Delhi High Court quashed a Section 148 reassessment notice for AY 2015-16, holding it time-barred beyond statutory limits. The court held post-April 1, 2021 search-based reassessments must follow pre-Finance Act Section 153C timelines, rendering the notice legally unsustainable therefore.
NEW DELHI: The Delhi High Court recently annulled a reassessment notice issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year (AY) 2015-16, declaring it invalid due to being beyond the statutory limitation period.
The bench comprising of Acting Chief Justice, Justice Vibhu Bakhru and Justice Tushar Rao Gedela emphasized that reassessment proceedings resulting from a search conducted after April 1, 2021, must adhere to the timeline outlined in Section 153C of the Act, as it existed prior to the Finance Act, 2021. The court ruled that the reassessment notice was legally unsustainable due to the expiration of the ten-year limitation period.
Background of the Case:
The petitioner contested a notice dated August 30, 2024, issued under Section 148 of the Income Tax Act for the AY 2015-16. Initially, the petitioner also questioned the constitutional validity of Explanation 2 to Section 148. However, the focus narrowed during arguments to the critical issue of limitation.
Following a search conducted after April 1, 2021, the Income Tax Department initiated reassessment activities against the petitioner. The petitioner contended that the reassessment notification was issued beyond the ten-year limitation specified by law, rendering it invalid.
Legal Issues Before the Court:
- Should the limitation period be computed according to the law in effect before the Finance Act, 2021?
- Was the reassessment notice issued under Section 148 for AY 2015-16 barred by limitation?
- Did the AO of the searched entity appropriately record a satisfaction note as required under Section 153C?
- Did the issuance of the contested notice align with the legal precedents on limitation under the Income Tax Act?
Arguments Of Parties:
The petitioner made several compelling arguments:
- Time-barred Notice: The reassessment notice exceeded the limitation period. The petitioner asserted that, based on Section 153C of the Act, reassessment proceedings must commence within ten years of the conclusion of the relevant assessment year. Given that the assessment year in question was 2015-16, the ten-year threshold ended on March 31, 2025, making any notice beyond this timeframe invalid.
- Judicial Precedents: The petitioner cited previous rulings by the Delhi High Court in cases such as Dinesh Jindal v. Assistant Commissioner of Income Tax, Central Circle 20, Delhi & Others and Pr. Commissioner of Income Tax – Central-1 v. Ojjus Medicare Pvt. Ltd, where the court held that reassessment proceedings in search cases must conform to the pre-2021 legal framework and prescribed limitation periods.
- Validity of Satisfaction Note: The petitioner argued that under Section 153C, reassessment proceedings necessitate a satisfaction note from the AO of the searched person, which was allegedly missing.
- Limitation Computation: The AO prepared a satisfaction note on August 23, 2024, approved on August 29, 2024. However, the petitioner contested that this preparation date could not extend the limitation period, as the calculation should commence from the end of the relevant assessment year.
In defense, the Revenue put forth the following points:
- Explanation 2 to Section 148: The Revenue contended that the Explanation 2 to Section 148 permitted reassessment proceedings even in search cases post-2021.
- Validity of Notice: It claimed that due to the changes introduced by the Finance Act, 2021, the reassessment notice was valid.
- Satisfaction Note Compliance: The Revenue maintained that a satisfaction note was duly recorded by the AO, which should be factored into the limitation period.
- Ten-Year Limitation: The Department posited that the limitation period should start from the date the AO took action in 2024.
Analysis of The Court:
The court went through the following provisions:
Section 153C of the Income Tax Act: Specifies that reassessment proceedings in search cases must be initiated within ten years from the end of the assessment year when the satisfaction note was recorded.
First Proviso to Section 149(1): States that reassessment proceedings for searches conducted post-April 1, 2021, must obey pre-2021 limitation periods.
Section 148: Empowers the AO to issue reassessment notices but is subject to the limitation periods set forth in Sections 153A and 153C.
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The court referenced key rulings of Dinesh Jindal v. Assistant Commissioner of Income Tax, Central Circle 20, Delhi & Others which affirmed that reassessment must follow pre-2021 limitation periods for searches conducted after that date and Pr. Commissioner of Income Tax – Central-1 v. Ojjus Medicare Pvt. Ltd which stated that reassessment must commence within ten years after the search or when the satisfaction note is issued.
Opinion of the Court
The court concluded that the reassessment notice for AY 2015-16 exceeded the ten-year limit. Given that the search occurred after April 1, 2021, the limitation must be calculated under the pre-2021 legal framework. As such, AY 2015-16 fell outside the permissible ten-year window, rendering the reassessment time-barred.
Moreover, the court held that the AO’s satisfaction note could not override statutory limitation periods. Despite being recorded in August 2024, the reassessment must adhere to the timeline of the relevant assessment year, not the satisfaction note’s date.
The court ultimately quashed the reassessment notice, asserting that it was barred by limitation. The subsequent proceedings stemming from this notice were also annulled.
The Income Tax Department cannot issue notices beyond ten years, even with the provisions of Explanation 2 to Section 148. Furthermore, it reaffirms the necessity for AOs to accurately document and comply with the requirements for satisfaction notes under Section 153C.
Case Title: MAHENDER KUMAR JAIN Vs ASSISTANT COMMISSIONER OF INCOME TAX,
CENTRAL CIRCLE 3, DELHI & ANR W.P.(C) 312/2025
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