Search Year Included In Extended 10-Year Limit For Reopening Income Tax Assessments: Gujarat High Court

The Gujarat High Court has recently held that while computing the extended ten-year period for reopening income tax assessments following a search, the assessment year in which the search was conducted must be included in the reckoning.

The bench stated that "..... the assessment year relevant to the previous year of search becomes the reference year and the ten-year period is counted from the end of that assessment year. This necessarily includes the search assessment year within the ten-year framework and resultantly, the search year becomes the first year in the reckoning of the ten-year block."

The Division Bench of Justice A.S. Supehia and Justice Pranav Trivedi quashed the notice issued for Assessment Year 2014‑15 to Purvibhavin Shah, a key partner of PSY Group, stating that it fell outside the permissible ten-year period.

The petitioner's case arose after the Income Tax Department carried out a search under Section 132 of the Income Tax Act on 8 February 2024 in the PSY Group and its associated entities.

Subsequently, the Department issued a notice on 27 March 2025 to reopen the petitioner's assessment for AY 2014‑15. The petitioner challenged the notice, arguing that the reopening was barred by limitation.

According to the petitioner, under the provisions applicable to search cases, the ten-year period for reassessment should be counted from the end of the assessment year corresponding to the year of the search. In this method of computation, AY 2015‑16 would be the last year included, rendering AY 2014‑15 outside the ten-year window.

The Revenue, however, argued that the calculation should exclude the search year and that prior years could be included, relying on a different interpretation of the ten-year limit. They contended that the law intended a broader reach and that the notice for AY 2014‑15 was therefore valid.

The Court emphasised that the law distinguishes between regular six-year reassessment periods and extended ten-year periods. For the six-year block, the year of the search is excluded, but for the ten-year block, the assessment year relevant to the search must form the starting point and be included in the backward reckoning. Applying this principle, the Court observed that AY 2014‑15 fell beyond the ten-year limit.

The court explained that when calculating a six-year period for reassessment, only the six years before the year of the search are counted, so the search year itself is not included. But for the extended ten-year period, the calculation starts from the year of the search itself and goes backward for ten years. This means the search year is included as the first year of the ten-year period. Applying this, the Assessment Year 2014‑15 fell outside the ten-year limit and could not be reopened.

The bench stated that "Under Section 153A(1)(b) of the Act, the anchor point is “the assessment year relevant to the previous year in which search is conducted”. Therefore, six years must be “immediately preceding” that assessment year. The phrase “immediately preceding” necessarily excludes the search assessment year itself. In contrast thereto, Explanation 1 introduces a materially different formulation: “not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted”. This computation mechanism does not use the phrase “immediately preceding” but instead, requires reckoning from the end of the assessment year relevant to the previous year of search."

The bench concluded that Section 153A of the Act prescribes two distinct and independent computational regimes. The six assessment years are those “immediately preceding” the assessment year relevant to the previous year of search, thereby excluding the search year whereas the ten assessment years under Explanation 1 are to be computed “from the end of the assessment year” relevant to the previous year of search.

The bench stated that "Any interpretation that applies the sixyear exclusion model, if made applicable to the ten-year block, would defeat the legislative scheme and render material words redundant. Accordingly, while computing the extended ten-year period under Explanation 1 to Section 153A read with Section 153C of the Act, the assessment year relevant to the previous year of search is to be included in the reckoning."

The bench held that the Income Tax Department cannot reopen assessments beyond the ten-year limit computed from the assessment year relevant to the previous year in which the search was conducted, and therefore, the notice for AY 2014‑15 was quashed.

For Petitioner: Advocate, Jaimin A Gandhi

For Respondent: Advocate, Maithili D Mehta