Facts of the Case

The present batch of writ petitions concerned reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961 for Assessment Years 2016–17 and 2017–18.

The petitioners (assessees) challenged the validity of reassessment notices issued after 01.04.2021 under the amended regime introduced by the Finance Act, 2021.

The core factual background included:

  • Notices were initially issued under the unamended Section 148 between 01.04.2021 and 30.06.2021.
  • These notices were later treated as notices under Section 148A(b) in light of the Supreme Court judgment in Union of India v. Ashish Agarwal.
  • Subsequently, orders under Section 148A(d) and fresh notices under Section 148 were issued.
  • In all cases, the alleged escaped income was below ₹50 lakhs.

The petitioners contended that such reassessment proceedings were time-barred under Section 149(1)(a).

Issues Involved

  1. Whether reassessment notices issued under Section 148 after 01.04.2021 are barred by limitation under Section 149(1)(a) where escaped income is below ₹50 lakhs.
  2. Whether the Revenue can invoke the extended limitation period under Section 149(1)(b) without satisfying statutory conditions.
  3. Whether the “travel back in time” theory based on CBDT Instruction dated 11.05.2022 is legally sustainable.
  4. Whether TOLA and the Supreme Court judgment in Union of India v. Ashish Agarwal extend limitation beyond what is prescribed under amended law.

Petitioner’s Arguments

  • The limitation under Section 149(1)(a) is 3 years, which had already expired (31.03.2020 / 31.03.2021).
  • Since escaped income was less than ₹50 lakhs, the extended 10-year period under Section 149(1)(b) was not applicable.
  • The Finance Act, 2021 substituted Sections 147–151, thereby replacing the old regime entirely.
  • The “travel back in time” theory has no statutory backing and is not supported by:
    • The Income Tax Act
    • TOLA
    • Supreme Court judgment in Union of India v. Ashish Agarwal
  • CBDT Instruction dated 11.05.2022 is ultra vires as it overrides statutory provisions.
  • Notices issued after 01.04.2021 must strictly comply with the new regime and limitation provisions.

Respondent’s Arguments

  • Notices issued between 01.04.2021 and 30.06.2021 were saved by the Supreme Court in Union of India v. Ashish Agarwal.
  • Under TOLA, limitation stood extended up to 30.06.2021.
  • Such notices should be treated as valid under Section 148A(b).
  • The limitation should be computed by excluding the period between notice issuance and reply filing.
  • CBDT Instruction dated 11.05.2022 is valid and clarifies implementation of the Supreme Court judgment.

Court Findings / Order

  • Section 149(1)(a) applies where escaped income is below ₹50 lakhs.
  • The extended limitation under Section 149(1)(b) cannot be invoked unless statutory conditions are satisfied.
  • The “travel back in time” theory is legally unsustainable.
  • The Supreme Court in Union of India v. Ashish Agarwal only validated procedural conversion of notices, not extension of limitation.
  • TOLA does not override or extend limitation under the amended Section 149 beyond its clear terms.
  • CBDT Instruction dated 11.05.2022 cannot override statutory provisions.

Final Holding

  • Reassessment notices issued beyond the limitation period under Section 149(1)(a) are invalid and liable to be quashed.

Important Clarifications by Court

  • Substitution of law by Finance Act, 2021 means old provisions cease to exist.
  • Limitation must be strictly interpreted in taxation statutes.
  • Executive instructions (CBDT) cannot override statutory law.
  • Supreme Court directions under Article 142 do not create new limitation periods.
  • TOLA only provided temporary relaxation, not permanent alteration of limitation.

 

Sections Involved

  • Section 147 – Income escaping assessment
  • Section 148 – Issue of notice
  • Section 148A – Procedure for reassessment
  • Section 149(1)(a) & (b) – Time limits
  • Section 151 – Sanction for notice
  • Section 119 – CBDT powers
  • Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA)

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS10112023CW115272022_212005.pdf 

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