Extended Ten-Year Reopening Window Cannot Revive Time-Barred Assessments Prior to April 1, 2021

ZJUDGMENT

A.S. Supehia, J. – Heard learned Senior Advocate Mr. Tushar Hemani appearing with learned Advocate Ms. Vaibhavi K. Parikh for the petitioner and learned Senior Standing Counsel Mr. Varun K Patel for the respondent.

2. Having regard to the controversy involved, with the consent of the learned advocates for the respective parties, the matter is taken up for final hearing.

3. RULE. Learned Senior Standing Counsel Mr. Varun K Patel waives service of notice of rule on behalf of the respondent.

4. By this petition under Article 226 of the Constitution of India, the petitioner challenges the notice dated 31.03.2023 issued under Section 148 of the Income Tax Act, 1961 (for short “the Act”) by the Assistant Commissioner of Income Tax, Central Circle 2(3), Ahmedabad (for short “the respondent”), seeking to reopen the income tax assessment of the petitioner for the Assessment Year 2012-13.

4.1 A search and seizure action under Section 132 of the Act was carried out in the case of the Sambhaav Nila Group of Ahmedabad and its key associates, which was initiated on 08.09.2021 and concluded on 27.10.2021. During the course of the said search, the residential premises of one Shri Anilkumar Mohanlal Fulmali, a third party, were also covered under Section 132 of the Act and certain documents, in the form of hand-written ledgers and tally data, were seized therefrom. On the basis of the said material, the Deputy Commissioner of Income Tax, Central Circle 2(3), Ahmedabad recorded a satisfaction note dated 14.06.2022 to the effect that the seized documents pertain to or contain information relating to the petitioner, which satisfaction note was approved by the Principal Commissioner of Income Tax (Central), Ahmedabad on 28.06.2022 in terms of clause (iv) of Explanation 2 to Section 148 of the Act. Thereafter, upon the approval of the Director General of Income Tax (Investigation), Ahmedabad accorded on 30.03.2023 under Section 151(ii) of the Act, the respondent issued the impugned notice dated 31.03.2023 under Section 148 of the Act for the assessment year 2012-13. It is stated therein that the respondent is satisfied, with the approval of the Principal Commissioner or Commissioner, that the books of account or documents seized under Section 132 of the Act in the case of Shri Anil Fulmali pertain to, or that the information contained therein relates to, the petitioner. The satisfaction note, which was supplied to the petitioner on request, alleges that the seized material evidences cash transactions of Rs.2,83,41,000/- between the petitioner and Shri Manoj Vadodaria and his group entities during the assessment year 2012-13, and that income to that extent, represented in the form of an “asset”, has escaped assessment within the meaning of Section 149(1)(b) of the Act.

4.2 The petitioner, vide letter dated 29.05.2023, raised objections against the reopening, contending, inter alia, that the impugned notice is barred by limitation in view of the first proviso to Section 149(1) of the Act read with Sections 153A and 153C of the Act as they stood immediately before the commencement of the Finance Act, 2021. The said objections have not been disposed of. The petitioner has, therefore, approached this Court, challenging the impugned notice principally on the ground of limitation.

5. Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the respondent has acted without jurisdiction in issuing the impugned notice under Section 148 of the Act, as the same is barred by limitation under the statutory scheme governing reassessment in search cases. It was submitted that the reopening is founded on material seized in a search under Section 132 of the Act initiated on 08.09.2021 in the case of a third party, i.e. during the Financial Year 2021-22, and that, by virtue of the first proviso to Section 149(1) of the Act, as substituted by the Finance Act, 2021, no notice under Section 148 of the Act can be issued at any time for an assessment year beginning on or before 01.04.2021 if a notice under Section 148 or Section 153A or Section 153C of the Act could not have been issued at that time on account of being beyond the time limit specified under Section 149(1)(b) or Section 153A or Section 153C of the Act, as they stood immediately before the commencement of the Finance Act, 2021. It was submitted that the assessment year 2012-13, is an assessment year beginning before 01.04.2021, and that the first proviso squarely applies.

5.1 It was further submitted that under Section 149(1)(b) of the Act, as it stood prior to 01.04.2021, a notice under Section 148 of the Act could be issued only up to six years from the end of the relevant assessment year, which period, for A.Y. 2012-13, expired on 31.03.2019. It was submitted that, in so far as the search provisions are concerned, Section 153C of the Act, read with Section 153A of the Act, permitted a notice to be issued for “six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted” and for the “relevant assessment year or years”, and that the expression “relevant assessment year” is defined in Explanation 1 to Section 153A of the Act to mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted “which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made”.

