Facts of the Case

The present batch of writ petitions concerns reassessment proceedings for Assessment Years 2016–17 and 2017–18. The primary dispute revolves around the validity of reassessment notices issued under Section 148 of the Income Tax Act.

The petitioners (assessees) challenged notices issued after 01.04.2021, arguing that the limitation period prescribed under the amended provisions of Section 149 had already expired. In all cases, the alleged escaped income was below ₹50 lakhs.

The Revenue relied upon:

  • The Supreme Court judgment in Union of India vs Ashish Agarwal
  • CBDT Instruction dated 11.05.2022
  • Extensions granted under TOLA

The controversy arose due to changes introduced by the Finance Act, 2021, which substituted the reassessment regime and reduced the limitation period to 3 years in cases where escaped income is less than ₹50 lakhs.

Issues Involved

  1. Whether reassessment notices issued under Section 148 after 01.04.2021 are valid when escaped income is below ₹50 lakhs.
  2. Whether the extended limitation period of 10 years under Section 149(1)(b) can be invoked without fulfilling statutory conditions.
  3. Whether TOLA and CBDT instructions can override statutory limitation under the amended provisions.
  4. Whether the “travel back in time” theory adopted by the Revenue is legally sustainable.

Petitioner’s Arguments

  • The limitation under Section 149(1)(a) (3 years) had expired for AY 2016–17 and 2017–18.
  • Since escaped income was below ₹50 lakhs, extended limitation under Section 149(1)(b) was not applicable.
  • Finance Act, 2021 substituted the reassessment provisions, and new law must apply to notices issued after 01.04.2021.
  • TOLA does not permit retrospective revival of limitation or “travel back in time.”
  • CBDT Instruction dated 11.05.2022 is ultra vires and cannot override statutory provisions.
  • Supreme Court in Ashish Agarwal did not permit revival of time-barred notices.

Respondent’s Arguments

  • Notices issued between 01.04.2021 and 30.06.2021 were saved by the Supreme Court in Ashish Agarwal.
  • TOLA extended limitation up to 30.06.2021.
  • Such notices must be treated as issued under Section 148A(b) under the new regime.
  • Time consumed in proceedings should be excluded while computing limitation.
  • CBDT Instruction is valid and clarifies implementation of Supreme Court directions.

Court’s Findings / Analysis

  • The Court examined the interplay between:
    • Finance Act, 2021 (new reassessment regime)
    • TOLA extensions
    • Supreme Court judgment in Ashish Agarwal
  • It held that:
    • After 01.04.2021, only the amended provisions apply.
    • Section 149 clearly restricts limitation to 3 years where escaped income is below ₹50 lakhs.
    • Extended limitation up to 10 years is conditional and cannot be invoked without fulfilling statutory thresholds.
    • TOLA only extended timelines but did not override substantive provisions of limitation.
    • The “travel back in time” concept has no legal basis in the statute or Supreme Court judgment.

Court Order

  • Reassessment notices issued beyond the limitation period prescribed under Section 149(1)(a) were held invalid.
  • Revenue cannot invoke extended limitation under Section 149(1)(b) where escaped income is below ₹50 lakhs.
  • CBDT Instruction dated 11.05.2022 cannot override statutory provisions.
  • The writ petitions were allowed in favour of the assessees. 

Important Clarifications

  • Finance Act, 2021 applies to all reassessment notices issued after 01.04.2021.
  • Limitation provisions must be strictly interpreted in tax law.
  • Executive instructions cannot override statutory provisions.
  • Supreme Court’s judgment in Ashish Agarwal does not revive time-barred notices.
  • TOLA provides procedural relaxation, not substantive extension beyond statutory limits.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS10112023CW115272022_212005.pdf

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