Notice Issued Beyond Limitation Period Is Invalid: Delhi High Court on Income Tax Reassessment

The Delhi High Court has quashed a reassessment notice issued to Dinesh Jindal under Section 148 of the Income Tax Act, 1961. The court held that the notice, issued on March 30, 2023, for the assessment year 2013-14, was beyond the permissible ten-year period stipulated by the Act. The judgment, delivered by a bench comprising Justices Yashwant Varma and Purushaindra Kumar Kaurav, emphasized the importance of adhering to statutory time limits in reassessment proceedings, particularly following a search.

Dinesh Jindal, the petitioner, challenged the reassessment action initiated by the Assistant Commissioner of Income Tax, Central Circle 20, Delhi. The reassessment was based on a search conducted on M/s Proform Interiors Private Limited on February 9, 2022. Following the search, a notice under Section 148 was issued on March 30, 2023, without following the procedure outlined in Section 148A, which exempts certain steps in search cases initiated after April 1, 2021.

The court noted that the initiation of reassessment must be within the time limits specified under Sections 149, 153A, and 153C of the Income Tax Act, as they stood prior to the amendments introduced by the Finance Act, 2021. Justice Varma highlighted, "The First Proviso to Section 149(1) requires an examination of whether the reassessment would have sustained based on the timeframes in Sections 149, 153A, and 153C before the Finance Act, 2021."

The court elaborated on the legal fiction introduced by the First Proviso to Section 153C, which dictates that the commencement date for the computation of the assessment years is the date when the jurisdictional Assessing Officer receives the seized documents or books of account. "The identification of the starting block for computation of the six and ten-year period is governed by this proviso," the judgment stated.

Applying this interpretation, the court concluded that the assessment year 2013-14 fell outside the ten-year block period from the date of the search. The computation of the ten-year block period, starting from FY 2021-22 (year of the search), clearly excluded AY 2013-14. "AY 2013-14 falls beyond the ten-year block period as set out under Section 153C read with Section 153A of the Act," the court ruled.

Justice Yashwant Varma remarked, "The computation of the six or ten-year block period must adhere to the legal fiction enshrined in Section 153C, which defines the starting point as the date of receipt of the seized material by the jurisdictional Assessing Officer."

The Delhi High Court's judgment reinforces the importance of statutory compliance in reassessment proceedings under the Income Tax Act. By quashing the reassessment notice issued beyond the permissible period, the court has underscored the legal framework governing the timelines for reassessment, especially in cases involving searches. This decision is expected to have significant implications for future reassessment actions, ensuring stricter adherence to statutory time limits.

Date of Decision: May 27, 2024