5.2 Reference was made to the proviso to Section 149(1) of the Act read with Explanation 1 to Section 153A of the Act, and it was submitted that, so far as limitation for reopening in a search case is concerned, the same is pari materia to Section 153C of the Act.

5.3 It was submitted that, in the instant case, the search was carried out in the case of a third party on 08.09.2021, i.e. during the Financial Year 2021-22, and hence the assessment year relevant to the previous year in which the search was conducted is A.Y. 2022- 23. It was submitted that, reckoning ten assessment years from the end of A.Y. 2022-23, A.Y. 2022-23 itself becomes the first assessment year and A.Y. 2013-14 becomes the tenth assessment year, so that the assessment year 2012-13, falls beyond the period of ten years and the impugned notice is time-barred. The following table showing the computation was placed before this Court:

5.4 It was further submitted that the controversy is no longer res integra and stands concluded in favour of the petitioner by the judgments of this Court in the cases of West India Infratech (P.) Ltd. v. Asstt. CIT 488 ITR 90 (Gujarat), which in turn follow the judgments of the Delhi High Court in Pr. CIT (Central-1) v. Ojjus Medicare (P.) Ltd.  465 ITR 101 (Delhi) and Dinesh Jindal v. Asstt. CIT (2024) 469 ITR 32 (Delhi), and of the Madras High Court in the case of A.R. Safiullah v. Asstt. CIT [Writ Petition (MD) No. 4327 of 2021, dated 24-3-2021]. It was submitted that this Court has, in the said judgments, held that while computing the extended ten-year period under Explanation-1 to Section 153A read with Section 153C of the Act, the assessment year relevant to the previous year of search is to be included in the reckoning.

5.5 Thus, it was urged that the impugned notice issued under Section 148 of the Act for the assessment year 2012-13 may be quashed and set aside.

6. Per contra, learned Senior Standing Counsel Mr. .Varun K. Patel for the respondent opposed the petition and contended that the impugned notice under Section 148 of the Act is valid and within limitation. It was contended that, since the search was initiated after 01.04.2021, the erstwhile Section 153A/153C regime does not apply, and that the case is governed by the reassessment regime introduced by the Finance Act, 2021, under which, in terms of Section 149(1)(b) of the Act, a notice can be issued if not more than ten years have elapsed from the end of the relevant assessment year, provided the escaped income represented in the form of an asset is Rs.50 lakhs or more. It was submitted that the alleged escaped income in the present case is Rs.2,83,41,000/-, that ten years from the end of A.Y. 2012-13 expired on 31.03.2023, and that the impugned notice dated 31.03.2023 was issued within the said period and is, therefore, within limitation.

6.1 It was further submitted that, even if the first proviso to Section 149(1) of the Act is applied, the ten assessment years under Explanation 1 to Section 153A of the Act are to be computed by excluding the assessment year relevant to the previous year of search, in the same manner as the six assessment years, i.e. as “six plus four” assessment years, since the word “end” of an assessment year, for the purpose of reckoning backwards, must be read as 1st April; and that on such computation A.Y. 2012-13 would fall within the block of ten assessment years. Reliance was placed on the judgment of this Court in the case of Bhavin Kishorebhai Zinzuwadia v. Asstt. CIT (Gujarat). Thus, it was urged that the petition may be dismissed.

7. We have heard the learned advocates for the respective parties at length and have perused the material on record.

8. The sole issue that arises for consideration in the present petition is whether the impugned notice dated 31.03.2023 issued under Section 148 of the Act for A.Y. 2012-13 is barred by limitation. The uncontroverted facts are that the reopening is founded upon material seized in a search under Section 132 of the Act initiated on 08.09.2021 in the case of a third party, which indisputably falls in the Financial Year 2021-22, the assessment year relevant to which is A.Y. 2022-23; that the satisfaction under clause (iv) of Explanation 2 to Section 148 of the Act was recorded on 14.06.2022 and approved on 28.06.2022, i.e. in the Financial Year 2022-23, the assessment year relevant to which is A.Y. 2023-24; and that the impugned notice was issued on 31.03.2023 for A.Y. 2012-13.

