Limitations’ Web Under Income-Tax Act – Different Dimensions!


Dr. Rakesh Gupta, FCA, FCS, AICWA, MBA, LLM, PhD
Ex-Member, Income Tax Appellate Tribunal
Somil Agarwal, ACA, ACS, ACMA, DISA, LLM (U.K.)


Introduction & Background

Various actions & proceedings contemplated under the Income Tax Act, 1961 (hereinafter called “Act’) are time bound. This is because of the ‘limitations’ prescribed under the various sections of the Act. Time limitations are prescribed for compliances of myriads of statutory & also other beneficial requirements meant for the tax payers which are, most of the times, complied with the active assistance of the tax professionals. Hosts of time limitations are prescribed for the tax officials also by which statutory actions are to be taken / initiated and/or completed, such as issue of notices under various sections, passing of orders including assessment, reassessment orders. These limitations do undergo & have undergone changes from time to time due to the amendments made under the Act. Recent instance is that of the promulgation of The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (hereinafter called ‘Ordinance’) on 31.3.2020 in view of the spread of pandemic COVID-19 by which changes have, interalia, been made in compliance dates & statutory dates. Such limitation provisions & changes therein, needless to say, do throw challenges not only before the taxpayers & tax professionals but also before the tax administrators.

Unlimited Dimensions of Limitations’ web

Time bound compliances for the tax payers prescribed under the Act vary from the preparation & filing of the income tax returns, TDS/TCS payments & filing of returns, obtaining the tax audit report, various audit certificates & transfer pricing report, making investments, deposits etc. for the purpose of claiming deductions and exemptions such as under section 80C, 54 etc. These time limitations prescribed under the Act are observed by the tax professionals also for completing various types of audits envisaged in the scheme of the Act such as tax audit under section 44AB, audit certifications under various sections of the Act etc.

Broadly, various ‘limitations’ under the Income Tax Act have been prescribed either with reference to the end of the financial year or with reference to the end of the month or in many cases, from the date of the order. Reference to different dates for computing different period of limitations poses challenges. Limitation in respect of assessment & reassessment has long been recognised from the end of the financial year, whereas in the matter of penalty provisions, some limitations have been recognized with reference to the end of the financial year & some with reference to the end of the month as given in section 275. There are several other instances where limitation starts from the date of the order like one prescribed under section 264, or from a particular date based upon the receipt of the order such as filing of appeals etc.

Other provisions relating to giving appeal or revisionary orders’ effect depending upon as to whether whole of assessment order was set aside/cancelled, or some of the issues were set aside provide different time limits. Fact that the period in some of such cases can be increased after obtaining approval from the competent authority, adds further spice.

Different time limitations in passing penalty orders with reference to different situations like where assessment or other orders are subject to further appeal or not are example of whole lot of complications involved in the subject. Various fact situations in penalty and other provisions of the Act, for example, dealing with settlement application, attachment of property etc. can go on and on. But, given no choice, we all have to live with that.

Further, existence of situations, for example, given under the ‘Explanation’(s) to section 153 & 153B do not remain behind to compound the challenges further. There may arise certain situations like one in the case of stay or injunction by the courts, reference made for valuation under section 142A, reference made for special audit under section 142(2A), application made to Authority for Advance Ruling, reference for exchange of information under section 90 or 90A, reference to Transfer Pricing Officer etc. etc. as listed in the ‘Explanation 1’ to section 153 & “Explanation’ to section 153B, whereby period during which proceeding remain stayed or similar time period in obtaining valuation report or special audit report etc. so on an so forth would stand added to the period of limitation. All this add at times complicated working in terms of the computation of precise day(s) by which the limitation would expire. Then, as though it was not enough, there are proviso appended after such ‘Explanation’(s) which also have their own share of complications. Such proviso(s) provide that if after excluding such period as computed under the Explanation(s), time available to the assessing officer is less than sixty days such remaining period shall be extended to sixty days thus leading to one complication after the other. Thus, working of limitation period stumbles upon minute computation of the ‘day’ having regard to the provisos appended under the ‘Explanation’(s), to see as to when the limitation is going to expire.

