Facts of the Case

The petitioner, L-1 Identity Solutions Operating Company Private Limited, is a company engaged in providing services to its foreign associated enterprises. During the period 21.03.2023 to 25.03.2023, search and seizure operations under Section 132 were conducted at the premises of the petitioner and related entities.

Pursuant to the search, notices dated 21.03.2024 and 28.03.2024 were issued under Section 148 for Assessment Year 2018-19. The reasons recorded alleged that the petitioner had undercharged its associated enterprises for R&D services by ₹0.27 crore during FY 2017-18 and had overpaid management and intragroup service fees by ₹0.21 crore. It was further alleged that similar undercharging occurred in earlier and later years, and cumulatively the income escaping assessment across AYs 2017-18 to 2019-20 exceeded ₹50 lakh.

The petitioner objected to the reopening on the ground of limitation, contending that income alleged to have escaped assessment for AY 2018-19 was below ₹50 lakh and therefore notice beyond three years was barred. Despite objections, the Assessing Officer proceeded with reassessment, leading to the present writ petition.

Issues Involved

Whether notices under Section 148 for AY 2018-19 issued beyond three years were barred by limitation when the income alleged to have escaped assessment for the relevant year was less than ₹50 lakh, whether cumulative additions across multiple assessment years could be aggregated to cross the ₹50 lakh threshold under Section 149(1)(b), and whether Section 149(1A) applied to the facts of the case.

Petitioner’s Arguments

The petitioner argued that Section 149(1)(b) requires income escaping assessment of ₹50 lakh or more for the relevant assessment year, and that the alleged escapement for AY 2018-19 was admittedly below this threshold. It was contended that the Assessing Officer could not aggregate alleged undercharging or excess expenditure across multiple assessment years to invoke extended limitation. The petitioner further submitted that Section 149(1A) applies only where escapement is represented by a single asset or expenditure relating to a singular event or occasion spanning multiple years, which was not the case here.

Respondent’s Arguments

The Revenue argued that Section 149(1A) permitted aggregation of escaped income across multiple assessment years where the cumulative amount exceeded ₹50 lakh. It was contended that since undercharging and excess payments allegedly occurred in a series of years, the threshold condition under Section 149(1)(b) stood satisfied.

Court Order / Findings

The Delhi High Court examined Sections 149(1), 149(1)(b) and 149(1A) in detail and held that the ₹50 lakh threshold must be examined with reference to the relevant assessment year. The Court clarified that Section 149(1A) permits aggregation only where escaped income is represented by a single asset or expenditure relating to a singular event or occasion spanning multiple years.

In the present case, the alleged undercharging of R&D services and excess management fee payments were independent transactions occurring in different years and could not be treated as a single event or occasion. The Court held that it was impermissible for the Assessing Officer to aggregate alleged escapement across FYs 2016-17, 2017-18 and 2018-19 to cross the ₹50 lakh threshold.

Accordingly, the Court held that the notices issued under Section 148 for AY 2018-19 were barred by limitation and without jurisdiction.

Important Clarification

The High Court clarified that for invoking extended limitation under Section 149(1)(b), the income alleged to have escaped assessment must exceed ₹50 lakh for the relevant assessment year, except in cases falling strictly within Section 149(1A). Aggregation of unrelated adjustments across different years to meet the threshold is impermissible.

Final Outcome

The writ petition was allowed. The notices dated 21.03.2024 and 28.03.2024 issued under Section 148 for Assessment Year 2018-19, along with all proceedings initiated pursuant thereto, were quashed as being barred by limitation.

Link to download order  https://www.mytaxexpert.co.in/uploads/1769756301_L1IDENTITYSOLUTIONSOPERATINGCOMPANYPRIVATELIMITEDVsASSISTANTCOMMISSIONEROFINCOMETAXCENTRALCIRCLE25.pdf 

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