Facts of the Case

The present batch of writ petitions involved multiple assessees challenging reassessment notices issued under Section 148 of the Income Tax Act for Assessment Years 2016–17 and 2017–18.

The central dispute arose after the Finance Act, 2021 introduced a new reassessment regime, including revised limitation provisions under Section 149.

The Revenue issued reassessment notices relying upon:

  • Notifications issued under TOLA,
  • CBDT Instruction dated 11.05.2022, and
  • The Supreme Court judgment in Union of India vs Ashish Agarwal.

However, in all cases:

  • The alleged escaped income was below ₹50 lakhs, and
  • Notices were issued beyond the 3-year limitation period prescribed under Section 149(1)(a).

Issues Involved

  1. Whether reassessment notices issued beyond 3 years are valid when escaped income is below ₹50 lakhs?
  2. Whether Revenue can invoke extended limitation (up to 10 years) under Section 149(1)(b) without satisfying statutory conditions?
  3. Whether TOLA, CBDT Instructions, and Ashish Agarwal judgment allow “travel back in time” to validate time-barred notices?

Petitioner’s Arguments

  • The limitation period under Section 149(1)(a) is 3 years, which had expired.
  • Extended limitation under Section 149(1)(b) is applicable only when escaped income exceeds ₹50 lakhs, which was not the case.
  • The “travel back in time” theory has no statutory backing.
  • CBDT Instruction dated 11.05.2022 is ultra vires and cannot override the Act.
  • The Supreme Court judgment in Ashish Agarwal only converted notices procedurally, not substantively extending limitation.
  • Finance Act, 2021 introduced a new regime, which must be strictly applied.

Respondent’s Arguments (Revenue)

  • Notices issued between 01.04.2021 to 30.06.2021 are valid due to:
    • TOLA extensions,
    • CBDT instructions, and
    • Supreme Court’s directions in Ashish Agarwal.
  • The limitation period should be computed by allowing notices to “relate back” to earlier dates.
  • Time exclusions under provisos to Section 149 apply.
  • The reassessment proceedings were within permissible limits after applying extensions.

Court Findings / Judgment

1. Strict Interpretation of Limitation

  • Section 149 must be interpreted strictly.
  • For escaped income below ₹50 lakhs, only 3-year limitation applies.

2. Extended Limitation Not Applicable

  • Revenue cannot invoke 10-year limitation without satisfying statutory conditions.

3. “Travel Back in Time” Theory Rejected

  • The Court rejected the Revenue’s argument that notices can relate back to earlier dates.
  • No such legal fiction exists in the Act or TOLA.

4. CBDT Instructions Cannot Override Law

  • CBDT Instruction dated 11.05.2022 cannot override statutory provisions.

5. Effect of Ashish Agarwal Judgment

  • The Supreme Court judgment only provided procedural relief.
  • It did not extend limitation or override Section 149.

6. Result

  • Reassessment notices issued beyond limitation were held invalid and quashed.

Important Clarifications

  • Finance Act, 2021 brought a complete substitution of reassessment provisions.
  • New limitation rules apply even to past assessment years if notices are issued after 01.04.2021.
  • TOLA cannot override subsequent legislation.
  • Limitation provisions in tax law must be applied strictly in favour of the assessee.

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

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