Source: Delhi High Court  

Why in News? 

The Delhi High Court clarified that the Taxation and Other Laws Act, 2020 (TOLA) authorization allows the competent authority to act within an extended time frame but does not change the approval process stated in Section 151 of the Income Tax Act, 1961. Under Section 151, notices under Section 148 cannot be issued after four years without the Commissioner's approval.  

• The court found that if a notice is issued beyond this period, it does not comply with the necessary approval requirements. 
• Justices Yashwant Varma and Justice Ravinder Dudeja held in the matter of Abhinav Jindal HUF v. ITO.  

What was the Background of Abhinav Jindal HUF v. ITO Case? 

• The petitioners challenged the validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961 for the Assessment Year 2015-16. 
• The primary ground for challenging these reassessments was an alleged violation of Section 151 of the Income Tax Act, which deals with the sanction for issuing reassessment notices. 
• The petitioners argued that the sanction for initiating reassessment was granted by the Joint Commissioner of Income Tax (JCIT), instead of higher authorities as mandated by Section 151(1) of the Act. 
• The notices were issued after the expiry of four years from the relevant Assessment Year, which the petitioners claimed required approval from higher authorities as per Section 151(1). 
• The petitioners contended that even under the amended Section 151 (post Finance Act 2021), which introduced the concept of "specified authority," the approval by JCIT would not be valid. 
• The respondents (tax authorities) defended their actions based on the provisions of the Taxation and Other Laws (Relaxation & Amendment of Certain Provisions) Act, 2020 (TOLA), which extended time limits due to the COVID-19 pandemic. 
• The tax authorities argued that TOLA allowed them to initiate reassessment actions despite the expiry of normal time frames, and therefore, approval under Section 151(2) by JCIT was sufficient. 
• There was a dispute between the parties regarding which version of Section 151 should apply - the pre-Finance Act 2021 version or the amended version. 
• The petitioners also raised concerns about the actual date of issuance of the notices, as some were digitally signed and served after April 2021, when the new reassessment regime came into effect. 

What were the Court’s Observations? 

• The court held that TOLA (Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020) does not impact or amend the operation of Section 151 of the Income Tax Act, 1961. 
  • TOLA merely extended the time frame for specified authorities to issue notices or accord sanction, without altering the substantive provisions of Section 151. 
• The court noted a discrepancy between the date on the notice (March 31, 2021) and the date of digital signature (April 1, 2021), acknowledging the respondents' explanation of system delay. 
• The court interpreted Section 3 of TOLA as extending statutory time limits falling between 20th March 2020, and 31st December 2020, to 31st March 2021, or a later date as notified by the Central Government. 
• The court observed that Finance Act 2021, which came into effect from April 1, 2021, was enacted after TOLA's initial extension period. 
• The court emphasized that TOLA was designed to overcome statutory closures due to the pandemic, not to confer new jurisdictions or alter existing power structures within specified Acts. 
• The court held that TOLA cannot be interpreted as amending the distribution of power or categorization prescribed by Section 151 of the Income Tax Act. 
• The court clarified that the additional time provided by TOLA does not modify the hierarchy or structure established by Section 151. 
• The court stated that the approval for reassessment should still be based on the time frames specified in Section 151, regardless of TOLA's extension. 
• The court concluded that even if reassessment was initiated under TOLA's extended timeline, the authority empowered to grant approval would remain as specified in Section 151, based on the time elapsed since the relevant Assessment Year. 

What is Section 151 of the Income Tax Act 1961? 

• Section 151 prescribes the sanction procedure for issuing notices under Section 148 of the Income Tax Act, 1961. 
• The section establishes a two-tier system for granting sanctions, based on the time elapsed since the end of the relevant assessment year. 
• As per sub-section (1), if more than four years have elapsed from the end of the relevant assessment year, the notice under Section 148 can only be issued with the satisfaction and approval of higher authorities, namely:  
  • Principal Chief Commissioner  
  • Chief Commissioner  
  • Principal Commissioner 
  • Commissioner 
• The higher authorities mentioned in sub-section (1) must be satisfied, based on reasons recorded by the Assessing Officer, that it is a fit case for issuing such notice. 
• Sub-section (2) deals with cases where less than four years have elapsed from the end of the relevant assessment year. 
• In cases falling under sub-section (2), if the Assessing Officer is below the rank of Joint Commissioner, the notice can only be issued with the satisfaction and approval of the Joint Commissioner. 
• The Joint Commissioner must be satisfied, based on reasons recorded by the Assessing Officer, that it is a fit case for issuing such notice. 
• Sub-section (3) clarifies that the sanctioning authorities (Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, Commissioner, or Joint Commissioner) need not issue the notice themselves. 
• The role of the sanctioning authorities is limited to being satisfied with the reasons recorded by the Assessing Officer regarding the fitness of the case for issuing a notice under Section 148. 
• The section implicitly recognizes that Assessing Officers of the rank of Joint Commissioner or above can issue notices under Section 148 without additional sanction, provided it is within four years from the end of the relevant assessment year. 
• This section serves as a safeguard against arbitrary or unjustified reopening of assessments, especially in cases where a significant time has elapsed since the original assessment. 
• The section emphasizes the importance of recorded reasons by the Assessing Officer, which form the basis for the sanctioning authority's satisfaction. 

Taxation and Other Laws Act, 2020 

About: 

• The Taxation and Other Laws Act, 2020 was enacted in India to provide relief and address challenges faced by taxpayers due to the COVID-19 pandemic. 
• It amended various tax laws and extended deadlines for filing returns, making tax payments, and completing other compliance-related activities. 
• The Act also introduced changes to several other laws, including those related to charitable trusts, direct tax vivad se vishwas, and prohibition of benami property transactions. 

Legal Provision: 

• The Act provides for relaxation of time limits specified in various tax laws and other related laws due to the exceptional circumstances caused by the COVID-19 pandemic. 
• It applies to multiple specified Acts, including the Income-tax Act, 1961, the Prohibition of Benami Property Transactions Act, 1988, and the Direct Tax Vivad se Vishwas Act, 2020, among others. 
• The Act extends the time limits for completion or compliance of actions falling between March 20, 2020, and June 29, 2020 (or a later date as specified by the government) to June 30, 2020 (or a later date as notified). 
• It reduces the rate of interest payable on delayed tax payments to 0.75% per month or part thereof and waives penalties and prosecution for such delays during the specified period. 
• It also amends certain provisions of other Acts, including the Income-tax Act, 1961, to include the PM CARES Fund for tax deduction purposes, and modifies timelines in the Direct Tax Vivad Se Vishwas Act, 2020.