Facts of the Case

The present batch of writ petitions concerns Assessment Years 2016–17 and 2017–18, wherein multiple assessees challenged reassessment proceedings initiated by the Income Tax Department.

The central controversy revolved around the validity of notices issued under Section 148 of the Income Tax Act, 1961, particularly in light of:

  • Amendments introduced by the Finance Act, 2021
  • Extension of limitation periods under Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA)
  • Supreme Court judgment in Union of India vs Ashish Agarwal

The assessees contended that the alleged escaped income in all cases was below ₹50 lakhs, and therefore, the extended limitation period of 10 years under Section 149(1)(b) could not be invoked.

Issues Involved

  1. Whether reassessment notices issued under Section 148 beyond 3 years are valid when escaped income is below ₹50 lakhs
  2. Whether the Revenue can invoke extended limitation under Section 149(1)(b) without satisfying statutory conditions
  3. Whether the “travel back in time” theory based on TOLA and CBDT Instruction is legally sustainable
  4. Applicability and interpretation of the Supreme Court ruling in Ashish Agarwal case

Petitioner’s Arguments

  • The limitation under Section 149(1)(a) is 3 years, which had already expired for AY 2016–17 and 2017–18
  • Since escaped income was less than ₹50 lakhs, the extended 10-year limitation under Section 149(1)(b) is not applicable
  • The Revenue’s “travel back in time” argument has no statutory basis under:
    • Income Tax Act
    • TOLA
    • Supreme Court judgment
  • The decision in Ashish Agarwal only converted notices into Section 148A(b) notices; it did not extend limitation
  • CBDT Instruction dated 11.05.2022 is ultra vires as it overrides statutory provisions
  • After Finance Act, 2021, the new regime applies to all notices issued after 01.04.2021

Respondent’s Arguments

  • Notices issued between 01.04.2021 to 30.06.2021 are valid due to:
    • TOLA extensions
    • Supreme Court ruling in Ashish Agarwal
  • Such notices should be treated as Section 148A(b) notices under the new regime
  • Limitation should be computed by:
    • Applying TOLA
    • Excluding time periods as per statutory provisions
  • CBDT Instruction dated 11.05.2022 is valid and binding
  • The reassessment proceedings are within limitation when read harmoniously with:
    • TOLA
    • Section 149
    • Supreme Court directions

Court’s Findings / Order

  • The plain language of Section 149(1) must be strictly followed
  • For cases where escaped income is below ₹50 lakhs, only:
    • Section 149(1)(a) (3-year limitation) applies
  • The Revenue cannot invoke extended limitation under Section 149(1)(b) without satisfying statutory conditions
  • The “travel back in time” theory is legally unsustainable
  • TOLA does not create any legal fiction to extend limitation beyond statutory provisions
  • The Supreme Court in Ashish Agarwal:
    • Did not extend limitation
    • Only saved procedural defects
  • CBDT Instruction dated 11.05.2022 cannot override the statute

Important Clarifications

  • Finance Act, 2021 applies retrospectively to pending reassessment proceedings
  • Limitation provisions must be strictly interpreted in tax law
  • Executive instructions cannot override statutory provisions
  • The benefit of ambiguity in tax law goes in favour of the assessee

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

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