Court rules that limitation under Section 153B of the Income-tax Act must first be computed with all statutory exclusions, including stay periods, before testing TOLA applicability; assessments dated 28/29 January 2022 held time-barred.
The Madras High Court has delivered an important ruling on the computation of limitation in search assessment cases under the Income-tax Act, 1961, holding that the period of limitation under Section 153B must first be calculated by applying all exclusions in the Explanation to that section, including periods during which proceedings were stayed by a court, and only thereafter can the resulting date be tested for applicability of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).
A Division Bench comprising Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan allowed the assessee’s appeals in part and dismissed the Revenue’s appeals, setting aside search assessment orders for Assessment Years 2013-14 to 2018-19 as barred by limitation. The Court also confirmed the quashing of assessments for Assessment Years 2011-12, 2012-13 and 2019-20.
The case arose from a search conducted on the assessee’s premises on 5 July 2018, followed by notices under Section 153A for Assessment Years 2011-12 to 2019-20. The assessee had earlier challenged those notices and obtained interim protection in some of the years. Eventually, the Assessing Officer passed assessment orders on 28 and 29 January 2022, along with consequential penalty orders under Sections 271(1)(c), 271AAB, 271AAC(1) and 271B.
The central dispute before the Court was how limitation should be computed under Section 153B read with TOLA. The Revenue argued that the original “main provision” date under Section 153B, namely 30 September 2020, fell within the TOLA window and therefore stood extended up to 30 September 2021; only after that, according to the Revenue, should the court-stay period be added. The assessee, however, contended that the Explanation to Section 153B is part of the limitation provision itself and that the stay period must be excluded first, before any TOLA extension is considered.
Accepting the assessee’s interpretation, the Court held that the Explanation to Section 153B begins with the words “In computing the period of limitation under this section,” making it an inseparable part of the limitation mechanism. The Bench observed that there is only one limitation period under Section 153B, namely the main provision read with the Explanation, and that TOLA cannot be applied to a bare, isolated date under the main provision while postponing statutory exclusions to a later stage.
The Court further held that the interim stay granted on 18 December 2019 had lapsed on 23 July 2020, since it was extended only from date to date and was not renewed thereafter. On that basis, the excludable stay period was held to be 218 days, and even on the Revenue’s broader computation it could not exceed 287 days. Applying these exclusions first, the composite limitation date worked out to 7 May 2021 or, on the outermost view, 19 August 2021. Since neither date fell within the TOLA window ending 31 March 2021, TOLA was held inapplicable to the second basket of assessment years.
For the first basket of years — Assessment Years 2011-12, 2012-13 and 2019-20 — the Court noted that no stay had been obtained at the threshold. Even so, the benefit of TOLA extended the limitation only up to 30 September 2021, and the assessment orders passed in January 2022 were still beyond time. The Revenue’s appeals on these years were therefore dismissed.
The Bench also quashed the antecedent notices dated 22 December 2021, the penalty orders passed in July 2022, and the consequential notices of demand, but clarified that its ruling was confined only to the issue of limitation and did not examine the merits of the additions made in the assessments.
The judgment is significant for search assessment litigation because it settles, at least for this case, that TOLA cannot be used to artificially enlarge limitation by first extending the main statutory date and then adding stay exclusions on top of that extended date. Instead, the Court has mandated a holistic computation under Section 153B before TOLA is even invoked.
Bottom Line :
Income Tax - Search assessment - Limitation under Section 153B of Income-tax Act, 1961 read with TOLA, 2020 - Period of limitation must first be computed by applying exclusions under Explanation to Section 153B, including court-ordered stay, and only thereafter the resultant composite date can be tested for applicability of TOLA - TOLA cannot first extend the bare main provision date and then permit stay period to be added on top of such extended date - Assessments passed on 28.01.2022/29.01.2022 held barred by limitation.
Statutory provision(s): Section 132, Section 144, Section 153A, Section 153B, Section 271(1)(c), Section 271AAB, Section 271AAC(1), Section 271B of the Income-tax Act, 1961; Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020