9. Section 149 of the Act, as substituted by the Finance Act, 2021 with effect from 01.04.2021, prescribes the time limit for issuance of a notice under Section 148 of the Act. Clause (b) of sub-section (1) thereof permits a notice to be issued where more than three years but not more than ten years have elapsed from the end of the relevant assessment year, if the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of an asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more. The first proviso to Section 149(1) of the Act, however, reads as under:

“Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021:”

9.1 The first proviso is a saving provision in favour of the assessee. It makes it clear that the extended period of ten years under the substituted Section 149(1)(b) of the Act cannot be invoked to reopen an assessment year beginning on or before 01.04.2021 if, under the law as it stood immediately before 01.04.2021, a notice under Section 148, Section 153A or Section 153C of the Act could not have been issued for that year on account of being beyond the time limit specified therein. The assessment year 2012-13, is an assessment year beginning before 01.04.2021. The contention of the Revenue that the impugned notice is within the ten-year period under the substituted Section 149(1)(b) of the Act, and that the erstwhile Section 153A/153C regime has no application merely because the search was conducted after 01.04.2021, therefore, cannot be accepted. The first proviso, by its express terms, requires the limitation for such an assessment year to be tested with reference to Sections 149(1)(b), 153A and 153C of the Act as they stood immediately before the commencement of the Finance Act, 2021, irrespective of the date of the search. Indeed, the Explanation 2 to Section 148 of the Act, under clause (iv) of which the satisfaction in the present case was recorded, itself deals with books of account or documents seized in the case of any other person “on or after the 1st day of April, 2021”, which demonstrates that the first proviso to Section 149(1) of the Act is intended to operate precisely in cases of searches conducted after 01.04.2021.

10. Under Section 149(1)(b) of the Act, as it stood prior to 01.04.2021, a notice under Section 148 of the Act could not be issued after the expiry of six years from the end of the relevant assessment year. For A.Y. 2012-13, the said period expired on 31.03.2019. Thus, no notice under Section 148 of the Act could have been issued for the assessment year 2012-13 under the unamended Section 149 of the Act. The question, therefore, is whether a notice under Section 153C of the Act, read with Section 153A of the Act, could have been issued for A.Y. 2012-13 with reference to a search conducted on 08.09.2021. The provisions of Sections 153A and 153C of the Act find place in the first proviso to Section 149(1) of the Act and, hence, the limitation provided in Sections 153A and 153C of the Act gets triggered upon the initiation of reassessment proceedings emanating from a search under Section 132 of the Act.

11. With reference to the relevant assessment years, it is necessary to refer to Section 153A(1)(b) of the Act, which provides that the Assessing Officer shall “assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and for the relevant assessment year or years”. The expression “relevant assessment year” is defined in Explanation 1 to Section 153A of the Act as under:

“Explanation 1. For the purposes of this sub-section, the expression “relevant assessment year” shall mean an assessment year preceding the assessment year relevant to the previous year in which search is conducted or requisition is made which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted or requisition is made.”

11.1 Section 153C of the Act, in turn, requires the Assessing Officer of the other person to proceed against such other person and assess or reassess his income “in accordance with the provisions of section 153A”, for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted and for the relevant assessment year or years referred to in sub-section (1) of Section 153A of the Act. Thus, the computational framework of Section 153A of the Act, including Explanation 1, applies pari materia to proceedings under Section 153C of the Act.

12. A plain reading of Section 153A of the Act reveals that the Parliament has consciously adopted two different phraseologies. For the six-year block, the expression used is “six assessment years immediately preceding” the assessment year relevant to the previous year of search; the phrase “immediately preceding” necessarily excludes the search assessment year itself. For the ten-year block, Explanation 1 introduces a materially different formulation, namely “not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted”. This computation does not use the phrase “immediately preceding”, but requires reckoning “from the end of” the assessment year relevant to the previous year of search. Thus, the assessment year relevant to the previous year of search becomes the reference year, and the ten-year period is counted from the end of that assessment year, with the result that the search assessment year becomes the first year in the reckoning of the ten-year block. If Parliament intended identical computation for both the six-year and the ten-year blocks, it would have used identical language. To compute ten years by excluding the search assessment year, as is done for six years, would render the words “from the end of the assessment year” otiose and would merge two distinct statutory schemes into one, which is impermissible. The scheme reflects a calibrated expansion: a backward-looking “preceding” model for six years and a reckoning “from the end of the assessment year” model for ten years.

