2025 (6) TMI 894 - AT - Income Tax

Assessments under Section 153A held time-barred as information exchange requests weren't made under Section 90/90A provisions

Subhash Sathe Versus ACIT Central Circle-06, Delhi and ACIT Central Circle-06 Versus Indrani Sathe, Gurgaon

ITAT Delhi held that assessments under Section 153A were barred by limitation. The tribunal relied on Delhi HC precedent establishing that exclusion under ... Assessment u/s 153A r.w. Section 143(3) - period of limitation - reference to time taken for obtaining information pursuant to a reference made under the Indo-Swiss - HELD THAT:- The Hon’ble Jurisdictional High Court in the case of Pr. Commissioner of Income Tax, Central-1, Vs. Sneh Lata Sawhney [2025 (5) TMI 1338 - DELHI HIGH COURT] held that the exclusion as provided under Explanation (ix) to Section 153B (which was numbered as Clause (viii) at the material time) is applicable only if a reference for exchange of information has been made as per Section 90/90A of the Income Tax Act, 1961. Where the request is not made in terms of the Indo-Swiss DTAA, it was contrary to the limitations as expressly specified under Article 14 of the Amending Protocol and thus, the period of limitation to frame the assessment could not be extended on the basis of such Reference. The amending protocol of Indo Swiss-DTAA was signed on 30/08/2010, the Article 26 would be effective for exchange of information that relates to the following fiscal year commencing from 01/04/2011. Thus, no request can be made under Article 26(which was earlier numbered as Article 24) of the Indo-Swiss DTAA after 30/08/2010 as the said Article cease to exist after 30/08/2010 as held by the Hon'ble High Court. Therefore, in our considered opinion, the period of limitation could not be extended under Explanation (ix) to Section 153B of the Act to frame the assessment based on such reference. By relying on the ratio laid down by the Hon'ble High Court of Delhi [2025 (5) TMI 1338 - DELHI HIGH COURT] we hold that all the assessments framed, which are subject matter of the captioned Appeals are barred by limitation, accordingly same are set aside. Consequently, respective orders of penalty in consequence to such assessment orders are also set aside. The core legal questions considered by the Tribunal in these appeals primarily revolve around the validity of assessment orders framed under Section 153A read with Section 143(3) of the Income Tax Act, 1961, in light of the limitation period prescribed under Explanation (ix) to Section 153B of the Act. Specifically, the issues include:1. Whether the period of limitation for completion of assessment under Section 153A can be extended by excluding the time taken for obtaining information pursuant to a reference made under the Indo-Swiss Double Taxation Avoidance Agreement (DTAA), particularly under Article 26 (previously Article 24) as substituted by the Amending Protocol dated 30.08.2010.2. Whether a reference for exchange of information made after the Amending Protocol came into effect, but relating to fiscal years prior to 01.04.2011, is maintainable under the Indo-Swiss DTAA.3. The legal effect of the substitution of Article 26 of the Indo-Swiss DTAA by the Amending Protocol, with respect to the applicability of prior provisions for exchange of information requests.4. The applicability of Explanation (ix) to Section 153B of the Act, which excludes certain periods from the limitation timeline, contingent on the reference being made under an agreement as specified in Section 90 or 90A of the Act.5. The scope and effect of judicial precedents, including the Supreme Court's rulings on exclusion of limitation periods during special audits under Section 142(2A) of the Act, and the principle of strict construction of limitation provisions.Issue-wise Detailed AnalysisIssue 1 and 2: Validity of Exchange of Information Requests under Indo-Swiss DTAA Post-Amending ProtocolThe Tribunal extensively relied on the judgment of the Hon'ble Delhi High Court in Pr. Commissioner of Income Tax, Central-1 vs. Sneh Lata Sawhney and connected matters. The High Court held that the exclusion of time under Explanation (ix) to Section 153B is applicable only if the reference for exchange of information is made pursuant to a valid agreement under Section 90 or 90A of the Income Tax Act. The Court emphasized that the Amending Protocol dated 30.08.2010 substituted Article 26 of the Indo-Swiss DTAA, which effectively deleted the earlier Article 26 (previously Article 24) and introduced a new provision applicable only for fiscal years beginning on or after 01.01.2011 (for India, 01.04.2011).The Court interpreted the Amending Protocol and Article 14 thereof to mean that any requests for information relating to periods prior to 01.04.2011, made after 30.08.2010, are not maintainable under the Indo-Swiss DTAA. This interpretation was supported by international jurisprudence, notably the decision of the Tribunal Administratif F'ed'eral, Switzerland, which dismissed requests for information relating to years before 01.04.2011 on similar grounds.The Court relied on settled principles of treaty interpretation and legislative substitution, noting that the substitution of Article 26 by the Amending Protocol operated as a novation, thereby extinguishing the prior provisions and rights under the earlier Article 26. The absence of any saving clause in the Amending Protocol indicated no intention to preserve rights or obligations under the previous Article 26.Key precedents cited include Supreme Court decisions elucidating the effect of substitution of legislative provisions, notably Koteswar Vittal Kamath v. K. Rangappa Baliga & Co., and A.T.B. Mehtab Majid & Co. v. State of Madras, which establish that substitution results in repeal of the prior provision and does not revive the old provision even if the new one is invalid.Issue 3: Effect of Substitution of Article 26 on Requests Made Post-30.08.2010The Tribunal underscored that the substitution of Article 26 by the Amending Protocol meant