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Gujarat and Allahabad HCs hold reassessment notices for TYs 2012-13 and 2013-14 issued during April to June 2021 and revived earlier by SC, barred by limitation
This Tax Alert summarizes recent rulings of the Gujarat High Court (HC), dated 7 February 2023, in a batch of cases with the lead case being Keenara Industries P. Ltd. [1] and the Allahabad HC, dated 22 February 2023, in a batch of cases with the lead case being Rajeev Bansal [2]. Common issue for consideration before the HCs in the instant cases was whether the reassessment notices, revived by virtue of the Supreme Court ruling in the case of Ashish Agarwal[3] for tax years (TYs) 2013-14 and 2014-15, were barred by limitation.
Vide the promulgation of The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 dated 31 March 2020 (Relaxation Act) read with Notifications issued thereunder during the onset of the COVID-19 pandemic, the period of reassessment notices under old regime falling due on 31 March 2020 and 31 March 2021 for past year/s, was extended from time to time till 30 June 2021.
The new reassessment regime which substituted the old reassessment regime, with effect from 1 April 2021, provides for a curtailed time limit of four years from the end of the TY in normal circumstances and extended time limit of 11 years from the end of the TY if escaped income exceeds INR5m and certain additional conditions are fulfilled. However, where reassessment involved is for TYs 2020-21 and earlier years, the extended time limit of 11 years is curtailed to the extent of time allowed under the old reassessment regime (viz. seven years).
The SC, in Ashish Agarwal’s case, by exercising its extraordinary powers under Article 142 of the Constitution of India, upheld the validity of notices issued between 1 April 2021 and 30 June 2021 (extended period) following the old regime by converting these notices to show cause notices under new reassessment regime enacted with effect from 1 April 2021 but subject to defenses available to the taxpayers including on account of limitation period, if applicable.
The HCs held that reassessment notices so revived pursuant to SC ruling in Ashish Agarwal’s case for the given TYs being issued beyond the limitation period of seven years are barred by limitation. The HCs also held that the Central Board of Direct Taxes’ (CBDT) Instruction to the extent it provided guidance to tax authority to consider the time limit under new reassessment regime after taking into consideration the extension provided under Relaxation Act is not consistent with the correct interpretation of law and the SC ruling in Ashish Agarwal’s case.