12.1 This is precisely what has been held by a Division Bench of this Court in the case of West India Infratech (P.) Ltd. (supra), wherein, after considering the identical contentions of the Revenue regarding the “six plus four” model and the meaning of the word “end”, and after noticing the earlier judgment of this Court in the case of Jayantibhai Karamshibhai Maniya (supra), which in turn followed the judgments of the Delhi High Court in the cases of Ojjus Medicare (P.) Ltd. (supra) and Dinesh Jindal (supra) and of the Madras High Court in the case of A.R. Safiullah (supra), this Court held as under:

” 13.3 Thus, it can be concluded that Section 153A of the Act prescribes two distinct and independent computational regimes. The six assessment years are those “immediately preceding” the assessment year relevant to the previous year of search, thereby excluding the search year whereas the ten assessment years under Explanation 1 of Section 153A of the Act are to be computed “from the end of the assessment year” relevant to the previous year of search. The statutory language necessarily results in inclusion of the search assessment year within the ten-year reckoning. Any interpretation that applies the six-year exclusion model, if made applicable to the ten-year block, would defeat the legislative scheme and render material words redundant. Accordingly, while computing the extended ten-year period under Explanation 1 to Section 153A read with Section 153C of the Act, the assessment year relevant to the previous year of search is to be included in the reckoning.

13.4 Even otherwise, this issue is no more res integra as the same is covered by the judgement of this Court in the case of Jayantibhai Karamshibhai Maniya v. ITO [2026] Jayantibhai Karamshibhai Maniya v. ITO 488 ITR 90 (Gujarat) (Gujarat). This Court has taken a view, after considering the earlier judgement in the case of Bhavin Zinzuwadia (supra), that while calculating the period of ten years under Section 153C of the Act, keeping in mind the language of Explanation 1 to Section 153A of the Act, the search year or the year in which seized material is received by the Jurisdictional Assessing Officer of the petitioner is required to be taken into consideration.”

12.2 The reliance placed by the Revenue on the judgment of this Court in the case of Bhavin Kishorbhai Zinzuwadia (supra) is, therefore, of no avail, the said judgment having been considered and explained in the cases of Jayantibhai Karamshibhai Maniya (supra) and West India Infratech (P.) Ltd. (supra). We are in respectful agreement with the view taken in the said judgments, which are binding on us, and we see no reason to take a different view.

13. Applying the aforesaid computation to the facts of the present case, the search having been initiated on 08.09.2021, during the Financial Year 2021-22, A.Y. 2022-23 becomes the first assessment year and, in the same manner, A.Y. 2013-14 becomes the tenth assessment year, as reflected in the table reproduced in paragraph 5.3 above. The assessment year 2012-13, is the eleventh year and falls beyond the period of ten years prescribed under Explanation 1 to Section 153A of the Act read with Section 153C of the Act, as they stood immediately before the commencement of the Finance Act, 2021. Consequently, no notice under Section 153C of the Act could have been issued for A.Y. 2012-13 at the relevant time, and no notice under Section 148 of the Act could have been issued either, the period of six years under the unamended Section 149(1)(b) of the Act having expired on 31.03.2019. The bar under the first proviso to Section 149(1) of the Act is, therefore, squarely attracted.

13.1 We may add that the position would be no different even if, in terms of the first proviso to Section 153C(1) of the Act, the reference year is taken to be the year in which the seized material was received by, or the satisfaction was recorded by, the Assessing Officer of the petitioner, which, in the present case, was in the Financial Year 2022- 23 relevant to A.Y. 2023-24. On that reckoning, A.Y. 2023-24 would be the first assessment year and A.Y. 2014-15 the tenth, and A.Y. 2012-13 would still fall beyond the ten-year block. Thus, on any view of the matter, the assessment year 2012-13 lies beyond the outer limit of ten assessment years prescribed by the statute, and the long arm of the law cannot reach it.

14. For the foregoing reasons, the impugned notice dated 31.03.2023 issued under Section 148 of the Act for A.Y. 2012-13 is barred by limitation, as the same falls beyond the permissible period of ten years. In view of this conclusion, it is not necessary for us to examine the other contentions raised on behalf of the petitioner, which are kept open. We, therefore, quash and set aside the notice dated 31.03.2023 issued under Section 148 of the Act for the Assessment Year 2012-13 on the ground of limitation, and all proceedings pursuant thereto. Accordingly, the present writ petition is allowed. Rule is made absolute.