BackDelhi High Court clarifies limit for I-T assessment notices: Upholds ₹50 lakh threshold for 10-year review
The court was hearing a bunch of petitions filed in FY16 and FY17, requesting the validity of notices issued under Section 148 of the I-T Act, while considering the period of limitation for reopening cases
PremiumThe Delhi High Court has in its recent ruling clarified that the extended 10-year review period for Income-Tax (I-T) assessments should only be applied when the assessee's alleged undisclosed income exceeds ₹50 lakh, The Times of India reported.
It further clarified that below the specified threshold, assessments can only be reopened within a three-year period, the report added.
This will be applicable to all review notices sent on or after April 1, 2021.
The court was hearing a bunch of petitions filed in FY16 and FY17, requesting validity of I-T notices issued under Section 148 of the I-T Act, while considering the "period of limitation" for reopening cases, it said.
What were the arguments?
Petitioners argued that if the undisclosed income fell below ₹50 lakh, the stipulated three-year limitation, as per clause (a) of section 149(1), should be enforced. The extended 10-year limitation, they contended, was applicable only for income surpassing the ₹50 lakh mark.
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Contrarily, I-T authorities supported the validity of the notices, citing a May 2022 Supreme Court judgment regarding Ashish Agarwal; and a subsequent circular from the Central Board of Direct Taxes (CBDT).
They also proposed a 'travel back in time' theory based on the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), to validate later-issued notices.
Court's verdict and its implications
The Delhi HC dismissed the 'travel back in time' theory, deeming it legally unsound based on CBDT's instruction.
"This is a welcome decision, which will help taxpayers who are facing belated reassessment proceedings involving escaped income of less than ₹50 lakh. As this order operates in rem, it will be beneficial even to those taxpayers who did not file a writ petition," SC advocate Deepak Joshi told the paper.
The HC in its statement noted that recent amendments, as highlighted in the Finance Minister's speech and the memorandum elucidating provisions of the Finance Bill 2021, reduced the assessment review period to three years from six.
It allowed I-T authorities leeway to investigate cases for up to 10 years only if the undisclosed income crossed ₹50 lakh.
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Importantly, this revised regulation applies even to previous years, provided that notices under section 148 were issued on or after April 1, 2021.
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