In a recent judgment, the Delhi High Court held that the Income Tax Department cannot claim exclusion of limitation under Section 153B of the Income Tax Act for the time spent on an invalid reference made under the Indo-Swiss Double Taxation Avoidance Agreement (DTAA).
The dispute arose from a batch of appeals filed by the Principal Commissioner of Income Tax (Central-1) against multiple respondents, including Sneh Lata Sawhney, Sangeeta Sawhney, and Praveen Sawhney. The department had issued reassessment and penalty orders under Section 153A read with Section 143(3), following a search operation in 2011, alleging undisclosed foreign bank accounts held with HSBC Geneva.
Want a deeper insight into the Income Tax Bill, 2025? Click here
Read More: ‘Got Call from Finance Minister’: CA’s Satirical ‘X’ Post Stirs Controversy, I-T dept Responds
During reassessment proceedings, the department made a formal request to the Swiss authorities for information under Article 26 of the Indo-Swiss DTAA. The department later argued that, under Explanation (ix) to Section 153B, it was entitled to exclude one year from the limitation period, as the response from the Swiss authorities had not been received within that time frame.
The respondents challenged this claim, stating that the reference made to Switzerland sought information for the period prior to April 1, 2011, despite the amended Article 26 only permitting exchange of information for fiscal years beginning on or after that date. The Income Tax Appellate Tribunal (ITAT) had earlier accepted this argument and quashed the assessment and penalty orders as time-barred.
Read More: ITR Filing: Claim These 80C to 80U Deductions to Save More in 2025
The revenue approached the High Court, arguing that even if the request was not fulfilled, the act of making a reference entitled them to the benefit of time exclusion. They also argued that the DTAA, as it existed before the amendment, allowed for information exchange and that their request was valid under the old framework.
How to Audit Public Charitable Trusts under the Income Tax Act Click Here
The bench comprising Justice Vibhu Bakhru and Justice Tejas Karia observed that Article 26 was substituted by the 2010 Protocol and came into effect from April 1, 2011. The court clarified that the substituted article entirely replaced the earlier one, and there was no saving clause preserving the previous rights. The request made by the department for information predating this cut-off was invalid and could not extend the limitation period.
The court further referred to international rulings, including one by the Swiss Federal Administrative Court, which had interpreted the amended Article 26 to exclude retroactive requests. The court ruled that the Income Tax Department’s reliance on an invalid reference under the treaty could not justify the delayed assessments. The court dismissed the appeals filed by the Revenue, upholding the ITAT’s decision and reaffirming that limitation periods under tax law must be strictly construed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscanpremium. Follow us on Telegram for quick updates
