Facts of the Case

The present batch of writ petitions concerned reassessment notices issued under Section 148 of the Income Tax Act, 1961 for Assessment Years 2016-17 and 2017-18.

  • The petitioners (assessees) were issued reassessment notices after 01.04.2021, following procedural changes introduced by the Finance Act, 2021.
  • The alleged escaped income in all cases was below ₹50 lakhs.
  • The Revenue relied on:
    • Supreme Court judgment in Union of India vs Ashish Agarwal
    • CBDT Instruction dated 11.05.2022
    • TOLA (COVID-related extensions)

The core dispute centered on whether reassessment notices were time-barred under Section 149(1).

Issues Involved

  1. Whether reassessment notices issued under Section 148 after 01.04.2021 are governed by:
    • Old regime (pre-FA 2021), or
    • New regime (post-FA 2021)
  2. Whether extended limitation under Section 149(1)(b) (up to 10 years) can apply when:
    • Escaped income is below ₹50 lakhs
  3. Whether TOLA and CBDT Instructions can extend limitation beyond statutory provisions
  4. Validity of the “travel back in time” theory adopted by Revenue

Petitioner’s Arguments

  • Notices were time-barred under Section 149(1)(a) (3-year limitation).
  • Since escaped income was below ₹50 lakhs, extended limitation under Section 149(1)(b) is not applicable.
  • Finance Act, 2021 substituted (not merely amended) Sections 147–151, making the new regime mandatory post 01.04.2021.
  • TOLA does not permit retrospective extension beyond statutory limits.
  • CBDT Instruction dated 11.05.2022 is ultra vires and cannot override statute.
  • Supreme Court in Ashish Agarwal did not approve “travel back in time”.
  • Tax statutes must be strictly interpreted—no scope for inference or extension.

Respondent’s (Revenue) Arguments

  • Notices are valid based on:
    • Ashish Agarwal judgment
    • TOLA extensions
    • CBDT Instruction
  • Notices issued between 01.04.2021 and 30.06.2021 should be treated as Section 148A(b) notices.
  • Limitation should be computed by excluding procedural time.
  • The “travel back” concept allows treating notices as issued earlier.
  • Extended limitation is valid due to COVID relaxations and statutory interpretation.

Court’s Findings / Analysis

1. Applicability of New Law

  • Post 01.04.2021, all reassessment proceedings must comply with the new regime introduced by Finance Act, 2021.

2. Strict Interpretation of Section 149

  • Section 149(1)(a):
    • 3-year limitation applies where escaped income < ₹50 lakhs.
  • Section 149(1)(b):
    • Extended 10-year period applies only if escaped income ≥ ₹50 lakhs.

3. No “Travel Back in Time”

  • The Court rejected Revenue’s theory:
    • No legal fiction exists to treat notices issued later as issued earlier.
    • Neither TOLA nor Ashish Agarwal supports such interpretation.

4. CBDT Instructions Cannot Override Law

  • Administrative instructions cannot:
    • Override statute
    • Create new limitation rules

5. TOLA’s Limited Scope

  • TOLA only extended existing timelines, not:
    • Revive expired limitation
    • Override substituted provisions

6. Effect of Substitution (FA 2021)

  • Substitution means:
    • Old provisions cease to exist
    • New provisions apply immediately

Court Order / Final Decision

  • Reassessment notices issued under Section 148 beyond 3 years (where escaped income < ₹50 lakhs) are invalid and time-barred.
  • Revenue cannot invoke extended limitation under Section 149(1)(b) in such cases.
  • CBDT Instruction dated 11.05.2022 cannot sustain such notices.

Important Clarifications by Court

  • Supreme Court’s Ashish Agarwal judgment:
    • Only saved procedural defects
    • Did not extend limitation
  • Limitation must be tested strictly under amended Section 149
  • Executive cannot override legislature

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

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