2025 (7) TMI 1754 - AT - Income Tax

Assessment under Section 153A and 143(3) barred by limitation due to DTAA protocol timing and exclusions

Sanjay Jain Versus DCIT, Central Circle-7, New Delhi

The ITAT Delhi held that the assessment framed under Section 153A read with Section 143(3) for AY 2011-12 was barred by limitation. The Court relied on ... Assessment u/s 153A - Period of limitation - FT&TR reference to Hongkong on 04.12.2018 for seeking information - due date from passing the assessment order as per section 153B HELD THAT:- As in the case of 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. Where the request is not made in terms of the India-Hongkong DTAA, it was contrary to the limitations as expressly specified under Article 26 of the Protocol and thus, the period of limitation to frame the assessment could not be extended on the basis of such Reference The instant appeal is pertaining to AY 2011-12, wherein the assessment orders have been passed u/s 153A r.w. Section 143(3) of the Act on 24.12.2019. The DTAA between India-Hongkong come into force w.e.f. 30.11.2018. As per paragraph 5(c) of the Article 26, request for disclose any information for periods prior to 30.11.2018 should be forcibly relevant to the fiscal year or taxable event following that date. Thus, no request can be made under Article 26 of the DTAA for the period/ fiscal year prior to 30.11.2018. 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 Sneh Lata Sawhney [2025 (5) TMI 1338 - DELHI HIGH COURT] we hold that all the assessment framed, which is subject matter of the captioned Appeal is barred by limitation, accordingly same is set aside. The ground of appeal No.1 of the assessee is allowed. ISSUES: Whether the assessment orders framed under section 153A read with section 144 of the Income Tax Act, 1961 ('the Act') for Assessment Years 2011-12 to 2017-18 are barred by limitation under section 153B of the Act due to reliance on a reference made for exchange of information under the India-Hong Kong DTAA after the limitation period expired.Whether the extension of limitation period under Explanation (ix) to section 153B of the Act is permissible when the reference for exchange of information is not made in terms of the Agreement referred to in section 90 or 90A of the Act.Whether the reference made to the competent authority of Hong Kong for information relating to periods prior to the effective date of the India-Hong Kong DTAA (30.11.2018) is valid and can justify extension of limitation.Whether other grounds challenging the validity of the assessment orders including absence of incriminating material, mechanical approval under section 153D, and jurisdictional issues require adjudication once the limitation issue is decided. RULINGS / HOLDINGS: The assessment orders framed under section 153A read with section 144 for Assessment Years 2011-12 to 2017-18 are barred by limitation as the assessments were completed beyond the prescribed period of 21 months under section 153B of the Act without valid extension.Extension of limitation under Explanation (ix) to section 153B applies only if the reference for exchange of information is made 'under the Agreement referred to in Section 90 or Section 90A' of the Act; since the reference to Hong Kong was not in conformity with the DTAA provisions applicable for the relevant years, the time exclusion is not available.The reference made to the competent authority of Hong Kong for information relating to assessment years prior to the DTAA's effective date (30.11.2018) is outside the permissible scope of Article 26 of the DTAA and its Protocol, and thus invalid for extending limitation.Other grounds of appeal challenging the assessment orders need not be adjudicated once the limitation issue is decided in favour of the assessee. RATIONALE: The Court applied the statutory framework of sections 153A, 153B, 153D, and Explanation (ix) to section 153B of the Income Tax Act, 1961, which prescribe the limitation period and conditions for extension in search and seizure cases.The Court relied on the interpretation of Article 26 of the India-Hong Kong DTAA and its Protocol, which restricts exchange of information to fiscal years or taxable events occurring after the DTAA's effective date (30.11.2018), rendering requests for prior periods invalid.Precedent from the jurisdictional High Court and Supreme Court was applied, particularly the principle that 'the exclusion as provided under Explanation (ix) to Section 153B ... is applicable only if a reference for exchange of information has been made as per Section 90/90A,' and that substitution of treaty provisions operates as novation, extinguishing prior provisions without revival.The Court referred to authoritative decisions clarifying that substitution of treaty provisions or legislative rules results in the old provisions ceasing to exist, and invalidity of the new provision does not revive the old one.The Court noted that the limitation period must be strictly construed as per Supreme Court rulings, and that since the reference to Hong Kong was not valid under the DTAA for the relevant years, the extension of limitation was impermissible.In light of the limitation bar, the Court held that other grounds challenging the assessment orders were rendered unnecessary to decide.