interpretation allowed the Revenue to rely on the extended time limits provided under TOLA, even while proceeding under the new regime.
Illustration of TOLA’s Application of the New Law
The court illustrated its reasoning with a hypothetical example involving the assessment year 2017–18. Under the new regime, Section 149(1)(a) provides three years from the end of the relevant assessment year. Hence, the limitation period for AY 2017–18 would normally end on 31 March 2021.
Since this date falls within the relaxation window prescribed by TOLA, the time limit for issuing reassessment notices for AY 2017–18 was extended until 30 June 2021. Consequently, notices under the new regime, following the procedure prescribed under Section 148A, could be validly issued during this extended window.
Impact on Approval Process Under Section 151
Section 151 of the new regime prescribes prior approval of the specified authority for issuance of reassessment notices. The court held that TOLA’s extended time limits also applied to the approval process under this section.
If the three-year limitation period under the new regime ended within the window of 20 March 2020 to 31 March 2021, then the authority under Section 151(i) had time until 30 June 2021 to approve.
In contrast, under the old regime, the limitation was four years. If this period ended between 20 March 2020 and 31 March 2021, the approving authority had to act by 31 March 2021. The applicability of TOLA to the new regime did not revive the procedural requirements of the repealed provisions.
For example, for AY 2015–16, where the old regime required JCIT’s approval within four years, any approval granted by PCIT under the old Section 151(1) after 31 March 2021 was invalid. The Supreme Court clarified that the old approval chain could not be resurrected for notices issued under the new law.
Legal Fiction Created by Ashish Agarwal Judgment
The Supreme Court acknowledged that its judgment in Ashish Agarwal created a legal fiction, converting all reassessment notices issued under the old regime between 1 April 2021 and 30 June 2021 into deemed notices under Section 148A(b). This transformation was necessary to protect both the Revenue’s interests and the procedural safeguards for taxpayers.
Under this legal fiction, the show cause notices were deemed to have been stayed from the date of their issuance until the assessing officers provided the requisite information to the assessees. This stay period was excluded when calculating the limitation period for passing reassessment orders.
This mechanism effectively resets the clock for assessing officers. Once the relevant material was shared and the assessee submitted a response, the assessing officer had a renewed window, equal to the remaining period from the original limitation, to issue an order under Section 148A(d) or a fresh reassessment notice.
Exclusion of Time Under the Third Proviso to Section 149
The third proviso to Section 149 specifically allows exclusion of time in computing the limitation where proceedings are stayed by a court or where additional time is allowed to the assessee for furnishing a response to a notice under Section 148A(b).
The court held that in light of the Ashish Agarwal decision, all notices deemed to have been issued under Section 148A(b) during the stay period from 1 April 2021 to 4 May 2022 (the date of the Supreme Court judgment) were effectively stayed. Therefore, this time was excluded from the limitation computation.
Additionally, any time allowed to the assessee to reply to the notice under Section 148A(b) was also to be excluded. This exclusion ensured that the assessing officer had a full opportunity to act upon the responses received and issue reassessment notices within the permissible window.
Practical Example of Time Exclusion and Limitation
Consider a scenario where a reassessment notice under the old regime was issued on 1 May 2021. Under the legal fiction of Ashish Agarwal, this is treated as a notice under Section 148A(b) of the new law.
The extended limitation period granted by TOLA would expire on 30 June 2021. There are 61 days between 1 May and 30 June 2021, which are excluded due to the deemed stay. If the assessee submitted a reply on 18 June 2022, the assessing officer then had 61 days from that date to issue the reassessment notice or order under Section 148.
This reset mechanism offered a consistent and fair application of the law, balancing taxpayer rights with the Revenue’s obligations.
Withdrawal of Notices for AY 2015–16
The Revenue conceded before the Supreme Court that reassessment notices issued for AY 2015–16 after 1 April 2021 would need to be withdrawn. The court held that the limitation period for issuing these notices did not fall within the relaxation window of TOLA, and therefore, TOLA could not be applied.
