Delhi High Court Quashes Time-Barred Reassessment Notice Under Section 148: Reaffirms Pre-2021 Limitation Framework for Search Cases Under Income Tax Act

Court’s Decision

The Delhi High Court quashed the reassessment notice issued under Section 148 of the Income Tax Act, 1961 for Assessment Year (AY) 2015-16, ruling that it was barred by limitation. The court held that reassessment proceedings pursuant to a search conducted after 01.04.2021 must comply with the time limits prescribed under Section 153C of the Act as it existed before the Finance Act, 2021. Since the reassessment notice was issued beyond the ten-year limitation period, the court ruled that it was unsustainable in law.

Facts of the Case

1. Background of the Dispute
   • The petitioner challenged a notice dated 30.08.2024, issued under Section 148 of the Income Tax Act, for the Assessment Year (AY) 2015-16.
   • The petitioner initially also challenged the constitutional validity of Explanation 2 to Section 148, but during arguments, narrowed the challenge to the issue of limitation.
2. Limitation Period and Search Proceedings
   • The Income Tax Department had initiated reassessment proceedings against the petitioner based on a search conducted after 01.04.2021.
   • The petitioner contended that the reassessment notice was issued beyond the ten-year limitation period prescribed under the law, rendering it invalid.
3. Core Legal Issue
   • The primary question before the court was whether the reassessment notice for AY 2015-16 was time-barred under the applicable provisions of the Income Tax Act, 1961.
   • The case revolved around the correct interpretation of Section 153C of the Act and the timelines applicable to reassessment proceedings post-2021.

Issues Before the Court

1. Whether the reassessment notice issued under Section 148 for AY 2015-16 was barred by limitation?
2. Whether the limitation period should be computed as per the law applicable before the Finance Act, 2021?
3. Whether the AO of the searched person had recorded a proper satisfaction note as required under Section 153C?
4. Whether the issuance of the impugned notice complied with the legal precedents on limitation under the Income Tax Act?

Petitioner’s Arguments

1. The reassessment notice was issued beyond the limitation period
   • The petitioner argued that as per Section 153C of the Act, reassessment proceedings must be initiated within ten years from the end of the relevant assessment year.
   • Since the assessment year in question was 2015-16, the ten-year limit ended on 31.03.2025, and any notice beyond this period was invalid.
2. The issue was already settled by previous court rulings
   • The petitioner cited the Delhi High Court’s decisions in:
     • Dinesh Jindal v. Assistant Commissioner of Income Tax, Central Circle 20, Delhi & Others
     • Pr. Commissioner of Income Tax – Central-1 v. Ojjus Medicare Pvt. Ltd
   • In both cases, the court had ruled that reassessment proceedings in search cases must adhere to the pre-2021 legal framework and comply with the prescribed limitation periods.
3. Lack of a valid satisfaction note from the AO of the searched person
   • Under Section 153C, reassessment proceedings must be based on a satisfaction note prepared by the AO of the searched person.
   • The petitioner argued that no such satisfaction note was prepared, making the reassessment proceedings legally untenable.
4. Date of satisfaction note cannot extend the limitation period
   • The AO prepared the satisfaction note on 23.08.2024, which was approved on 29.08.2024.
   • However, the petitioner argued that this date cannot be treated as the starting point for limitation purposes because the limitation must be computed from the end of the relevant assessment year, not from when the note was prepared.

Respondent’s Arguments

1. Defended the reassessment notice under Explanation 2 to Section 148
   • The Revenue argued that Explanation 2 to Section 148 allowed reassessment proceedings even in search cases after 2021.
2. Reassessment under Section 148 was valid under the amended provisions
   • The Income Tax Department contended that since the Finance Act, 2021 introduced changes to the reassessment framework, the notice should be considered valid.
3. The satisfaction note was duly recorded
   • The Revenue pointed out that the AO of the petitioner had recorded a satisfaction note on 23.08.2024, which was approved by the Chief Commissioner on 29.08.2024.
   • The Department argued that the satisfaction note should be considered for computing the limitation period.
4. Ten-year limitation should be computed from the date of AO’s action
   • The Department asserted that since the AO initiated proceedings in 2024, the limitation period should be calculated accordingly.

Analysis of the Law

Key Provisions

• Section 153C of the Income Tax Act:
  • Mandates that reassessment proceedings in search cases must be initiated within ten years from the end of the assessment year in which the satisfaction note was recorded.
• First Proviso to Section 149(1):
  • Reassessment proceedings for searches conducted after 01.04.2021 must comply with the pre-2021 limitation periods.
• Section 148:
  • Empowers the AO to issue reassessment notices but is subject to the limitation periods prescribed under Sections 153A and 153C.

Judicial Precedents

1. Dinesh Jindal v. Assistant Commissioner of Income Tax, Central Circle 20, Delhi & Others
   • Held that for searches conducted post-2021, reassessment must comply with the pre-2021 limitation periods.
2. Pr. Commissioner of Income Tax – Central-1 v. Ojjus Medicare Pvt. Ltd
   • Clarified that reassessment must be initiated within ten years from the date of search or satisfaction note.
3. ATS Township Pvt Ltd v. Assistant Commissioner of Income Tax, Circle 1(1), Delhi
   • Ruled that mere uploading of material on the insight portal does not satisfy the requirement of a valid satisfaction note.

Court’s Reasoning

1. Reassessment notice for AY 2015-16 was issued beyond the ten-year limit
   • Since the search occurred after 01.04.2021, the limitation must be computed under pre-2021 law.
   • AY 2015-16 fell beyond the ten-year terminal point, making the reassessment time-barred.
2. The AO’s satisfaction note cannot override statutory limitation periods
   • The satisfaction note was recorded in August 2024, but under Section 153C, reassessment must be computed from the relevant assessment year, not from the note’s date.
3. Revenue conceded that AY 2015-16 was beyond the ten-year period
   • The Revenue itself admitted that the AY 2015-16 exceeded the permissible limit, supporting the petitioner’s case.

Conclusion

• The court quashed the reassessment notice, ruling that it was barred by limitation.
• The impugned notice and all proceedings arising from it were set aside.

Implications of the Judgment

1. Reassessment notices for searches after 01.04.2021 must adhere to pre-2021 limitation periods.
2. Income Tax Department cannot issue notices beyond ten years, even under Explanation 2 to Section 148.
3. Reaffirmation that the AO must properly record and comply with satisfaction note requirements under Section 153C.
4. This ruling serves as a precedent against arbitrary reassessment proceedings.

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