10 year Re-opening period for I-T Assessments to apply only if escaped Income above Rs. 50 lakh: HC

Responding to a slew of writ petitions for the financial years 2015-16 and 2016-17, the Delhi High Court recently ruled that the ten-year extension period for re-opening of Income-tax (I-T) assessments should be applied only in cases involving serious tax evasion and evidence of concealing income exceeding Rs. 50 lakh.

This decision is expected to benefit thousands of taxpayers.

The Delhi High Court had to rule on the legitimacy of the notices sent to the petitioners under Section 148, while keeping in mind the period of limitations (the time limit within which notices for re-opening of cases can be filed).

The petitioners argued that in circumstances where the claimed fugitive income is less than Rs. 50 lakh, the three-year limitation period specified in clause (a) of section 149(1) should apply. The ten-year restriction period would apply only if the evaded income exceeded Rs. 50 lakh.

The IT authorities, on the other side, claimed that the notices were genuine, citing the Supreme Court’s decision in the case of Ashish Agarwal (decided in May 2022) and a circular issued thereafter by the Central Board of Direct Taxes (CBDT).

IT authorities relied on the terms of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and advanced the ‘travel back in time’ theory to justify that notices issued later were regarded to have been issued earlier.

According to both the Finance Minister’s address and the Memorandum outlining the terms of the Finance Bill, 2021, the time limit for re-opening assessments was decreased from six to three years to enhance ease of doing business, according to the Delhi high court.

Only in cases where the evaded income was worth Rs. 50 lakh or more were the IT officials given the authority to investigate cases for up to 10 years. As a result, the new system would apply to previous years as long as notices under Section 148 were given on or after April 1, 2021.

“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 move that will benefit taxpayers facing belated reassessment processes for fugitive income of less than Rs. 50 lakhs. Because this order is in rem, it will benefit taxpayers who did not file a writ petition as well”, Deepak Joshi, an advocate practising at the Supreme Court, explains.