In the absence of an extension under TOLA or compliance with the new procedural regime, such notices were rendered invalid.
Summary of Limitation, Positivism, and Judicial Tests
The court, after evaluating the legal and factual matrix, compiled a chart distinguishing between the assessment years and the applicable limitation rules. The key variables included whether the escaped income exceeded fifty lakh rupees and whether the reassessment fell within the extended period granted by TOLA.
The third proviso test was used for determining whether exclusion of time due to court stays or time granted to the assessee could extend the limitation window. In some cases, even though the notices appeared time-barred on the surface, they remained valid due to exclusions permitted under this proviso.
Assessment years like 2013–14 and 2014–15, where income exceeded fifty lakh rupees and fell within six-year reassessment provisions, benefited from TOLA and were upheld. However, AY 2015–16, being outside the scope of TOLA’s extension and the new law’s limit, was treated as time-barred.
Clarification on Nationwide Applicability of Ashish Agarwal
The Supreme Court also addressed the question of whether its ruling in Ashish Agarwal applied only to the parties before the court or to all taxpayers across India. It unequivocally stated that the ruling applied to PAN India.
Therefore, even if a taxpayer did not file a writ petition or was not a party to the Special Leave Petition, the reassessment notices issued to them between 1 April 2021 and 30 June 2021 were to be treated as deemed notices under Section 148A(b).
The only exception to this principle would be cases where the reassessment order was already passed and had not been challenged by the assessee. In such cases, courts may not allow reopening of settled matters due to principles of finality.
Retrospective Application of TOLA
One of the central legal questions has been whether the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) can be applied retrospectively to extend limitation periods that had already expired under the unamended Income Tax Act. Several High Courts have addressed this issue and held that once a limitation has expired, it cannot be revived unless there is a clear legislative intent to do so. In this context, the Bombay High Court in Tata Communications Transformation Services Ltd v. Assistant Commissioner of Income Tax held that the benefit of TOLA cannot be applied to reassessment notices issued beyond the original time limit unless the Act expressly provides for such revival. The retrospective application of TOLA is thus seen as contrary to settled principles of limitation law. Moreover, judicial precedents have repeatedly emphasized that taxation statutes, being penal, must be strictly construed. Therefore, any ambiguity in interpreting limitation periods must benefit the assessee.
Section 6 of TOLA and Its Interpretation
Section 6 of TOLA grants the Central Government the power to extend time limits for various actions, including the issuance of reassessment notices. However, the nature and scope of this power have been the subject of judicial scrutiny. In the case of Ashok Kumar Agarwal v. Union of India, the Allahabad High Court examined whether Section 6 permits the Central Government to issue blanket extensions without legislative backing. The Court held that while the Central Government has the power to extend deadlines, such extensions must not violate fundamental rights or established legal procedures. Furthermore, the Court noted that the phrase “as it considers necessary” in Section 6 does not grant unlimited discretion to override statutory limitations. The provision must be interpreted in a manner consistent with constitutional safeguards and the principles of natural justice.
The Supreme Court’s Role in Harmonizing Conflicting Interpretations
With multiple High Courts delivering conflicting judgments on the validity of reassessment notices issued under the old regime extended by TOLA, the Supreme Court’s intervention became inevitable. In Union of India v. Ashish Agarwal, the Supreme Court addressed the divergent views and sought to bring clarity to the legal landscape. The Court held that reassessment notices issued between April 1, 2021, and June 30, 2021, under the old law, should be deemed as show cause notices under the new law introduced by the Finance Act, 2021. This ruling effectively validated the notices but changed their character to align with the new legal regime. The Supreme Court thus adopted a pragmatic approach to balance the interests of revenue and fairness to taxpayers. However, the decision also raised questions about judicial activism and whether the Court can rewrite statutory provisions under the guise of interpretation. Legal scholars have debated whether the Supreme Court’s ruling sets a precedent for judicial legislation, potentially undermining the separation of powers.
