The Delhi high court has held that the extended period of 10 years for re-opening of I-T assessments should be applicable only in cases where the alleged escaped income is above Rs 50 lakh. In cases below Rs 50 lakh, the time limit for re-opening assessment is three years.
The HC had to decide the validity of the notices issued to petitioners under section 148, keeping in view the ‘period of limitation’ (time within which notices for re-opening of cases can be issued). It was responding to a bunch of petitions for FY16 and FY17.
The petitioners submitted that in cases where the alleged escaped income (income which has been omitted from tax assessment) is below Rs 50 lakh, the period of limitation of three years as stipulated in clause (a) of section 149(1) should apply. The extended limitation period of 10 years would apply only if the escaped income was more than Rs 50 lakh.
On the other hand, the I-T authorities contended that the notices were valid, given the Supreme Court’s judgment in the case of Ashish Agarwal (May, 2022) and a circular that was subsequently issued by the Central Board of Direct Taxes.
They relied on the provisions of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and submitted the ‘travel back in time’ theory to justify that notices issued at a later stage were deemed to have been issued ‘back in time’. Experts point out that the apex court had not examined the issue of TOLA, which the Delhi HC has now addressed.
Deepak Joshi, advocate at the SC, said: “The Delhi HC has held that the ‘travel back in time’ theory contained in CBDT’s instruction is bad in law. This is a welcome decision, which will help taxpayers facing belated reassessment proceedings involving escaped income of less than Rs 50 lakh.”
The HC observed that according to both the finance minister’s speech and the memorandum explaining the provisions of the Finance Bill, 2021, the time limit for re-opening assessments was reduced to three years from six to facilitate ease of doing business.
Only in cases where the escaped income was Rs 50 lakh or more, the I-T authorities were given the leeway to inquire into cases for up to 10 years. Thus, the new regime would apply even to past years, provided notices under section 148 were issued on or after April 1, 2021.
No Tax Reassessment Beyond 3 Yrs For Income Below Rs 50L: HC
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