Limitation period has been in the recent past varied/ curtailed significantly in respect of the assessment, reassessment & search assessments which would see the expiry of such limitation period coming to an end shortly. Therefore, it becomes important to take note of such changes. Also, supervening circumstances due to the spread of COVID-19 pandemic, as noted above in the article, has forced the government to bring out an Ordinance on 31.3.2020 which has also impacted the limitations under various provisions of the Act.

Promulgation of Ordinance

The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 was promulgated on 31.3.2020 in view of the spread of pandemic COVID-19. Objective of the Ordinance was to relax certain provisions, including extension of time limits in the Taxation and other laws which fell during the period from 20th March 2020 to 29th day of June 2020. It has interalia been provided in the Ordinance that such time limits (other than for payment of tax or levy under the Income Tax Act) stand extended till 30th day of June 2020 or such other date after 30th June 2020 as the Central Government may by notification specify. Payment of tax under ‘Vivad Se Vishwas Scheme’ without additional tax can also be paid on or before 30.6.2020 as against 31.3.2020 as originally enacted. With respect to the due date(s) prescribed for the payment of any tax or levy etc. under the Income Tax Act which falls during 20th March 2020 to 29th June 2020 and if not paid within such due date(s) but is paid up to 30th June 2020, rate of interest for the period of delay shall be 9% per annum for such period of delay and that no penalty shall be levied and no prosecution shall be sanctioned in respect of such amount for the period of delay. Obviously, Ordinance too would affect many time limitations falling between 20.3.2020 to 29.6.2020.

Limitations! Limitations! Limitations!

Let us discuss about some of the foreseeable real situations:

Belated & Revised Return
Belated returns for A.Y. 2019-20 or revised return for A.Y. 2019-20 which could be filed or revised up to 31.3.2020 but which could not be so filed or revised due to lockdown, can be filed and revised on or before 30.6.2020 as prescribed by the Ordinance.

Various Orders
Also, those orders such as, for example, under section 12AA, 263, 264, orders to give appeal effect or revision order’s effect or penalty order after the order passed by CIT(A) in quantum appeal where limitations were expiring on 31.3.2020 or between 1.4.2020 to 29.6.2020 but such orders could not be passed, such orders can be passed on or before 30.6.2020 as provided in the Ordinance. However, newly inserted section 12AB provides that in cases where application for registration under section 12AA is pending on 1.6.2020 where no order granting registration is passed, such pending application would be treated as pending application made under section 12AB.

Exemption under section 54 to 54GB
Similarly, investment, deposit, payment, acquisition, purchase, construction for the purpose of claiming any deduction, exemption or allowances under the provisions contained in section 54 to 54GB which could have been made between 20.3.2020 to 29.6.2020, can be made up to 30.6.2020.

Deduction under section 80C etc.
Investment etc. under any provision of Chapter VIA under the heading B i.e. from section 80C to 80GGC which could be made between 20.3.2020 to 31.3.2020 but which could not be made, can be made up to 30.6.2020 in terms of extension granted by the Ordinance.

Trusts Registration
Section 12AB as inserted by the Finance Act, 2020 coming into force from 1.6.2020 require the filing of fresh registration application on the part of existing charitable trusts registered under section 12AA as on 1.6.2020 within three months i.e. on or before 31.8.2020.

Scrutiny Selection
Time limit to issue and serve notice under section 143(2) is also 30.9.2020 for the returns of income filed in financial year 2019-20.

Section 153, 153B
Time limits for completing assessment and reassessment are given under section 153. Similarly, Limitation in respect of the assessment orders to be passed under section 153A pursuant to search, in case of searched person and, in case of ‘other person’ under section 153C are given under section 153B.
Regarding limitation of assessment and reassessment in respect of & up to assessment year 2017-18, the time limit was 21 months from the end of the assessment year. Identical was the provision in respect of search assessments depending upon the date of execution of last authorization having taken place before 1.4.2018.

Finance Act, 2017 has changed some of the rules of the game in as much as it has now been provided that in respect of the assessment of assessment year 2018-19, the last date of limitation would be 30th September 2020 i.e. 18 months from the end of the assessment year. This is so now in place of the time period of 21 months from the end of the assessment year which was hithertofore applicable. Assessments for AY 2018-19 which may have been taken up in the past have to be completed up to 30.9.2020.

