The Delhi High Court has quashed an income tax reassessment notice issued to the Nationalist Congress Party (NCP)for the assessment year 2015–16, ruling that it was issued beyond the legally permitted three-year window. The case hinged on whether the tax department could issue notices under reassessment rules—old or amended—after the statutory time limit expired.
The court referred to The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), which was introduced during the COVID-19 pandemic to extend various compliance deadlines. However, the bench clarified that TOLA does not override the three-year limit imposed by law for reopening assessments.
“This is not merely a technicality; it is a safeguard against arbitrary reassessment,” the court noted in its judgment.
Supreme Court Precedent and Past Rulings Strengthen the Verdict
In backing its ruling, the Delhi High Court cited the Supreme Court’s 2024 judgment in Union of India v. Rajeev Bansal, in which the central government itself conceded that tax reassessment notices for years prior to 2016–17, if issued after April 1, 2021, would be invalid.
The High Court also referenced its earlier decision in the Makemytrip case, where a similar issue was examined, and the same conclusion was reached—that tax authorities cannot revive closed assessments using reinterpretations of procedural timelines.
The judgment reiterates the view that legal certainty and taxpayer protection must not be sacrificed under the pretext of administrative convenience or retrospective legislative change.
Implications for Taxpayers: Stability, Certainty, and Legal Boundaries
This ruling is expected to have a far-reaching impact on taxpayers, particularly those who feared the reopening of old assessments under ambiguous interpretations of TOLA or newer provisions in the Income Tax Act.
Key takeaways for taxpayers:
- Assessments prior to FY 2016–17 are now time-barred if not reopened within three years.
- TOLA extensions cannot be used to sidestep statutory limits on reassessment.
- Taxpayers can now challenge reopened cases that violate the three-year cutoff.
- The ruling enhances predictability and trust in the tax system and limits harassment from tax authorities.
Tax professionals and legal experts have welcomed the decision, calling it a win for due process and fairness. “It sends a clear message that the government cannot stretch timelines arbitrarily, especially when taxpayer rights are at stake,” said a senior chartered accountant.