Delhi High Court Quashes Time-Barred Reassessment Proceedings: Holds That Notices Issued Beyond Limitation Period Under Section 149(1) Are Invalid Despite TOLA Extensions

Court’s Decision

The Delhi High Court set aside reassessment proceedings initiated by the Income Tax Department, ruling that the notices issued on 30.07.2022 under Section 148 and the order under Section 148A(d) were beyond the statutory limitation period prescribed under Section 149(1) of the Income Tax Act, 1961. The Court observed that even after accounting for extensions under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and the Supreme Court’s decision in Union of India v. Ashish Agarwal, the impugned notices were issued beyond the permissible time limit and were, therefore, invalid.

Facts

1. The Assessee’s Background
   • The Assessee is a company incorporated under the Companies Act, 1956, regularly filing its income tax returns.
   • The dispute relates to Assessment Year (AY) 2013-14.
2. Issuance of Reassessment Notice
   • On 01.06.2021, the Assessing Officer (AO) issued a reassessment notice under Section 148 of the Income Tax Act, alleging that the Assessee’s income for AY 2013-14 had escaped assessment.
   • The notice was issued beyond six years from the end of AY 2013-14, which was the maximum period allowed under the old reassessment regime.
3. Assessee’s Response
   • The Assessee challenged the validity of the notice, arguing that it was issued beyond the prescribed time limit under Section 149(1).
   • The Assessee contended that as per the old regime (pre-01.04.2021), reassessment could not be initiated beyond six years unless foreign assets were involved, which was not the case.
4. Issuance of Fresh Notice Post Ashish Agarwal Judgment
   • The Supreme Court, in Union of India v. Ashish Agarwal, held that reassessment notices issued under the old regime post 01.04.2021 should be treated as notices under Section 148A(b) of the new reassessment regime.
   • On 30.05.2022, a fresh notice was issued under Section 148A(b) in compliance with the Supreme Court’s ruling.
   • On 30.07.2022, the AO passed an order under Section 148A(d), confirming that it was a fit case for reassessment.
   • The AO issued a fresh reassessment notice under Section 148 on 30.07.2022, which formed the basis of the dispute.
5. Final Assessment Order
   • The Assessee was directed to file its return of income on 26.08.2022.
   • The final assessment order was passed on 30.05.2023, adding ₹75 lakhs as unexplained income under Section 69, and subjecting it to tax under Section 115BBE.
   • The Assessee challenged the assessment order before the Delhi High Court, arguing that the entire reassessment proceeding was void ab initio due to expiry of the limitation period.

Issues

1. Was the reassessment notice issued beyond the period of limitation under Section 149(1)?
2. Did the Supreme Court’s ruling in Union of India v. Ashish Agarwal extend the limitation period for reassessment?
3. Was the reassessment valid despite being issued after the expiry of the statutory period?

Petitioner’s (Assessee’s) Arguments

1. Limitation Period Had Expired
   • Under Section 149(1) (pre-amendment):
     • Four years from the end of the relevant AY was the general limitation period.
     • Six years if the escaped income exceeded ₹1 lakh.
     • Sixteen years only in cases involving foreign assets (not applicable here).
   • Since the case did not involve foreign assets, the last date for issuing a notice under Section 148 was 31.03.2020.
   • The first notice issued on 01.06.2021 and subsequent notices in 2022 were thus barred by limitation.
2. Supreme Court’s Ashish Agarwal Judgment Did Not Extend Limitation
   • The Ashish Agarwal ruling only regularized notices issued under the old regime, treating them as notices under Section 148A(b).
   • However, the ruling did not override the statutory limitation under Section 149.
   • The Supreme Court had explicitly held that all defenses, including limitation, remain available to taxpayers.
3. TOLA Extensions Do Not Apply
   • The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extended reassessment deadlines only up to 30.06.2021.
   • Since the notice under Section 148A(d) was issued on 30.07.2022, well beyond this period, it was invalid.

Respondent’s (Income Tax Department’s) Arguments

1. TOLA Extended the Time for Issuing Notice
   • The Revenue argued that TOLA extended reassessment deadlines until 30.06.2021, making the notice valid.
2. Reliance on Supreme Court’s Decision in Ashish Agarwal
   • The Revenue contended that the Supreme Court’s ruling allowed reassessment proceedings to continue under Section 148A.
   • Since fresh notices were issued in compliance with Ashish Agarwal, the proceedings should be allowed.
3. Assessment Involved Unexplained Income Over ₹50 Lakhs
   • Since the escaped income was ₹75 lakhs, it exceeded the threshold of ₹50 lakhs under Section 149(1)(b) (post-2021 amendment), making reassessment permissible even beyond three years.

Analysis of the Law

1. Understanding the Limitation Period Under Section 149(1)
   • Pre-2021 Regime:
     • Six-year limit (31.03.2020 for AY 2013-14).
   • Post-2021 Regime:
     • Three-year limit (31.03.2017 for AY 2013-14).
     • Ten-year limit only if income escaping assessment exceeded ₹50 lakhs.
2. Effect of TOLA on Limitation
   • TOLA extended reassessment deadlines only until 30.06.2021.
   • The Delhi High Court and Supreme Court have consistently held that TOLA cannot revive reassessment proceedings that were already time-barred before 20.03.2020.
3. Impact of Ashish Agarwal Judgment
   • Regularized notices issued after 01.04.2021.
   • Did not override statutory limitation under Section 149.
   • Assessees retained the right to challenge reassessment on limitation grounds.

Precedent Analysis

1. Union of India v. Ashish Agarwal (2023) 1 SCC 617
   • Held that reassessment notices post-01.04.2021 under the old regime should be treated as notices under Section 148A.
   • Statutory limitation under Section 149 must still be followed.
2. Mon Mohan Kohli v. ACIT (2021)
   • Held that TOLA extensions did not apply to reassessment notices that were already time-barred before 20.03.2020.
3. Union of India v. Rajeev Bansal (2024)
   • Clarified that reassessment notices cannot be revived even under TOLA and Ashish Agarwal.

Court’s Reasoning

• The reassessment notice was issued beyond the limitation period prescribed under Section 149(1).
• TOLA did not extend expired reassessment periods.
• Ashish Agarwal did not override limitation rules.
• The notice under Section 148A(d) issued on 30.07.2022 was beyond the permissible period.
• The entire reassessment proceeding was invalid.

Conclusion

The Delhi High Court held that the reassessment proceedings initiated for AY 2013-14 were time-barred, rendering the notices and assessment order illegal and liable to be quashed.

Implications

• Strengthens the principle that reassessment must adhere to limitation periods.
• Protects taxpayers from belated reassessment proceedings.
• Confirms that TOLA and Ashish Agarwal do not override limitation rules.

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