The Delhi High Court on Monday in its ruling held that the extended 10-year review period for Income (I-T) assessments should only be applied when the assessee’s alleged undisclosed income exceeds Rs 50 lakh.
Responding to a bunch of writ petitions, for the financial years 2015-16 and 2016-17, the bench of Justice Rajiv Shakdher and Justice Girish Kathpalia observed that no notice was intended to be issued “in normal cases” after three years from the end of the relevant assessment year. For re-opening of Income-tax (I-T) assessments should be applicable only in cases involving serious tax evasion where evidence of concealing income is above Rs. 50 lakh.
“Notice, beyond the prescribed three years from the end of the relevant AY, could be issued only in a few specific cases; one such example which is given in the Bill is where the AO was in possession of evidence that escaped income amounted to Rs 50 lakhs or more,” the court held.
The Delhi high court had to decide the validity of the notices issued to the petitioners under section 148, keeping in view the period of limitation (the period within which notices for re-opening of cases can be issued).
The petitioners submitted that in cases where the alleged escaped income 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 ten years would apply only if the escaped income was more than Rs 50 lakh.
I-T authorities contended that the notices were valid, given the Supreme Court’s judgment in the case of Ashish Agarwal (issued in May, 2022) and a circular that was subsequently issued by the Central Board of Direct Taxes (CBDT).
I-T authorities relied on the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and propounded the ‘travel back in time’ theory to justify that those notices issued at a later stage, were deemed to have been issued back in time.
However, the Delhi High Court 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 from six to three years 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 enquire into cases for up to ten years. Thus, the new regime would apply even to past years, provided notices under section 148 were issued on or after April 1, 2021.
Newspaper Source: Times of India/Hindustan Times/Mint/Hindu Business line
