2026 (2) TMI 424 - HC - Income Tax

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 ... Reopening of assessment - period of limitation - time limit for notice u/s 149 - search action u/s 153A of the Act was undertaken on 23.11.2021, which indubitably falls in the Financial Year 2021-22 - computation for six years and ten years HELD THAT:- Taking the date of the search as 23.11.2021 during the Financial Year 2021-22, the Assessment Year 2022-23 will become the first assessment year and, in the same manner, the Assessment Year 2013-14 will become the tenth assessment year. Thus, the year under consideration, namely, Assessment Year 2012-13, for which the impugned notice has been issued under Section 148 of the Act, would fall beyond the period of ten years prescribed under the statute as it stood immediately before the commencement of the Finance Act, 2021, and hence, on this count, the impugned notice can be said to be barred by limitation. However, since an additional submission has been advanced by learned Senior Standing Counsel Mr. Patel to the extent that the expression used in the proviso to Section 149(1) of the Act, to the extent that “if a notice under Section 148 or Section 153A or Section 153C could not have been issued at that time on account of being beyond the time limit specified”, would mean that the Assessing Officer is competent to issue notice under Section 148 of the Act, since he would only gain knowledge of incriminating material against the third person after the search, and the limitation prescribed under the provisions of Sections 153A or 153C of the Act cannot restrict his power, and such limitation will start running from the day of search. We fail to grasp the said submission and the impact of such submission on the limitation prescribed in the first proviso, which relates to Sections 153A or 153C of the Act. Hence, it is not dealt. Notice u/s 148 set aside - Decided in favour of assessee. 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.