Facts of the Case

A batch of writ petitions was filed challenging reassessment notices issued under Section 148 of the Income Tax Act for Assessment Years 2016–17 and 2017–18.

The primary dispute arose regarding the validity of reassessment notices issued after 3 years from the end of the relevant assessment year, where the alleged escaped income was less than ₹50 lakhs.

The Revenue relied upon:

  • Extensions granted under TOLA during COVID-19
  • CBDT Instruction dated 11.05.2022
  • Supreme Court judgment in Union of India vs Ashish Agarwal

The assessees contended that:

  • The amended provisions introduced by the Finance Act, 2021 applied
  • The limitation period of 3 years under Section 149(1)(a) had expired
  • Extended limitation of 10 years under Section 149(1)(b) was not applicable due to income being below ₹50 lakhs

Issues Involved

  1. Whether reassessment notices issued under Section 148 beyond 3 years are valid when escaped income is below ₹50 lakhs.
  2. Whether Revenue can rely on TOLA and CBDT instructions to extend limitation.
  3. Whether the “travel back in time” theory (treating notices as issued earlier) is legally sustainable.
  4. Applicability of amended Section 149 introduced by Finance Act, 2021.

Petitioner’s Arguments

  • The limitation period under Section 149(1)(a) is strictly 3 years.
  • Extended period under Section 149(1)(b) (up to 10 years) applies only if escaped income is ₹50 lakhs or more, which is not the case.
  • CBDT Instruction dated 11.05.2022 introducing the concept of “travel back in time” is ultra vires.
  • TOLA does not permit retrospective shifting of limitation.
  • Supreme Court in Ashish Agarwal only converted notices procedurally, not substantively extended limitation.
  • Finance Act, 2021 substituted the law entirely; hence old provisions cannot be revived.

Respondent’s Arguments

  • Notices are valid due to extended timelines under TOLA.
  • Supreme Court judgment in Ashish Agarwal permits continuation of reassessment.
  • Time period should be computed by treating notices as issued within extended timelines.
  • Exclusion of time under provisos to Section 149 supports validity.
  • CBDT instruction is valid and binding.

Court’s Findings / Order

  • Limitation of 3 years under Section 149(1)(a) is absolute where escaped income is below ₹50 lakhs.
  • The Revenue cannot invoke extended limitation under Section 149(1)(b) unless statutory conditions are strictly fulfilled.
  • The concept of “travel back in time” is legally unsustainable and has no basis in the Act or Supreme Court judgment.
  • TOLA cannot override or extend limitation under amended provisions of the Finance Act, 2021.
  • CBDT Instruction dated 11.05.2022 is not binding if contrary to statute.
  • Reassessment notices issued beyond limitation are invalid and liable to be quashed.

Important Clarifications by Court

  • Substitution of provisions by Finance Act, 2021 means old law ceases to exist completely.
  • Limitation provisions in tax law must be strictly interpreted.
  • Supreme Court in Ashish Agarwal did not grant any power to extend limitation.
  • Executive instructions (CBDT) cannot override statutory provisions.
  • The benefit of ambiguity in taxing statutes goes in favour of the assesse

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

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