Tax assessments can't be reopened after 3 years: Delhi HC
What's the story
The Delhi High Court has ruled that income tax assessments cannot be reopened beyond three years, regardless of the reassessment rules in force.
The decision came on a tax notice issued to the Nationalist Congress Party (NCP) for the fiscal year 2015-16.
The court found the notice was issued too late and must be canceled, citing provisions under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).
Legal reference
Supreme Court ruling cited in decision
The HC's ruling was based on a 2024 Supreme Court ruling in Union of India v. Rajeev Bansal.
In that case, the government admitted that any tax notice for assessment years prior to 2016-17, issued after April 1, 2021, would be invalid if it exceeded the legally stipulated time limit.
The High Court also cited its own judgment in the MakeMyTrip case, which upheld this interpretation of TOLA.
Taxpayer impact
Implications of ruling for taxpayers
The Delhi HC's ruling has far-reaching implications for taxpayers as it limits the period within which the tax department can reopen old cases.
It gives more certainty to individuals and businesses that their case won't be reopened after three years, unless there is compelling new evidence.
Further, taxpayers receiving reassessment notices beyond this three-year limit can now easily challenge them in court.
Universal application
Ruling applies to both old and new regimes
The HC ruling applies equally to cases reassessed under the old rules (before April 2021) and the new regime (after April 2021).
This uniform time limit is expected to serve as a useful precedent for future cases.
Courts are now more likely to invalidate time-barred notices, using this judgment as a reference point in similar cases.