Reassessment limitation under Section 149: time-bar rules and the rejected "travel back in time" theory for notices.

Section 148 notices for AYs 2016-17 and 2017-18 were analysed under the amended limitation scheme in Section 149 of the Income-tax Act, 1961, which permits reassessment notices within three years from the end of the relevant assessment year unless the extended period applies for escapement of income of fifty lakh rupees or more. Because the alleged escaped income was below that threshold, the extended period was unavailable. The Delhi High Court also examined the effect of the Finance Act, 2021 regime and noted that post-01.04.2021 notices could not be treated as issued earlier through any legal fiction. On that basis, the CBDT Instruction dated 11.05.2022, to the extent it advanced a "travel back in time" theory, was treated as inconsistent with Section 149 and beyond Section 119.

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Issues: Whether the orders passed under Section 148A(d) of the Income-tax Act, 1961 and the consequential notices issued under Section 148 of the Income-tax Act, 1961 for AYs 2016-17 and 2017-18 were barred by limitation under Section 149(1)(a) of the Income-tax Act, 1961 and whether the CBDT Instruction dated 11.05.2022 could validly apply a "travel back in time" theory to bring the notices within limitation.

Analysis: The amended Section 149 of the Income-tax Act, 1961 permits a notice under Section 148 only within three years from the end of the relevant assessment year unless the case falls within the extended period under clause (b), which requires escapement of income of fifty lakh rupees or more. On the facts, the alleged escaped income was below that threshold, so the extended period was unavailable. The Court held that the reassessment regime introduced by the Finance Act, 2021 applied to notices issued on or after 01.04.2021, and that neither the notifications issued under Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 nor the Supreme Court's directions in Ashish Agarwal created a legal fiction by which such notices could be treated as having been issued on an earlier date for limitation purposes. The Court also held that the CBDT Instruction dated 11.05.2022, insofar as it advanced the "travel back in time" theory, was beyond the power conferred by Section 119 of the Income-tax Act, 1961 and inconsistent with the amended limitation scheme.

Conclusion: The impugned reassessment orders and notices could not be sustained as they were time-barred under Section 149(1)(a) of the Income-tax Act, 1961, and the "travel back in time" theory in the CBDT Instruction was invalid.

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