Facts of the Case

The present batch of writ petitions concerns reassessment notices issued under Section 148 of the Income Tax Act for Assessment Years (AY) 2016–17 and 2017–18.

The central issue arose from notices issued after the amendment introduced by the Finance Act, 2021, which significantly changed the reassessment framework, including limitation periods under Section 149.

In all cases:

  • The alleged escaped income was below ₹50 lakhs.
  • Notices were issued after expiry of 3 years from the relevant assessment year.
  • The Revenue relied upon:
    • The Supreme Court judgment in Union of India vs Ashish Agarwal
    • CBDT Instruction dated 11.05.2022
    • TOLA extensions due to COVID-19

Issues Involved

  1. Whether reassessment notices issued under Section 148 after 3 years are valid when escaped income is less than ₹50 lakhs?
  2. Whether Revenue can invoke extended limitation of up to 10 years under Section 149(1)(b) without fulfilling statutory conditions?
  3. Whether TOLA and CBDT instructions allow reassessment notices to “travel back in time”?
  4. Applicability of amended provisions post Finance Act, 2021.

Petitioner’s Arguments

  • The limitation under Section 149(1)(a) (3 years) had expired.
  • Since escaped income is below ₹50 lakhs, extended limitation under Section 149(1)(b) cannot be invoked.
  • Finance Act, 2021 substituted old provisions; hence new law applies to all notices issued after 01.04.2021.
  • The “travel back in time” theory:
    • Has no statutory basis
    • Not supported by the Supreme Court judgment in Ashish Agarwal
  • TOLA does not extend limitation under the new regime.
  • CBDT instructions cannot override statutory provisions.
  • Reassessment notices issued after limitation are void ab initio.

Respondent’s Arguments

  • Notices are valid based on:
    • Supreme Court ruling in Ashish Agarwal
    • TOLA extensions
    • CBDT Instruction dated 11.05.2022
  • Notices issued between 01.04.2021 and 30.06.2021 should be treated as valid under Section 148A(b).
  • Limitation should be computed considering:
    • Extended timelines due to COVID (TOLA)
    • Exclusion periods under amended provisions
  • The reassessment proceedings remain within limitation when interpreted harmoniously.

Court’s Findings / Judgment

The Delhi High Court held:

  • The amended provisions of Section 149 (post Finance Act, 2021) apply to all reassessment notices issued after 01.04.2021.
  • Where escaped income is less than ₹50 lakhs, limitation is strictly 3 years under Section 149(1)(a).
  • Revenue cannot invoke extended limitation (10 years) without fulfilling mandatory conditions.
  • The concept of “travel back in time” is legally unsustainable.
  • TOLA:
    • Only extends timelines for compliance
    • Does not override or modify substituted provisions
  • CBDT Instructions:
    • Cannot override statutory provisions or judicial interpretation
  • Supreme Court judgment in Ashish Agarwal:
    • Does not permit bypassing limitation provisions
    • Only converted old notices into Section 148A(b) notices

Important Clarifications by Court

  • Substitution of law means:
    • Old law ceases to exist
    • New law applies entirely
  • No retrospective revival of old limitation provisions
  • Statutory conditions under Section 149 are mandatory and jurisdictional
  • Revenue cannot:
    • Mix old and new provisions selectively
    • Extend limitation through administrative instructions

Link to download the order -   

https://delhihighcourt.nic.in/app/showFileJudgment/RAS10112023CW115272022_212005.pdf

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