Apply the Explanation first, then ask whether the pandemic law helps: nine years of assessments fall
The Revenue said a stay of assessment extends limitation, and then TOLA extends it again. The Chief Justice’s Bench has held the order of those two steps decides the case, and that taken in the right order the Taxation and Other Laws Act was never available at all.
A search was conducted at the premises of Agni Estates and Foundations on 5 July 2018. Notices under Section 153A of the Income-tax Act, 1961 followed for nine assessment years, 2011-12 through 2019-20. The assessments were completed on 28 and 29 January 2022. Whether those assessments were made in time turned on a question of sequence, and on 23 September 2026 a Bench of Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan answered it against the Revenue for all nine years.
The holding is narrow to state and wide in effect. Limitation under Section 153B must be computed by applying the Explanation to that section — including the exclusion of periods during which assessment proceedings stood stayed by a court — to the main provision first, and only then testing the resulting composite date against the window of applicability in Section 3(1) of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. Done in that order, the composite date fell outside TOLA’s window on any permissible computation, TOLA could not extend anything, and the assessments were barred in their entirety.
How the years came to be split in two
The assessee had challenged the Section 153A notices in an earlier round of writ proceedings, which were dismissed on 17 March 2021. While those were pending it had enjoyed interim protection for a substantial length of time — but not for every year. That distinction is what produced the litigation.
On dismissing the earlier writs the court directed the Revenue to proceed, and nine separate assessment orders under Section 144 read with Section 153A followed, along with penalty proceedings under Sections 271(1)(c), 271AAB, 271AAC(1) and 271B, culminating in orders passed in late July 2022.
The assessee then challenged the assessments, the antecedent notices of 22 December 2021 and the penalty orders, principally on limitation. By a common order of 19 September 2023 the single judge divided the nine years into two baskets.
The first basket — assessment years 2011-12, 2012-13 and 2019-20 — comprised years in which no writ petition had been filed at the original stage and no interim protection obtained. With no stay, no exclusion under the Explanation was available, and applying TOLA the last date for completing the assessment was 30 September 2021. The orders having been passed in January 2022, those assessments were held barred and were set aside.
The second basket — assessment years 2013-14 to 2018-19 — comprised years in which interim stay had in fact been granted and continued for varying periods in a batch of writ petitions of 2019 and connected proceedings. For those, the single judge held the assessments were in time.
That bifurcated result produced cross-appeals. The assessee appealed against the confirmation of the assessments for 2013-14 to 2018-19; the Revenue appealed against the setting aside of those for 2011-12, 2012-13 and 2019-20. Mr. Arvind Datar, Senior Counsel, appeared for the assessee; Mr. AR.L. Sundaresan, Additional Solicitor General, for the Revenue. Because both sets of appeals arose from the same common order and turned on an identical question of law, they were heard and decided together.
The assessee’s argument: an Explanation is part of its section
The case for the assessee began with the opening words of the Explanation to Section 153B — “In computing the period of limitation under this section”. That phraseology, it was argued, makes the Explanation an inseparable and organic part of the main provision rather than a free-standing clause to be applied only after the main provision has run its full, unexplained course.
For that proposition reliance was placed on CIT v. Plantation Corporation of Kerala Ltd. (AIR 2000 SC 3714) and K.P. Madhusudhanan v. CIT (2001) 251 ITR 99, for the principle that an Explanation of this character forms part and parcel of the section to which it is appended and colours the meaning of the substantive provision itself.
The same approach, it was said, had already been taken by the Madras High Court on the pari materia provision. In Pfizer Healthcare India (P.) Ltd. v. DCIT [2023] 452 ITR 187, the Court held that Section 153 deals exclusively with limitation together with the statutory extensions and exclusions engrafted in its Explanation — a view affirmed in writ appeal in DCIT v. Saint Gobain India (P.) Ltd. [2022] 444 ITR 636.
