Reopening of assessment limitation for notice under Section 148 after search: notice barred by ten year limitation and set aside

Reopening of assessment was held time barred where the search occurred on 23.11.2021 (Financial Year 2021 22), making AY 2022 23 the first assessment year and AY 2013 14 the tenth; therefore AY 2012 13 fell beyond the ten year limitation and the notice under Section 148 was barred by limitation and set aside. A submitted interpretation of the proviso to Section 149(1) - that limitation for notices could start from the date of search where incriminating material against a third person is first found - was not accepted for resolution and was not dealt with further.

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Issues: Whether the notice issued under Section 148 of the Income-tax Act, 1961 for Assessment Year 2012-13, emanating from a search conducted on 23.11.2021, is barred by limitation under Section 149 read with Section 153A(1)(b) and Explanation 1 to Section 153A of the Income-tax Act, 1961.

Analysis: The Court examined Section 152(3) which applies the pre- Finance (No.2) Act, 2024 regime to searches initiated between 1 April 2021 and 1 September 2024. Under Section 153A(1)(b) the six assessment years are computed as the six years immediately preceding the assessment year relevant to the previous year in which the search is conducted. Explanation 1 to Section 153A prescribes that the ten-year period is to be computed from the end of the assessment year relevant to the previous year in which the search is conducted. The Court followed precedent (including decisions of the Delhi and Madras High Courts) holding that the statute prescribes different starting points for the six-year and ten-year computations: the six-year block is counted preceding the search assessment year, whereas the ten-year block is reckoned backwards from the end of the search assessment year. Applying that method to a search in Financial Year 2021-22 (search date 23.11.2021 makes AY 2022-23 the search assessment year), the ten-year block runs back to AY 2013-14; AY 2012-13 therefore falls outside the ten-year period and is time-barred.

Conclusion: The notice dated 29.03.2023 under Section 148 for Assessment Year 2012-13 is barred by limitation and is quashed. The writ petition is allowed.

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