Implications of the Supreme Court Ruling on Pending Cases
The judgment in Ashish Agarwal had far-reaching implications for thousands of reassessment cases pending across the country. By converting the old notices into show cause notices under the new regime, the Supreme Court offered a uniform solution to an otherwise fragmented legal issue. However, this also meant that assessing officers were required to comply with the new procedural safeguards under Sections 148A(a) to 148A(d), including issuing show cause notices and passing speaking orders. Many tax practitioners observed that this placed an additional burden on the tax administration and led to procedural delays. Moreover, the ruling did not clarify the position for reassessment notices issued outside the April 1 to June 30, 2021, window. This ambiguity has continued to generate litigation, with courts having to determine the validity of such notices on a case-by-case basis. The ruling also prompted the Central Board of Direct Taxes (CBDT) to issue guidelines for implementing the Supreme Court judgment, but these guidelines themselves have been challenged for exceeding the scope of the Court’s directions.
Constitutional Validity and the Doctrine of Legal Certainty
The constitutional validity of TOLA and its application to reassessment proceedings has been analyzed in the context of the doctrine of legal certainty. This doctrine, a cornerstone of the rule of law, requires that laws be clear, predictable, and not arbitrarily applied. Legal commentators have argued that the retrospective extension of limitation periods under TOLA violates this doctrine by creating uncertainty for taxpayers. In particular, taxpayers who believed their assessments had attained finality found themselves subject to renewed scrutiny. The Delhi High Court, in Mon Mohan Kohli v. Assistant Commissioner of Income Tax, observed that the retrospective application of TOLA to reassessment notices undermines the principle of finality in taxation. The Court held that while the government has the power to amend laws, such amendments must be prospective unless the legislature explicitly provides otherwise. The judgment reinforces the importance of respecting the taxpayer’s right to legal certainty and finality.
Administrative Guidelines and Their Legal Standing
Following the Supreme Court’s ruling in Ashish Agarwal, the CBDT issued administrative guidelines to ensure uniform implementation across tax offices. These guidelines instruct assessing officers on how to convert old notices into show-cause notices and the timelines for completing procedural steps under the new law. However, the legal status of these guidelines has been questioned in various High Court cases. Courts have observed that administrative guidelines cannot override statutory provisions or judicial directions. For instance, in the case of Sanjay Sinha v. Union of India, the Patna High Court held that CBDT guidelines must be consistent with the Income Tax Act and the Supreme Court’s judgment. Any deviation from the prescribed procedure could render the reassessment proceedings invalid. This has led to a cautious approach by assessing officers, many of whom now issue detailed speaking orders to avoid procedural lapses. Nevertheless, the frequent issuance of guidelines by the CBDT reflects the complexity and evolving nature of reassessment jurisprudence in the post-TOLA era.
Judicial Interpretation and Emerging Trends
The courts have played a vital role in shaping the scope and application of TOLA in the context of reassessment notices under the Income Tax Act. One of the key areas of judicial interpretation has been the harmonisation of the extended timelines under TOLA with the amended provisions of Section 148A of the Income Tax Act. Several High Courts, including the Allahabad High Court, Delhi High Court, and Calcutta High Court, have rendered divergent views on this matter, leading to significant legal debate. In some judgments, courts have upheld the validity of reassessment notices issued under the old regime but extended by TOLA, especially where the revenue authorities were unable to initiate proceedings due to the constraints imposed by the pandemic. However, in other instances, courts have ruled that such notices are no longer sustainable under the amended framework of the Income Tax Act post Finance Act, 2021, as the procedural safeguards introduced through Section 148A are now mandatory and non-negotiable. The Supreme Court’s decision in Union of India v. Ashish Agarwal attempted to bring clarity by stating that reassessment notices issued under the old law but covered by TOLA extensions would be deemed as issued under the new law and would need to follow the procedures under Section 148A. This has created a hybrid situation where reassessment notices benefit from the timeline extensions of TOLA but must comply with the procedural rigour of the new provisions. The Court emphasized balancing revenue interests with the protection of taxpayer rights, particularly concerning procedural compliance, issuance of show-cause notices, and passing of speaking orders. This judgment has wide-ranging implications for pending reassessment cases and for assessing officers trying to navigate compliance while utilising TOLA extensions.
