High Court Quashes Reassessment Notice Issued Beyond 10-Year Limitation

The petitioner, Mahesh Dharamshi Prajapati, an individual and partner in the PSY Group, challenged a reassessment notice issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2014-15.

A search operation was conducted on the PSY Group and the petitioner on February 8, 2024, during which handwritten pages were found alleging that the petitioner made cash payments to a third party, Mr A. B. Patel, during the financial year 2013-14. Based on this material, the Revenue issued a notice on March 26, 2025, to reopen the assessment.

The petitioner contended that the notice was barred by limitation as it was issued more than ten years after the end of the relevant assessment year.

Issue Raised: Whether the reassessment notice issued on March 26, 2025, for the Assessment Year 2014-15 is legally sustainable under the limitation periods prescribed by the Income Tax Act, particularly when the 10-year outer limit has expired.

HC Rules: The High Court quashed the reassessment notice and ruled in favor of the petitioner. The Division Bench observed that for the Assessment Year 2014-15, the 10-year limitation period for reopening an assessment expired on March 31, 2025. The Court noted that the material relied upon by the Revenue consisted of handwritten papers found during a search that  belonged to a third party.

The Court held that search-related assessments are governed by specific timelines and the Revenue cannot use such material to bypass the general limitation caps provided in the Act. Finding the notice to be “hopelessly barred by limitation,” the Court set aside the proceedings.

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