Delhi High Court Quashes Time-Barred Reassessment Notice Under Section 148 of the Income Tax Act: Rules That the Ten-Year Limitation Period Under Sections 149, 153A, and 153C Must Be Strictly Followed

Court’s Decision

The Delhi High Court quashed the reassessment notice issued under Section 148 of the Income Tax Act, 1961, for being time-barred. The Court ruled that the reassessment proceedings must adhere to the limitation period specified under Sections 149, 153A, and 153C as they existed prior to the Finance Act, 2021. Since the reassessment notice pertained to AY 2015-16 and exceeded the ten-year limit, it was deemed invalid. The Court reaffirmed that compliance with statutory timelines is mandatory and cannot be bypassed.

Facts

1. Background of the Notice:
   The petitioner challenged a reassessment notice dated August 30, 2024, issued under Section 148 for AY 2015-16. The reassessment was based on findings from a search conducted after April 1, 2021.
2. Petitioner’s Stand:
   Initially, the petitioner raised two challenges:
   • The notice was time-barred.
   • The constitutional validity of Explanation 2 to Section 148.
     However, during the proceedings, the petitioner confined their argument to the issue of limitation.
3. Contention of the Revenue:
   The reassessment was justified by the Revenue, which argued that it was conducted in accordance with statutory requirements, including the satisfaction note prepared by the Assessing Officer (AO).

Issues

1. Whether the reassessment notice under Section 148 of the Act for AY 2015-16 was barred by limitation under the First Proviso to Section 149(1).
2. Whether the reassessment complied with the provisions of Sections 153A and 153C concerning the recording of the satisfaction note.

Petitioner’s Arguments

• Time-Barred Notice:
  The petitioner argued that the notice was invalid as it exceeded the ten-year limitation period prescribed under the First Proviso to Section 149(1).
• Failure of Compliance with Section 153C:
  It was contended that the AO of the searched person did not prepare the required satisfaction note nor hand over relevant materials to the AO of the petitioner, as mandated by Section 153C.

Respondent’s Arguments

1. Validity of the Notice:
   The Revenue claimed that the reassessment was conducted in compliance with the law and that the satisfaction note prepared by the AO of the petitioner satisfied the procedural requirements.
2. Timeline Compliance:
   The Revenue argued that the notice was issued within the permissible timelines under the amended Section 149 introduced by the Finance Act, 2021.

Analysis of the Law

• Limitation Period Under Section 153C:
  The Court emphasized that under the pre-2021 provisions, the ten-year block period must be calculated from the date on which the AO of the searched person prepares the satisfaction note and hands over the materials to the AO of the other person (non-searched person).
• Impact of Finance Act, 2021:
  The Finance Act, 2021, introduced amendments to Section 149. However, the First Proviso to Section 149(1) mandates that reassessments initiated pursuant to a search must be tested against the limitation periods under Sections 153A and 153C as they existed prior to the amendments.
• Role of Satisfaction Notes:
  The Court reiterated that the satisfaction note prepared by the AO of the non-searched person cannot substitute for the satisfaction note required to be prepared by the AO of the searched person.

Precedent Analysis

1. Dinesh Jindal v. Assistant Commissioner of Income Tax:
   The Court referred to its earlier decision, which clarified the computation of the limitation period under Section 153C and held that the reassessment period for a non-searched person must begin from the date the material is handed over to the AO.
2. ATS Township Pvt. Ltd. v. Assistant Commissioner of Income Tax:
   This case reinforced that material handover and satisfaction notes by the AO of the searched person are prerequisites for reassessment under Section 153C.
3. CIT v. Jasjit Singh (Supreme Court):
   The Supreme Court’s judgment highlighted that the computation of the ten-year block period must strictly adhere to the statutory provisions of Sections 153A and 153C as they stood before April 1, 2021.

Court’s Reasoning

• Limitation Period Violated:
  The Court found that the reassessment notice was issued for AY 2015-16, which fell beyond the permissible ten-year period. This made the notice invalid.
• Failure to Record Satisfaction Note:
  The AO of the searched person did not prepare the mandatory satisfaction note or hand over materials to the AO of the petitioner. The satisfaction note prepared by the AO of the petitioner was not sufficient to fulfill the statutory requirement under Section 153C.

The Court noted:
“The computation of limitation must adhere strictly to the statutory framework without deviation.”

Conclusion

The Delhi High Court quashed the reassessment notice and set aside all related proceedings. The Court reiterated the need for strict adherence to statutory timelines and compliance with procedural requirements under Sections 149, 153A, and 153C.

Implications

This judgment provides significant clarity on reassessment proceedings, particularly in cases involving searches. It reaffirms the necessity for procedural compliance and adherence to statutory timelines. Tax authorities must ensure that reassessments are initiated within the prescribed timeframes and based on proper satisfaction notes, failing which such actions may be invalidated.

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