Limitation Period Expired: Delhi HC Quashes Income Tax Reassessment Proceedings [Read Order]

In a recent ruling, the High Court of Delhi set aside the reassessment proceedings initiated under section 148 of Income Tax Act, 1961 for Assessment Year 2013-14, citing the failure to meet legal conditions and the expiration of the time limitation.

Ratnagiri Gas And Power Private Limited, petitioner-assessee, filed its return of income for AY 2013-14 on 29.11.2013, declaring a loss of ₹6,41,68,53,076/-. The return was selected for scrutiny, and the Assessing Officer (AO) issued a notice under Section 143(2) of the Income Tax Act, followed by additional notices, which the petitioner responded to.

The assessment was completed with an order on 21.03.2016. On 03.02.2017, the AO issued a notice under Section 154/155, claiming a mistake in the expense of ₹6,29,00,000/- under ‘wages and salary.’ The AO said it was a prior period expense, but the petitioner explained that the liability had crystalized in FY 2012-13. No further action was taken, and the petitioner received no further updates.

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On 24.05.2021, the AO issued a notice under Section 148 for re-assessment. The petitioner challenged this, arguing the procedure under Section 148A was not followed. The Supreme Court ruled that notices after 31.03.2021 had to follow the amended Section 148A.

The AO provided the material on 30.05.2022. The petitioner responded on 13.06.2022, raising a limitation issue, and on 30.06.2022, gave a full reply. Despite this, the AO passed an order on 25.07.2022, deciding to issue a notice under Section 148.

The petitioner filed a writ petition, arguing the AO ignored their responses. The Court allowed the petition on 10.10.2022, setting aside the order and notice, and directed the AO to issue a new order within eight weeks. On 02.12.2022, the AO issued a fresh order, confirming the decision to issue a notice under Section 148.

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The division bench of Justice Vibhu Bakhru and Justice Tejas Karia examined the provisions under Sections 147-151 of the Act, which were amended by the Finance Act, 2021. Section 149(1) limits the time for reopening assessments to three years, unless certain conditions, such as income exceeding ₹50 lakh, are met, in which case the period can extend to 10 years.

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The Finance Minister, in the 2021-22 Budget, explained that the time for reopening assessments had been reduced from six years to three years, with exceptions for serious tax evasion cases.

The court noted that for a reassessment to be initiated under Section 149(1)(b), three conditions must be met: the Assessing Officer must have evidence of income that has escaped assessment, the income must be represented as an asset, and the income must amount to ₹50 lakh or more.

In this case, the reason for reopening was based on the petitioner’s claimed salary and wage expenses, which included ₹6.29 crore for prior years. However, there was no evidence that these expenses represented any asset, making the reassessment invalid.

The court also observed that the reopening of assessment for AY 2013-14 was barred due to the time limit, as the relevant period had expired. Even though the reopening could be permissible under Section 149, it could not be done due to the first proviso under Section 147, which restricts reassessment after four years if all material facts were disclosed at the time of assessment.

The bench set aside the reassessment proceedings, ruling that no notice under Section 148 could be issued for AY 2013-14.Therefore, the petition was allowed.

To Read the full text of the Order CLICK HERE

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