On 23 September, the Madras High Court held that the period during which assessment proceedings remain stayed by a court must be excluded while computing the limitation period before determining whether an extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) is available.

A Division Bench comprising Chief Justice Sushrut Arvind Dharmadhikari and Justice G. Arul Murugan held that the limitation period under Section 153B of the Income Tax Act has to be computed by applying the statutory exclusions first, before examining whether the resulting date falls within the extended period under TOLA. The Judges observed:

“In our considered view, if, as the Revenue has suggested, the Explanation-exclusion is instead to be tacked on after a wholly separate and prior TOLA-extension has already operated upon the unexplained “main” date, the provisions of Section 153B of the Act would be rendered wholly unworkable…”

The appeals arose from a common order concerning assessment proceedings following a search at the premises of Agni Estates and Foundations Pvt. Ltd. on 5 July 2018. Notices were issued for Assessment Years 2011-12 to 2019-20, followed by assessment orders dated 28 and 29 January 2022.

Agni Estates challenged the assessments as being barred by limitation. The Single Judge held that the assessments for AYs 2011-12, 2012-13 and 2019-20 were time-barred, while upholding those for AYs 2013-14 to 2018-19.

The Division Bench examined the computation of limitation under Section 153B and the effect of the extension provided under TOLA. It held that the Explanation to Section 153B, which excludes the period during which assessment proceedings remain stayed by a court, forms part of the limitation provision itself. Therefore, the stay period has to be excluded while arriving at the limitation date, before that date is tested against the TOLA extension.

Relying on the Supreme Court's decisions in Plantation Corporation of Kerala Ltd. and K.P. Madhusudhanan v. CIT, the Bench held that an Explanation forming part of a statutory provision must be read as part of that provision. It also relied on its earlier decisions in Pfizer Healthcare India (P.) Ltd. v. DCIT and DCIT v. Saint Gobain India (P.) Ltd., which dealt with computation of limitation under Section 153 read with its Explanation. 

In the present case, the original limitation date was 30 September 2020. After excluding the period of stay, the limitation date worked out to 7 May 2021, or, at the outer limit, 19 August 2021. Both dates fell beyond the TOLA window, which had been extended up to 31 March 2021. Therefore, the Court held that TOLA could not extend the limitation period for the assessments. It observed:

“...on the facts of the present case, the composite, Explanation-adjusted date for completion of assessment falls, on any permissible computation, outside the window prescribed under TOLA; that TOLA is consequently unavailable to extend the period of limitation for any of the nine assessment years in question; and that the assessment orders dated 28.01.2022/29.01.2022, having been passed well beyond the properly computed date of limitation for each of those years, are barred by limitation in their entirety”.

For AYs 2011-12, 2012-13 and 2019-20, the Bench confirmed the Single Judge's finding that the assessments were time-barred. It reversed the finding for AYs 2013-14 to 2018-19 and held that those assessments were also barred by limitation.

Accordingly, the High Court dismissed the Revenue's appeals and allowed Agni Estates' appeals. It quashed the assessment orders, consequential penalty orders and demand notices for all nine assessment years as barred by limitation.

For Appellant: Mr. Arvind Datar, Senior Counsel, instructed by M/s. M.V. Swaroop, Rajagopalan R. and Ms. Dwadarshini, Advocates 

For Respondent: Mr. A.R.L. Sundaresan, Additional Solicitor General, assisted by Mr. A.P. Srinivas, Senior Standing Counsel, and Mr. A.N.R. Jayapratap, Junior Standing Counsel

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Case Title :  Agni Estates and Foundations Pvt. Ltd. v. The Deputy Commissioner of Income TaxCase Number :  W.A.Nos.3427 of 2024CITATION :  2026 LLBiz HC(MAD) 275
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