Delhi High Court Clarifies Time Limits for Income Tax Assessments in Landmark Ruling

Navigating the intricacies of income tax rules often requires legal interventions, and a recent Delhi High Court order has provided clarity on the extended review period for Income-Tax (I-T) assessments. The court emphasized that the 10-year review period applies only when the estimated undisclosed income exceeds Rs 50 lakh.

Justices Rajiv Shakdher and Girish Kathpalia highlighted that in “normal cases,” no notice should be issued if income concealment is below Rs 50 lakh and three years have passed from the end of the relevant assessment year. The court’s decision led to the quashing of approximately 50 reassessment notices related to AY 2016-17 and 2017-18, where income concealment was below Rs 50 lakh.

Tax experts and practitioners welcomed the ruling, anticipating that this clarification would empower individuals to challenge and dismiss unwarranted notices issued by the Income Tax department. Vivek Jalan, Partner at Tax Connect Advisory, noted, “With this judgment, this jurisprudence, as laid down by law, should now slowly settle down as aberrations will continue to be quashed by courts.”

Yeeshu Sehgal, Head of Tax Market at AKM Global, explained that already-issued notices and ongoing proceedings based on such notices, where income escaped is less than Rs 50 lakh, would be dropped.

The court’s order, while not introducing new rules, provides a clear interpretation of existing laws regarding time limits for tax notices. Sehgal emphasized the substantial relief granted by the High Court in quashing notices issued under the old regime, particularly for AY 2016-17 and AY 2017-18.

Section 148 of the Income Tax Act, 1961, allows Assessing Officers to issue notices for reassessment if there is reason to believe that income chargeable to tax has escaped assessment. The court’s ruling provides clarity on the time limits for such notices, especially in cases where concealment is below Rs 50 lakh.

In Finance Act 2022, a new sub-section 148A was incorporated, requiring the Assessing Officer to conduct an inquiry and provide the taxpayer an opportunity to present their case before issuing a notice under Section 148. This provision ensures a fair process before initiating reassessment.

Jalan highlighted that the time limit of ten years can only be invoked in “serious tax evasion cases” with evidence. The court’s ruling addresses concerns where field officers were issuing notices without substantial evidence, sometimes inflating the value of evasion without proper grounds.

When faced with a notice under Section 148, taxpayers have the opportunity to submit clarifications and documents within a specified timeframe. The court’s decision provides individuals with a clearer understanding of their rights and recourse in challenging notices deemed baseless or unsatisfactory.

In conclusion, the Delhi High Court’s ruling stands as a welcome development for taxpayers, offering clarity on the interpretation of existing laws and ensuring a fair and transparent process in income tax assessments.