Reopening of Assessments Post-Search: Gujarat High Court Clarifies 10-Year Limitation Block

Background of the Dispute

In Dilipbhai Prabhudas Patel Vs DCIT, the Gujarat High Court examined whether reassessment proceedings initiated under Section 148 for Assessment Year 2014-15 were barred by limitation when triggered by a search under Section 132.

The assessee belonged to the PSY Group, which is involved in real estate activities. A search under Section 132 was conducted on 08.02.2024, falling within Financial Year 2023-24, i.e., relevant to Assessment Year 2024-25.

Pursuant to this search, the Department issued notices dated 26.03.2025 under Section 148 to reopen the assessments for Assessment Year 2014-15. The assessee challenged these notices before the High Court by filing writ petitions under Article 226 of the Constitution of India, primarily contending that the reassessment was time-barred.

The core controversy was:

When a search is conducted, does the search assessment year form part of the 10-year block for search-related reassessment under Section 153A read with Section 149 and Section 153C, or must it be excluded as is done for the 6-year block?

The answer to this question determined whether Assessment Year 2014-15 was within or beyond the permissible 10-year period.

Facts Relevant to Limitation

Basic Factual Matrix

  • The assessee is an individual who filed a return for Assessment Year 2014-15 on 31.07.2014, declaring income of Rs. 6,89,070/-.
  • The assessee was part of the PSY Group, which, along with connected entities in Gandhinagar, faced a search action under Section 132 on 08.02.2024.
  • The Deputy Commissioner of Income Tax, Central Circle 2(2), Ahmedabad, issued a notice on 26.03.2025 under Section 148 seeking to reopen the assessment for Assessment Year 2014-15.
  • The notice stated that:
    • A search under Section 132 had been conducted in the case of the PSY Group and associated parties.
    • Books and documents seized during the search in the PSY Group cases were found to pertain to, or contain information relating to, the assessee.
    • Satisfaction had been recorded with approval of the Principal Commissioner or Commissioner and prior approval of the Directorate General of Income Tax (Investigation), Ahmedabad, was obtained before issuing the Section 148 notice.

The assessee’s challenge centred on the period of limitation available for reopening in a search-based scenario, particularly the interpretation of the 10-year block under Section 153A and its Explanation 1.

Counsel for the assessee argued that the Section 148 notice was without jurisdiction as it was barred by limitation. The argument was built on the following statutory framework and interpretation:

Applicability of Old Reassessment Provisions

  • The search was conducted on 08.02.2024, i.e., after 01.04.2021 but before 01.09.2024.
  • Under Section 152(3), where searches fall in this window, the provisions of Sections 147 to 151 as they stood immediately before the commencement of Finance (No. 2) Act, 2024, continue to apply.
  • Consequently, the older version of Section 149 governed the limitation for reassessment.

Six-Year and Ten-Year Framework

  1. **Six-year limitation under Section 149😗*

    • For ordinary reopening, notice under Section 148 can generally be issued up to six years from the end of the relevant assessment year (as per the then applicable law, subject to specified thresholds).

  2. Ten-year block under Section 153A and Explanation 1:

    • Under Section 153A(1)(b), the Assessing Officer can assess or reassess:
      • Six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted, and
      • The “relevant assessment years” as defined in Explanation 1 (forming an extended 10-year block, when certain conditions, including escapement of income of Rs. 50 lakhs or more, are satisfied).

  3. **Meaning of “relevant assessment year” in Explanation 1 to Section 153A😗*

    • Assessee’s counsel stressed that Explanation 1 provides that:
      • The “relevant assessment year” is an assessment year preceding the assessment year relevant to the previous year in which the search is conducted which is beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year in which search is conducted.

Inclusion of the Search Year in the 10-Year Block