REASSESSMENT BEYOND TEN YEARS IN SEARCH CASES HELD TIME BARRED AS A CONSEQUENCE, GUJARAT HC QUASHES NOTICE ISSUED UNDER SECTION 148 FOR AY 2015-16

Contention of Assessee:

Bar of Limitation under Section 149 under unamended Law:-
Since the search was conducted in FY 2024-25, the relevant assessment year would be AY 2025-26. As per Section 153A read with Explanation, the ten-year block must be computed from the end of the assessment year relevant to the previous year in which search was conducted. Therefore, the ten-year period would extend only up to AY 2016-17. Further AY 2015-16 would fall beyond the permissible ten-year block.

Interplay between Sections 149 and 153A/153C:-
The first proviso to Section 149(1) links reassessment limitation with Sections 153A and 153C in search cases. Hence, limitation must be examined in light of Section 153C

Judicial Precedents relied upon:-
Reliance was placed on judicial pronouncements delivered in the case of Principal Commissioner of Income-tax v. Ojjus Medicare (P) Ltd. And A.R. Safiullah v. Assistant Commissioner of Income Tax wherein it was held that six-year and ten-year blocks are computed differently. The ten-year period must be counted from the end of the search assessment year.

Contention of Revenue:

Applicability of Section 152(3):-
Since the search was conducted between 01.04.2021 and 01.09.2024, provisions of Sections 147-151 as they stood prior to the Finance (No. 2) Act, 2024 would apply.

Ten-Year Limitation under Section 149(1)(b):-
Where escaped income exceeds Rs. 50 lakhs, the notice for reassessment may be issued within ten years from the end of the relevant assessment year.

Knowledge of Incriminating Material:-
The Assessing Officer could only act after incriminating material was discovered during search proceedings. Therefore, limitation should be computed in a manner that gives effect to legislative intent. It further argued that two different methodologies should not be applied for computing six-year and ten-year periods. The word “end” in Explanation 1 to Section 153A should not be interpreted rigidly. The computation should include the search year appropriately to bring AY 2015–16 within the ten-year block.

Ruling of the High Court:

The Division Bench of the Gujarat High Court allowed the writ petition and quashed the notice on following reasoning

• Computation of Ten-Year Block:-
  The Hon’ble Court held that search was conducted on 09.05.2024 i.e. in FY 2024-25. Hence, the relevant assessment year is AY 2025-26. The Court adopted the interpretation laid down in the case of Principal Commissioner of Income-tax v. Ojjus Medicare (P) Ltd wherein it was held that six-year block is computed by excluding the search assessment year whereas ten-year block is computed from the end of the assessment year relevant to the previous year in which search was conducted. The search assessment year forms the first year in the ten-year block. It applied the rationale in the instant case where it was observed that AY 2025-26 was the 1st year and AY 2016-17 was 10th year. Therefore, AY 2015-16 falls beyond the ten-year outer limit.
• Strict Interpretation of Limitation:-
  In taxing statutes, limitation provisions must be strictly construed. The Hon’ble High Court rejected the Revenue’s argument of adopting a liberal or elastic interpretation. The Hon’ble Gujarat High Court held that the impugned notice was issued beyond statutory limitation, it was without jurisdiction and liable to be quashed. Accordingly, the notice dated 31.03.2025 under Section 148 was quashed.

Editors Note:

The ten-year block under Section 153A/153C must be computed from the end of the search assessment year, not by excluding it. The statute consciously prescribes different computation mechanisms for six-year and ten-year blocks. Courts cannot harmonize them artificially. Even if incriminating material is discovered during search, reassessment cannot be initiated beyond the statutory outer limit. In search-related reassessment cases, limitation must be tested in light of Section 153A/153C. The Gujarat High Court aligned itself with the views of the Delhi and Madras High Courts, ensuring uniform interpretation across jurisdictions.