Concealment Of Income Above Rs.50 Lakhs, Extended Period Of Limitation Would Apply: Delhi High Court

The Delhi High Court has held that an extended period of 10 years would apply in serious tax evasion cases where there was evidence of concealment of income above Rs. 50 lakhs.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that, as per the Memorandum, in “normal cases”, no notice was intended to be issued if 3 years had elapsed from the end of the relevant AY. Notice, beyond the prescribed 3 years from the end of the relevant AY, could be issued only in a few specific cases. One such example, which is given in the bill, is where the AO was in possession of evidence that escaped income amounted to Rs. 50 lakhs or more.

The issue raised was whether the notices issued to the petitioners under Section 148 of the Income Tax Act, 1961, are sustainable in law having regard to Clauses (a) and (b) of Section 149(1) of the Income Tax Act, 1961.

The petitioners/assessees contended that in cases where the alleged escaped income is below the prescribed monetary threshold of Rs. 50 lakhs, the period of limitation as stipulated under Clause (a) of Sub-section (1) of Section 149 would be applicable. The period prescribed under the clause is three years from the end of the relevant AY.

The assessee submitted that if the extended period of limitation provided under Section 149(1)(b) is to be applied, which is a period beyond 3 years but not more than 10 years, to sustain the notice issued under Section 148, the jurisdictional conditions stipulated would have to be fulfilled. One of the conditions prescribed for invoking the extended period of limitation is that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to Rs. 50 lakhs or more. Concededly, the income chargeable to tax, which is alleged to have escaped assessment, is below Rs. 50 lakhs.

Section 149(1)(a) and (b) of the Act provide for limitations for notices to be issued under Section 148 qua the relevant AY, and hence, if applied, would, according to assessees, result in them being declared inefficacious—the revenue contends to the contrary.

The department contended that the notices were within limitation based on a conjoint reading of the provisions with the judgment rendered by the Supreme Court dated May 4, 2022, in Union of India and Ors. vs. Ashish Agarwal, Instruction No. 01 of 2022 dated May 11, 2022, issued by the Central Board of Direct Taxes (CBDT) in exercise of powers under Section 119 of the Act and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).

The court noted that both from the Finance Minister's speech and the Memorandum, the time limit for reopening under the new regime was reduced from 6 years to 3 years, and only in respect of “serious tax evasion cases”, that too, where evidence of concealment of income of Rs 50 lakhs or more in a given period was found, the period for reopening the assessment was extended to 10 years. In order to ensure that the utmost care was taken before invoking the extended period of limitation, the proposal was that approval should be obtained from the Principal Chief Commissioner of Income Tax at the highest hierarchical level of the department. Likewise, the Memorandum emphasized that the new regime was forged with the hope that it would result in less litigation and would provide ease of doing business to taxpayers, as there was a reduction in the time limit by which notice for assessment, reassessment, and re-computation could be issued.

The court noted that orders passed under Section 148A(d) and the consequent notices issued under Section 148 of the amended Income Tax Act, 1961 concerning AY 2016–17 and AY 2017–18 cannot be sustained.

Counsel For Petitioner: Satyen Sethi

Counsel For Respondent: Kunal Sharma

Case Title: Ganesh Dass Khanna Versus ITO

Citation: 2023 LiveLaw (Del) 1135

Case No.: W.P.(C) 11527/2022 & CM APPL. 34097/2022

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