Facts of the Case

The Revenue challenged the order passed by the Income Tax Appellate Tribunal (ITAT) dated 25.11.2011 whereby the ITAT upheld the order of the Commissioner of Income Tax (Appeals). The issue involved treatment of the assessee company as an “assessee in default” under Section 201 of the Income Tax Act.

The assessee company was sought to be treated as an assessee in default for Assessment Year 2002-03 and Financial Year 2003-04. The Assessing Officer sought to raise demands by adding back certain amounts.

The assessee contended that the proceedings initiated under Section 201 by order dated 04.03.2009 were barred by limitation as the returns had been filed much earlier. The CIT (Appeals) accepted the assessee’s contention by relying upon the judgments in:

  • CIT vs NHK Japan Broadcasting Corporation (2008) 305 ITR 137 (Del)
  • CIT vs Hutchison Essar Telecom Ltd. (2010) 323 ITR 230 (Del)

The matter thereafter reached the Delhi High Court.

Issues Involved

  1. Whether proceedings under Section 201 of the Income Tax Act initiated against the assessee were barred by limitation.
  2. Whether subsequent amendments to Section 201(3) extending limitation periods would apply retrospectively.
  3. Whether the judgment in NHK Japan Broadcasting Corporation continued to remain good law for periods prior to 01.04.2010.

Petitioner’s Arguments (Revenue)

The Revenue argued that subsequent amendments to Section 201(3) had modified the legal position laid down in NHK Japan Broadcasting Corporation.

It was submitted that:

  • By amendment effective from 01.04.2010, the limitation period under Section 201(3) was prescribed as six years.
  • Subsequently, by Finance Act No. 2 of 2014 with effect from 01.10.2014, the limitation period was extended to seven years.

The Revenue therefore contended that the proceedings were within the permissible statutory period.

Respondent’s Arguments (Assessee)

The assessee contended that:

  • Proceedings under Section 201 were initiated after an unreasonable delay.
  • The action initiated in 2009 for earlier assessment years was time barred.
  • The judgments in NHK Japan Broadcasting Corporation and Hutchison Essar Telecom Ltd. clearly held that in absence of a prescribed limitation period, proceedings under Section 201 had to be initiated within a reasonable time, which was considered to be four years.

Court Order / Findings

The Delhi High Court dismissed the Revenue’s appeal and held that no substantial question of law arose in the matter.

The Court observed that:

  • The decision in NHK Japan Broadcasting Corporation continued to remain good law for the period prior to 01.04.2010.
  • Parliament consciously did not make Section 201(3) retrospective in operation.
  • Though Section 201(1A) was introduced retrospectively from 01.04.1966, no similar retrospective amendment was made in relation to Section 201(3).

The Court also relied upon its earlier decision in:

  • Commissioner of Income Tax (TDS)-I vs C.J. International Hotels Pvt. Ltd., ITA No.57/2015 decided on 09.02.2015

Accordingly, the Court held that proceedings initiated beyond the reasonable period were barred by limitation.

Important Clarification

The Delhi High Court clarified that:

  • The ruling in NHK Japan Broadcasting Corporation would continue to apply for periods prior to 01.04.2010.
  • The amendments extending limitation under Section 201(3) were prospective and not retrospective.

Proceedings under Section 201 for earlier years could not be revived merely because the limitation period was subsequently enlarged.

Sections Involved

  • Section 201 of the Income Tax Act, 1961
  • Section 201(1A) of the Income Tax Act, 1961
  • Section 201(3) of the Income Tax Act, 1961

Link to Download the Order https://delhihighcourt.nic.in/app/case_number_pdf/2015:DHC:1405-DB/RKG11022015ITA852015.pdf

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