Invalid Swiss Tax Reference Can't Extend Limitation For Tax Assessment: Delhi High Court Dismisses Income Tax Dept's Appeal
The Delhi High Court has dismissed the Income Tax Department's appeal against an ITAT order quashing a search assessment for AY 2006-07 on the ground of limitation, in light of its earlier judgment in Principal Commissioner of Income Tax, Central-1, Delhi v. Sanjay Jain which held time limit for completing search assessments cannot be extended merely by making a reference to a foreign tax authority if the information sought is not permissible under the applicable tax treaty.
The case before the Division Bench of Justices Dinesh Mehta and Rajneesh Kumar Gupta concerned an assessment framed against Respondent after a search at her residential premises in August 2011.
The Income Tax Department had alleged that she maintained a bank account with HSBC, Geneva, Switzerland and made an addition of ₹1.59 crore to her income on the basis of information concerning the account.
Before ITAT, Respondent had challenged the assessment as being barred by limitation.
The Revenue contended that the limitation period stood extended by one year under Explanation (ix) to Section 153B of the Income Tax Act since a reference had been made to the Swiss tax authorities seeking information under the India-Switzerland Double Taxation Avoidance Agreement (DTAA).
ITAT, however, found that the reference made by the Department was itself invalid insofar as it sought information for the period April 1, 1995 to March 31, 2012.
It noted that the amended Article 26 of the India-Switzerland DTAA, pursuant to the 2011 Protocol, permitted exchange of information only in respect of information relating to fiscal years beginning on or after April 1, 2011. The Department's reference, however, sought information covering a much wider period beginning April 1, 1995.
The Tribunal further noted that even by the time it heard the appeal in 2023, the Revenue had not received information from the Swiss authorities concerning the transactions predating April 1, 2011. It held that the Revenue could not rely upon such an invalid reference to claim an extension of the limitation period.
Challenging the ITAT's order, the Income Tax Department approached the High Court under Section 260A of the Income Tax Act.
During the hearing, Narang's counsel submitted that the Revenue's appeal was liable to be dismissed in view of the High Court's subsequent judgment in Sanjay Jain.
The Revenue's counsel was unable to controvert this position.
As such, the High Court dismissed the appeal.
For Appellant: Siddhartha Sinha, Senior Standing Counsel.
For Respondent: Senior Advocate Rakesh Gupta with Advocates Somil Agarwal and Dushyant Agrawal.