Foreign Tax Information Reference Can’t Extend Limitation: Delhi HC Holds Search Assessments Time-Barred U/s 153B

The Delhi High Court while terming search assessments as time-barred under Section 153B of the Income Tax Act, 1961 held that foreign tax information reference cannot extend limitation. The bench of Justice Dinesh Mehta and Justice Vinod Kumar has observed that the reference made to the FT&TR for information relating to earlier assessment years was legally impermissible. As a result, the Department could not claim the benefit of the extended limitation period under Section 153B. Even though the Tribunal may have relied on a different line of reasoning, the ultimate conclusion that the assessments were time-barred was upheld. The case arose out of a search conducted on 27 February 2017 at the premises of the AMQ Group. Based on the material allegedly recovered during the search, proceedings were initiated against the assessee as well. Since the matter related to a search, the statutory time limit for completing assessments under the Income Tax Act, 1961 was 31 December 2018. Before the expiry of this limitation period, the Assessing Officer (AO), on 4 December 2018, made a reference to the Foreign Tax and Tax Research Division (FT&TR) seeking information from Hong Kong authorities. The Department contended that this reference triggered clause (ix) of the Explanation to Section 153B of the Act, thereby extending the limitation period by one year, up to 31 December 2019. However, it was undisputed that the Hong Kong authorities never furnished the requested information. The Income Tax Appellate Tribunal (ITAT), while deciding the assessee’s appeal, held that the assessments were time-barred. The Tribunal relied on a prior Delhi High Court judgment in Principal Commissioner of Income Tax v. Sneh Lata Sawhney, where it was held that an invalid reference for foreign information could not extend the statutory limitation period. The department argued that the Tribunal had mechanically applied the ruling in Sneh Lata Sawhney without appreciating a crucial factual distinction. According to the Department, that case dealt with the India–Switzerland tax treaty, which expressly restricted exchange of information to periods after a specific cut-off date. The department submitted that the India–Hong Kong treaty, particularly Article 26 read with its Protocol, permitted exchange of information even for periods preceding the date on which the treaty came into force. Since the India–Hong Kong agreement became effective on 30 November 2018, the Department contended that the reference made by the AO was valid and entitled it to the extended limitation period. The court undertook a detailed comparison of the relevant provisions of the India–Switzerland and India–Hong Kong treaties. The Court noted that while the Swiss protocol clearly restricted exchange of information to fiscal years commencing after a specified date, the Hong Kong protocol, though permitting disclosure of information that precedes the treaty’s effective date, imposed an important qualification. Clause 5(c) of the Protocol to Article 26 of the India–Hong Kong treaty allows disclosure of prior information only if it is “foreseeably relevant for a fiscal year or taxable event following” the date on which the treaty took effect. Interpreting this clause, the Court held that information could be sought only for fiscal years or taxable events occurring after the treaty became operative, and not for earlier assessment years such as AY 2017-18. The Bench further clarified that under income tax law, the taxable event is linked to the assessment year following the end of the relevant financial year. On this interpretation, the AO could not have validly sought information from Hong Kong authorities for the assessment years in question. The High Court concluded that the reference made to the FT&TR for information relating to earlier assessment years was legally impermissible. As a result, the Department could not claim the benefit of the extended limitation period under Section 153B. Even though the Tribunal may have relied on a different line of reasoning, the ultimate conclusion that the assessments were time-barred was upheld. Case Details Case Title: PCIT Versus Sanjay Jain Case No.: ITA 38/2026 Date: 22/01/2026 Counsel For Petitioner: Puneet Rai Counsel For Respondent: None Click Here To Read Order Read More: Look Out Circulars Can’t Be Used As Tools For Loan Recovery: Karnataka HC

Foreign Tax Information Reference Can’t Extend Limitation: Delhi HC Holds Search Assessments Time-Barred U/s 153B

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Foreign Tax Information Reference Can’t Extend Limitation: Delhi HC Holds Search Assessments Time-Barred U/s 153B

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