Practical Implications for Taxpayers and the Revenue
The convergence of TOLA extensions and the new reassessment regime has created practical challenges for both taxpayers and tax authorities. For taxpayers, the key issue is the uncertainty surrounding the validity of reassessment notices that were issued during the transitional phase. Taxpayers must now closely monitor whether the revenue department has followed the amended procedure under Section 148A, including the issuance of a notice under Section 148A(b), provision of supporting material, granting a reasonable opportunity to be heard, and passing a speaking order under Section 148A(d). If any of these steps are missing, taxpayers may challenge the validity of reassessment. From the revenue department’s perspective, there is a need to align administrative practices with the latest judicial pronouncements and the statutory requirements under the Finance Act, 2021. Officers must be cautious while invoking TOLA-based extensions to ensure compliance with the new framework. Moreover, they must maintain a clear record of reasons for reopening assessments and document procedural compliance meticulously to withstand legal scrutiny. Legal advisors and tax consultants are now advising clients to preserve all records related to reassessment and to respond appropriately to Section 148A(b) notices. Legal remedies, including writ petitions under Article 226 of the Constitution, are being commonly used to challenge non-compliant reassessment actions. The increased judicial oversight and the new procedural safeguards empower taxpayers to seek relief in case of arbitrary or non-transparent reassessment proceedings. At the same time, it places an onus on the revenue authorities to avoid mechanical or template-based reassessment notices.
Recommendations and Policy Considerations
Given the legal complexities and judicial interpretations surrounding TOLA and reassessment provisions, some policy recommendations emerge to ensure clarity and fairness. First, the Central Board of Direct Taxes (CBDT) could issue detailed guidelines or clarifications for assessing officers on how to handle reassessment cases that fall within TOLA extensions but require compliance with the amended Section 148A procedures. This would help avoid unnecessary litigation and ensure uniformity in approach across jurisdictions. Second, a legislative clarification through a suitable amendment could further solidify the intention behind TOLA extensions and their coexistence with the new reassessment regime. A transitional provision specifically addressing how pending reassessment notices should be treated post-amendment could provide the much-needed certainty to both taxpayers and tax authorities. Third, the training of assessing officers should be strengthened to ensure a nuanced understanding of the legal developments and procedural expectations. This will improve the quality of reassessment orders and reduce the volume of litigation arising from non-compliance or procedural lapses. Fourth, the judiciary must continue to adopt a balanced approach that considers the constraints faced by the revenue during the pandemic while ensuring that taxpayers are not deprived of their statutory rights. Judicial consistency will help create a predictable tax environment, which is critical for business confidence and voluntary compliance.
Conclusion
The legal landscape around TOLA and reassessment under the Income Tax Act is evolving rapidly, driven by legislative changes, administrative challenges, and judicial interventions. TOLA, as a temporary response to the COVID-19 crisis, extended certain statutory timelines, including for reassessment proceedings. However, its interaction with the new reassessment regime introduced through the Finance Act, 2021, has led to complex legal and procedural issues. The Supreme Court’s decision in Ashish Agarwal has attempted to reconcile these complexities by introducing a hybrid approach, but it has also left open several interpretative challenges. Moving forward, clarity through administrative and legislative measures is necessary to ensure the smooth implementation of reassessment proceedings and to reduce litigation. Both taxpayers and revenue authorities must adapt to this new environment with diligence and legal awareness. With proper compliance, transparency, and mutual accountability, the objective of a fair and effective reassessment framework can be achieved, thereby strengthening the integrity of the income tax administration in India.