Delhi High Court’s Rule on Reopening Tax Cases Under ₹50 Lakh: What You Need to Know

In a significant ruling, the Delhi High Court has provided clarity on the limitation period for reopening income tax assessments. According to the bench of Justice Rajiv Shakdher and Justice Girish Kathpalia, the extended 10-year period for reopening assessments applies only when the alleged concealed income exceeds ₹50 lakh.

The court emphasized that in “normal cases,” no notice was intended to be issued after three years from the end of the relevant assessment year. However, exceptions exist, and the extended period of ten years is applicable in specific cases, such as when the Assessing Officer (AO) possesses evidence indicating an escaped income of ₹50 lakhs or more.

The bench stated, “Where escapement of income was below ₹50 lakhs, the normal period of limitation, i.e., three years was to apply. In comparison, the extended period of ten years would apply in serious tax evasion cases where there was evidence of concealment of income of ₹50 lakhs or more in the given period.”

The case involved the validity of notices issued under section 148 of the Income Tax Act, with petitioners arguing for the application of the three-year limitation period when undisclosed income falls below ₹50 lakh. On the other hand, income tax authorities relied on the provisions of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), presenting the “travel back in time” theory to retroactively justify later-stage notices.

This ruling holds significant implications for taxpayers and tax authorities alike, providing a clear framework for the reopening of income tax assessments based on the concealed income threshold. Stay informed on tax regulations and legal nuances to ensure compliance with the latest judgments. Our comprehensive analysis keeps you updated on the latest developments in tax law.