the old Article 26 ceased to exist from 30.08.2010 onwards. Requests made under the old Article 26 after this date are invalid. The Tribunal emphasized that the novation principle applies to treaties as well, discharging the prior agreement unless expressly preserved.The Court rejected the Revenue's contention that requests for information relating to periods prior to 01.04.2011 could be validly made under the Indo-Swiss DTAA after the Amending Protocol, holding such requests contrary to the express limitations in Article 14 of the Amending Protocol.Issue 4: Applicability of Explanation (ix) to Section 153B of the Income Tax ActExplanation (ix) to Section 153B excludes from the limitation period the time commencing from the date of reference for exchange of information under an agreement referred to in Section 90 or 90A of the Act and ending on the date the information is received, up to a maximum of one year.The Tribunal held that this exclusion applies only if the reference is made under a valid agreement as per Section 90/90A, and the reference must be in terms of the relevant DTAA. Since the reference in the present case was not made in accordance with the valid provisions of the Indo-Swiss DTAA post-Amending Protocol, the exclusion under Explanation (ix) could not be invoked.The Tribunal further noted that the assessments in question related to years prior to 01.04.2011, and the reference date for exchange of information was 14.11.2012, i.e., after the Amending Protocol's substitution of Article 26. Therefore, the period of limitation for framing the assessments could not be extended under Explanation (ix).Issue 5: Judicial Precedents on Exclusion of Limitation Periods During Special Audits and Strict Construction of Limitation ProvisionsThe Tribunal examined Supreme Court decisions such as VLS Finance Ltd. v. CIT and Sahara India (Firm) v. CIT, which clarify that periods during which assessment proceedings are stayed or special audit directions are challenged and stayed by courts can be excluded from limitation calculations. However, these exclusions are contingent on the validity of the direction or stay order.The Tribunal emphasized the principle of strict construction of limitation statutes, as reiterated in K.M. Sharma v. Income Tax Officer, which mandates that such provisions be interpreted narrowly to provide certainty and finality to tax proceedings.Applying these principles, the Tribunal found that since the reference for exchange of information was invalid under the Indo-Swiss DTAA post-Amending Protocol, the exclusion under Explanation (ix) could not be applied. Hence, the assessments framed were barred by limitation.Application of Law to Facts and Treatment of Competing ArgumentsThe Assessee's counsel relied heavily on the High Court's ruling in Sneh Lata Sawhney, arguing that the reference for exchange of information was made under Section 90 of the Act but not in terms of the valid Indo-Swiss DTAA provisions post-Amending Protocol, thus invalidating the extension of limitation.The Revenue contended that the assessments and penalties were valid and that the CIT(A) orders deleting additions and penalties should be set aside. However, the Tribunal rejected this, holding that the Revenue's reliance on references made under the old Article 26 was misplaced and contrary to the Amending Protocol's express terms.The Tribunal's reasoning was grounded in the principle that the substitution of treaty provisions by the Amending Protocol extinguished the prior provisions and that no retroactive effect was intended or permissible for exchange of information requests.ConclusionsThe Tribunal concluded that all assessments framed under Section 153A for the assessment years 2006-07 to 2011-12, based on references for exchange of information made after the Amending Protocol but relating to periods prior to 01.04.2011, are barred by limitation. Consequently, the related penalty orders were also set aside.Accordingly, the appeals filed by the Assessee were allowed, and the appeals filed by the Revenue were dismissed.Significant Holdings'The exclusion as provided under Explanation (ix) to Section 153B of the Act is applicable only if a reference for exchange of information has been made as per Section 90/90A of the Income Tax Act, 1961. Where the request is not made in terms of the Indo-Swiss DTAA, it was contrary to the limitation as expressly specified under Article 14 of the Amending Protocol and thus, the period of limitation to frame the assessment could not be extended on the basis of such Reference.''By virtue of Article 8 of the Amending Protocol, Article 26 of the Indo-Swiss DTAA as amended by the Supplementary Protocol was deleted. Thus, Article 26 (which was earlier numbered as Article 24) of the Indo-Swiss DTAA as it existed prior to 30.08.2010 ceased to exist, any request under that Article cannot be made after 30.08.2010.''It is well settled that novation discharges the original contract. Thus, for all intents and purposes, Article 26 as it existed prior to 30.08.2010, ceased to exist.''On a plain reading of Clause (ix) of the Explanation to Section 153B of the Act, the exclusion of time taken for obtaining the information (or one year) for completion of the assessment under Section 153A of the Act is applicable only if a reference for exchange of information is made as per the Agreement under Section 90/90A of the Act.''The period commencing from the date on which a reference (or first of the reference) for exchange of information is made by an authority competent 'under the Agreement referred to in Section 90 or Section 90A' of the Act and ending with the date on which the information is last received, by the Principal Commissioner or Commissioner over a period of one year, whichever is less is required to be excluded.''The assessments framed, which are subject matter of the captioned Appeals are barred by limitation, accordingly same are set aside. Consequently, respective orders of penalty in consequence to such assessment orders are also set aside.'