Facts of the Case

The present batch of writ petitions involved multiple assessees challenging reassessment proceedings initiated by the Income Tax Department for Assessment Years 2016–17 and 2017–18.

The core issue arose from notices issued under Section 148 after the amendment introduced by the Finance Act, 2021, which overhauled the reassessment regime.

  • The assessees were issued notices under the old regime during April–June 2021.
  • These notices were later validated by the Supreme Court in Union of India vs Ashish Agarwal (2022) and treated as notices under Section 148A(b).
  • Subsequently, fresh proceedings were initiated under the new regime.

However, in all cases:

  • The alleged escaped income was below ₹50 lakhs.
  • Notices were issued beyond 3 years from the end of relevant AY.

The assessees challenged the notices as being barred by limitation under Section 149(1)(a)

Issues Involved

  1. Whether reassessment notices issued under Section 148 after 01.04.2021 are governed by the new limitation regime under Section 149?
  2. Whether the Revenue can invoke extended limitation under Section 149(1)(b) when escaped income is less than ₹50 lakhs?
  3. Whether the concept of “travel back in time” (as argued by Revenue) is legally valid?
  4. Whether TOLA and CBDT Instruction dated 11.05.2022 can override statutory limitation provisions?

Petitioner’s Arguments

  • The limitation under Section 149(1)(a) (3 years) had already expired:
    • AY 2016–17 → expired on 31.03.2020
    • AY 2017–18 → expired on 31.03.2021
  • Since escaped income was below ₹50 lakhs, the Revenue cannot invoke extended limitation of 10 years under Section 149(1)(b).
  • The “travel back in time” theory:
    • Has no statutory basis
    • Not supported by Ashish Agarwal judgment
    • Not supported by TOLA
  • CBDT Instruction dated 11.05.2022:
    • Is ultra vires
    • Cannot override statute or Supreme Court ruling
  • Finance Act, 2021 introduced a completely new regime:
    • Old provisions stand substituted
    • New limitation must apply mandatorily

Respondent’s Arguments (Revenue)

  • Due to TOLA and Notifications, limitation stood extended till 30.06.2021.
  • Based on Ashish Agarwal judgment:
    • Notices issued earlier should be treated as valid under new regime.
  • The reassessment notices:
    • Should be considered within limitation by applying exclusion of time.
  • The concept of “travel back in time”:
    • Allows notices to be treated as issued within valid limitation period.
  • CBDT Instruction dated 11.05.2022:
    • Is valid and binding.

Court’s Findings / Analysis

1. New Law Applies Post 01.04.2021

  • After Finance Act, 2021:
    • Entire reassessment framework changed
    • New Section 149 must apply

2. Limitation Strictly Governed by Section 149(1)

  • Section 149(1)(a):
    • 3-year limitation applies where escaped income < ₹50 lakhs
  • Section 149(1)(b):
    • 10-year limitation applies only when escaped income ≥ ₹50 lakhs
  • Since in all cases:
    • Escaped income < ₹50 lakhs
      ➡️ Extended limitation cannot be invoked

3. “Travel Back in Time” Theory Rejected

  • The Court categorically rejected:
    • Revenue’s attempt to treat notices as issued earlier
  • Held:
    • No such legal fiction exists in:
      • Income Tax Act
      • TOLA
      • Supreme Court judgment

4. TOLA Cannot Override Finance Act, 2021

  • TOLA only extends timelines for compliance
  • It cannot override substituted statutory provisions

 

5. CBDT Instructions Cannot Override Law

  • Instruction dated 11.05.2022:
    • Cannot curtail rights of assessees
    • Cannot override statutory limitation

 

6. Ashish Agarwal Judgment Limited in Scope

  • It only:
    • Saved notices procedurally
  • It did NOT extend limitation or create legal fiction

Court Order / Final Decision

  • Reassessment notices issued under Section 148:
    • Declared time-barred
  • Orders passed under Section 148A(d):
    • Quashed
  • Entire reassessment proceedings:
    • Set aside

Important Clarifications

  • Limitation under Section 149 is mandatory and strict
  • Revenue cannot:
    • Extend limitation through circulars or instructions
  • “Legal fiction” must be expressly provided in statute
  • Finance Act, 2021:
    • Has overriding effect over earlier regime

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

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