The Delhi high court had to decide the validity of the notices issued to the petitioners under section 148, keeping in view the period of limitation (period within which notices for re-opening of cases can be issued).
The petitioners submitted that in cases where the alleged escaped income is below Rs. 50 lakh, the period of limitation of three years as stipulated in clause (a) of section 149(1) should apply. The extended limitation period of ten years would apply only if the escaped income was more than Rs 50 lakh.
On the other hand, the I-T authorities contended that the notices were valid, given the Supreme Court’s judgement in the case of Ashish Agarwal (issued in May, 2022) and a circular that was subsequently issued by the Central Board of Direct Taxes (CBDT).
The I-T authorities relied on the provisions of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and propounded the ‘travel back in time’ theory to justify that those notices issued at a later stage, were deemed to have been issued back in time.
The Delhi high court observed that according to both the Finance Minister’s speech and the Memorandum explaining the provisions of the Finance Bill, 2021, the time limit for re-opening assessments was reduced from six to three years to facilitate ease of doing business. Only in cases, where the escaped income was Rs. 50 lakh or more, the I-T authorities were given the leeway to enquire into cases up to ten years. Thus, the new regime would apply even to past years, provided notices under section 148 were issued on or after April 1, 2021.
Deepak Joshi, advocate practising at the SC explains, “The Delhi high court has held that the ‘travel back in time’ theory contained in CBDT’s instruction is bad in law. This is a welcome decision, which will help taxpayers who are facing belated reassessment proceedings involving escaped income of less than Rs. 50 lakhs. As this order operates in rem, it will be beneficial even to those taxpayers who did not file a writ petition.”