In case of assessment for assessment year 2019-2020 and onwards, the limitation to pass assessment order would be 12 months from the end of the assessment year which means that assessment order for assessment year 2019-20 would have to be passed on or before 31st March 2021.

In the matter of reassessment, where notice u/s 148 in respect of an assessment year is issued & served on or after 1.4.2019, limitation to pass assessment order would be 1 year from the end of the financial year in which the notice u/s 148 was served. It means that where notice under section 148 is served on or after 1.4.2019 but before 31.3.2020 (though the possibility of any service between the period beginning 20.3.2020 to 31.3.2020 was remote due to lockdown but it was not impossible either), reassessment order would have to be passed on or before 31.3.2021. However, if a notice which was to be issued on or after 20.3.2020 & which could not be issued can be issued as per the Ordinance up to 30.6.2020. In such a situation time limit of passing the reassessment order would however be 31.3.2022 i.e one year from the end of the financial year in which notice under section 148 has been served.

Search Assessment
In respect of assessment of search cases, limitation to pass assessment order where last of the authorisation for search was executed in financial year 2018-19, would expire on 30th September 2020 i.e. 18 months from the end of the financial year in which last of the authorization for search was executed.

In respect of search conducted on or after 1.4.2019, the limitation would be 12 months from the end of the financial year in which last of the authorisation for search under section 132 or for requisition under section 132A was executed. That would mean in case of a search, for instance, initiated between 1.4.2019 to 31.3.2020 & last of the authorization too having been executed between these two dates, the limitation to pass assessment order would be 31.3.2021.

In respect of assessment of ‘other person’ under section 153C, time limit in respect of search where last of the warrants was executed in financial year 2018-19, or 2019-20 or so on, time to pass assessment order would end with the limitation applicable in case of searched person or one year from the end of the financial year in which books of account or documents or money belonging to or pertaining to such other person was handed over to the assessing officer of such other person whichever is later.

‘Stay’ etc.
There may be various types of ‘Stay’ that may be going to expire soon and would have to be re-applied expeditiously before the expiry of the time period.

In fact, all the limitations under the Act cannot be captured due to varying permutations and combinations but an attempt has been made as above to highlight some of the impending limitations staring at the face & approaching fast in coming months so as to flag the criticality of the issue of Limitation lest it should skip our due & timely attention.

Scenario After Lockdown
Adding to the woes is an unprecedented situation of lockdown caused by the spread of COVID-19 pandemic. After the end of the lockdown, there would be rush for the completion of proceeding, passing of orders, issuance of notices,

intimations, notifications, sanctions, approvals or such other similar actions, or filing of appeals, reply, application, furnishing of any report, document, return, statement etc. due to extension of time limits for such actions/proceedings which fall between 20.3.2020 to 29.6.2020. Time limitation for all such actions is 30.6.2020.
Effect of above discussion is that after the lock down is lifted as expected, on 4th May, 2020, there would be deluge or flood of workload for the tax payers, professionals and tax administrators alike. Actions which could not be taken up between 20.3.2020 up to the period of lockdown would have to be taken up by all concerned, and the proceeding wherever assessment orders have to be passed on or before 30.9.2020 also would have to be resumed. Tax audits would also have to be completed by 30.9.2020 as per the revised and amended date enacted by the Finance Act, 2020. The time lost due to lockdown is not to be excluded from the limitation except to the extent provided in limited manner, in the Ordinance. In so far as the limitations under the Income Tax Act are concerned, these have to be construed strictly & to be given effect to. All the stakeholders would have to pull up their socks & be ready to meet the challenging deadlines.

In the End……..But, Really the END?!!
We may hasten to add one more thing that any attempt on the part of some of the ‘enthusiasts’ to hold & follow the myopic view & interpretation that the actions/proceedings that expired between 20.3.2020 to 30.3.2020 since had become ‘dead’ during that time window, cannot be revived by subsequent Ordinance dated 31.3.2020 based on certain judicial decisions given in different context, may be found worthy to be discouraged and repelled by the courts in view of the extra-ordinary situation of the pandemic staring at the very existence of the mankind. Let us wait & watch, and keep the fingers crossed.