Not An Enabling Provision, Proscribes Reassessment Action Beyond Limitation: Delhi HC Explains Timelines U/S 149 Of Income Tax Act

A division bench of Acting Chief Justice Vibhu Bakhru and Justice Tushar Rao Gedela observed,

“The opening sentence of Section 149(1) of the Act clearly indicates that the time limit as prescribed under Section 149(1) of the Act is a hard stop. Therefore, the procedure that is required to be completed for issuance of notice under Section 148 of the Act is required to be completed prior to the expiry of the time limit as prescribed under Section 149(1) of the Act. Such time limit cannot be breached…There is no ambiguity in this regard given the construct of Section 149(1) of the Act, which is not in the nature of enabling provision but a provision that proscribes an action.”

The observation comes while dealing with a company's petition, challenging the reassessment action initiated against it over alleged unexplained cash of ₹75 lakh, as time-barred.

At the outset, the Court indulged in discussing the procedure and timeline for initiating reassessment action, based on the Supreme Court's decision in Rajeev Bansal.

Section 149(1)(a) bars issuance of notice if more than three years have elapsed from the end of the relevant assessment. However, a notice can be issued up to a period of ten years, if the conditions prescribed under Section 149(1)(b) are met.

Significant to note that Section 149(1) extends the limitation period for issuing notice under Section 148 so as to provide the AO a minimum of seven days to pass an order under Section 148A(d).

The Court illustrated “If the show cause notice under Section 148A(b) of the Act is issued to an assessee, on the last date on which issuance of such a notice under Section 148 of the Act is permissible, that is, on the last day of expiry of three years from the end of the relevant assessment year or ten years from the end of the assessment year as the case may be, the time made available to the assessee to respond to a notice under Section 148A(b) of the Act (being a minimum of seven days but not exceeding thirty days as provided in the notice plus such further time as extended pursuant to an application), is required to be excluded for the calculation of the period of three years or ten years as the case may be."

And, an additional period of seven days is made available for the AO to pass an order. Thus, the period of limitation in such case would be three years (after excluding the time provided to the assessee to respond to the notice under Section 148A(b) of the Act) and seven days, or a period of ten years (after excluding the time provided to the assessee to respond to the notice under Section 148A(b) of the Act) and seven days as the case may be,” it added.

Details on operation of TOLA, can be read here.

Coming to the merits of the case, the High Court noted that the impugned reassessment action pertained to assessment year 2013-14, i.e. period prior to Finance Act 2021.

No notice under Section 148 could be issued under the provisions of Section 149(1) prior to 01.04.2021 if,

(i) four years had elapsed from the end of the relevant assessment year;

(ii) four years but not more than six years had elapsed from the end of the relevant assessment year if the income chargeable to tax, which had escaped assessment, amounted to or was likely to amount to ₹1 lac or more for that year; or

(iii) four years but not more than sixteen years had elapsed from the end of the relevant assessment year if the income in relation to any asset (including financial interest) in any entity located outside India and chargeable to tax had escaped assessment.

In the present case, Court said there was no allegation that the Assessee's income that had escaped assessment in relation to any asset located outside India.

“Thus, in terms of Section 149(1)(b) of the Act as in force prior to 01.04.2021, no notice under Section 148 of the Act could have been issued beyond the period of six years from the end of the relevant assessment year…no notice under Section 148 of the Act could have been issued in this case after 31.03.2020 in respect of AY 2013-14,” it ruled.

Then Court applied the surviving period under TOLA, whereby time limits as stipulated in respect of various actions and compliances were extended in view of Covid-19 pandemic. The subject was recently discussed by the High Court in Kanwaljeet Kaur case.

Court observed that time for completion of specified acts, which fell during the period 20.03.2020 to 31.12.2020 were extended till 30.06.2021. In this view, notice dated 01.06.2021 was issued 29 days prior to the expiry of period of limitation. Thus, Court ruled,

“AO was required to pass an order under Section 148A(d) of the Act within the said twenty-nine days notwithstanding the time stipulated under Section 148A(d) of the Act. This period expired on 12.07.2022…the impugned notice dated 30.07.2022 has been issued beyond the period of limitation,” and dismissed the petition.

Before parting, it observed,

“the AO is required to complete the entire procedure for issuance of notice under Section 148 of the Act within the period as prescribed under Section 149 of the Act. Plainly, if the AO is unable to complete such procedure within the period of limitation, the AO would cease to have the jurisdiction to issue such a notice.”

Appearance: For the Petitioner : Mr Keshav Sehgal, Mr Shivam Gaur, Mr Kshitij Joshi and Mr Aryan Kumar, Advocates. For the Respondent : Mr. Aseem Chawla, Sr. Advocate with Ms. Pratishtha Choudhary, Mr Puneet Rai, Senior Standing Counsel with Mr Ashvini Kumar and Mr Rishabh Nangia, Advocates.

Case title: Ram Balram Buildhome Pvt. Ltd. v. Income Tax Officer And Anr.

Citation: 2025 LiveLaw (Del) 152

Case no.: W.P.(C) 16232/2024

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