From there the argument moved to TOLA. Section 3(1) of that Act speaks of “any time-limit… specified in, or prescribed or notified under, the specified Act”. That expression, the assessee contended, cannot mean the truncated, artificial date produced by reading the main limb of Section 153B(1) in isolation. It can only mean the composite limitation period that results once the Explanation, with its exclusion for court-ordered stays, has already been factored in. The heading of Section 153B — “Time limit for completion of assessment under section 153A” — read with TOLA’s reference to “any time-limit”, reinforced that holistic reading, and Union of India v. ABN Amro Bank was cited for the approach to language of that kind.
The Revenue’s argument: fix on when the clock was set, not when it ran out
The Additional Solicitor General met that with a reading anchored in dates rather than in the character of an Explanation.
Section 153B(1) read with the second proviso prescribed eighteen months — 549 days — from the end of the financial year in which the last search authorisation was executed, which here meant 1 April 2019, producing 30 September 2020 as the statutory date. That date falls squarely inside TOLA’s window of 20 March 2020 to 31 March 2021. TOLA was therefore attracted on that date alone, and by force of Section 3(1) and successive notifications the period stood extended to 30 September 2021.
The textual point was pressed carefully. Section 3(1) speaks of a time-limit “specified in, or prescribed or notified under” the specified Act which falls during the stipulated window. It does not speak of the time prescribed for passing orders, nor of the date on which a time-limit ultimately expires after exclusions. On that reading the provision fastens on the point of origin of the time-limit — the date on which the statutory clock is set to run out under the main provision — and not on any later, exclusion-adjusted expiry date. Since that point of origin, 30 September 2020, admittedly fell within the window, TOLA applied. Only once TOLA had been triggered on that basis would the exclusion under the Explanation for the period of stay be layered on top.
Why sequence decides the case
The significance of the ordering is easy to miss, and it is the whole of the dispute.
TOLA was pandemic legislation. It did not extend every limitation period indefinitely; it operated on time-limits falling within a defined window, and extended those to a notified date. So the question in any given case is whether the relevant time-limit falls inside that window.
If the main limb of Section 153B is read alone, the date it throws up for a stayed year is early — because the exclusion for the period of stay has not yet been applied. An early date is more likely to fall within TOLA’s window, and so to attract TOLA’s extension. On that reading the Revenue gets both benefits in succession: the statutory exclusion for the stay, and then a further pandemic extension on top.
If instead the Explanation is applied first, the composite date moves later — pushed out by however long the stay ran. A date that has already moved past the end of TOLA’s window is not a time-limit that TOLA operates on at all, and the pandemic extension simply never engages.
The Bench adopted the second reading. It held that the period of limitation under Section 153B must in all these cases be computed by applying the Explanation, including the exclusion of periods of court-ordered stay, to the main provision before, and not after, testing the resultant composite date against the window of applicability prescribed under Section 3(1) of TOLA.
On the facts, the composite, Explanation-adjusted date for completion of assessment fell outside TOLA’s window on any permissible computation. TOLA was therefore unavailable to extend limitation for any of the nine assessment years. The assessment orders of 28 and 29 January 2022, having been passed well beyond the properly computed date for each year, were barred by limitation in their entirety.
Both baskets, one answer
The consequence was that the single judge was right about one set of years and wrong about the other, and the correction ran only one way.
The finding that the assessments for 2011-12, 2012-13 and 2019-20 were barred by limitation — and the consequential quashing of those assessments, the antecedent notices of 22 December 2021 and the connected penalty orders — was held correct and was confirmed. The Revenue’s nine appeals were dismissed.
The finding that the assessments for 2013-14 to 2018-19 were passed within time was held erroneous and unsustainable, and was set aside. The assessee’s appeals succeeded.
The Registry was directed to type separate cause-titles for all the cases while issuing certified copies to the parties — a housekeeping direction that reflects the size of the batch, which ran to two dozen writ appeals and some forty connected miscellaneous petitions.
For assessees whose search assessments were completed during the pandemic period after a spell of interim protection, the judgment supplies a computation that has to be run year by year: exclude the stay first, arrive at the composite date, and only then ask whether TOLA had anything to extend. For the Revenue it removes the possibility of stacking the two extensions, which in this batch was the difference between nine assessments standing and none of them surviving.