The Delhi High Court will soon to decide whether the tax department can retrospectively reopen old tax notices involving foreign assets—even if those notices were time-barred under earlier rules.
A division bench led by Justices Vibhu Bakhru and Tejas Karia was hearing a batch of petitions on 30 May – filed by companies such as UK Paints (Overseas) Ltd, BJN Holdings (India) Ltd, and KS Dhingra – challenging these reassessment notices under Section 148 of the Income Tax Act. It referred the matter to a larger bench for a final decision. The notices were issued between 2014 and 2021, covering assessment years that stretch back decades.
2012 amendment extended reassessment period
At the centre of the case is a 2012 amendment to the Income Tax Act that extended the reassessment period from six years to 16 years for cases involving foreign assets. After the amendment, which was aimed at tackling black money and undisclosed foreign assets, the department started issuing reassessment notices for older cases, some dating back to 1997.
Taxpayers challenged these notices in court, leading to conflicting legal interpretations. For example, in the Brahm Datt case (Delhi High Court, 2018) the court ruled that the extended time limit couldn’t apply to cases that were already closed under the earlier six-year rule.
However, in the latest hearing, the Delhi High Court observed, “The view expressed in Brahm Datt may require reconsideration by a larger bench,” and referred the matter to a larger bench.
What experts say
Taxation experts said that if the court allowed retrospective application, the tax department could reopen cases against high-net-worth individuals, business promoters and professionals, imposing significant compliance burdens. Some notices may date as far back as 1996, making it difficult for taxpayers to gather and produce old documents to defend themselves.
“A judgement favouring the tax department could unnecessarily trigger a significant wave of reassessment notices, especially targeting high-net-worth individuals, business promoters and professionals with offshore holdings or trusts,” an tax expert said.
“If empowered by the extended limitation period with judicial backing, the department may feel emboldened to reopen cases as far back as 1996-97, which will certainly be very unproductive,” he added.
Another tax expert, said, “If the larger bench rules in favour of the tax department, taxpayers’ biggest hurdle will be contesting these cases on their merits and gathering the necessary documents—which could be especially difficult given the time that’s passed — more than 15 years in some cases.”
Voluntary disclosure schemes could be affected
Taxation lawyers also warned that a ruling in favour of retrospective reopening could undermine the credibility of voluntary disclosure schemes for foreign assets, such as the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
These schemes were designed to encourage taxpayers to come clean without fear of prosecution. A retrospective reopening could discourage participation in future initiatives.
“A decision allowing retrospective reopening may undermine the credibility of voluntary disclosure schemes such as the one provided by the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015,” another tax expert said.
“Taxpayers use such schemes to regularise past non-disclosures with immunity from prosecution. If old assessments are reopened despite such schemes, it might deter future participation in similar initiatives,” he added.
