Case Law Details
PCIT Vs Sanjay Jain (Delhi High Court)
The Delhi High Court dealt with multiple appeals filed by the Revenue challenging a common order of the Income Tax Appellate Tribunal for Assessment Years (AYs) 2011-12 to 2017-18. The Tribunal had held that the assessment orders were barred by limitation. Before examining the merits, the Court condoned a delay of 36 days in filing the appeals and allowed the related applications.
The factual background showed that a search was conducted on 27.02.2017 at the premises of the AMQ Group, and proceedings were initiated against the assessee based on material found during the search. As the case arose from a search, the statutory limitation for passing the assessment orders was 31.12.2018. Prior to this date, on 04.12.2018, the Assessing Officer (AO) made a reference to the Foreign Tax and Tax Research Division (FT&TR) seeking information from Hong Kong authorities. It was undisputed that no information was ever received from Hong Kong.
Relying on the FT&TR reference, the Revenue claimed that the limitation period stood extended up to 31.12.2019 under clause (ix) of the Explanation to section 153B of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) later affirmed the additions made by the AO. However, the Tribunal allowed the assessee’s appeal, following an earlier Delhi High Court judgment which held that an invalid reference for foreign information could not extend the limitation period.
The Revenue argued before the High Court that the Tribunal wrongly relied on the earlier decision, as that case concerned the India-Switzerland treaty, which restricted exchange of prior-period information, whereas the India-Hong Kong treaty expressly allowed exchange of information preceding the treaty’s effective date. The Court undertook a comparative analysis of the two treaties and noted that although the Hong Kong protocol permitted disclosure of prior information, such disclosure was limited to information relevant for a fiscal year or taxable event occurring after the treaty came into force on 30.11.2018.
Applying this interpretation, the Court held that information could only be sought for later fiscal years and not for AY 2017-18. Consequently, the reference made by the AO to FT&TR for the relevant year was impermissible. As a result, the Revenue could not avail the extended limitation period under section 153B. Even though the reasoning differed from that of the Tribunal, the Court upheld the conclusion and dismissed the appeals.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Allowed, subject to all just exceptions.
2. Applications stand disposed of.
CM APPL. 4369/2026(delay in filing the appeal) in ITA 38/2026
CM APPL. 4393/2026(delay in filing the appeal) in ITA 41/2026
CM APPL. 4502/2026(delay in filing the appeal) in ITA 43/2026
CM APPL. 4178/2026(delay in filing the appeal) in ITA 34/2026
CM APPL. 4254/2026(delay in filing the appeal) in ITA 36/2026
CM APPL. 4257/2026(delay in filing the appeal) in ITA 37/2026
3. The instant applications have been filed seeking condonation of delay of 36 days in filing the appeal(s).
4. For the reasons stated in the applications, the delay of 36 days in filing the appeal(s) is condoned.
5. All the above applications stand allowed.
ITA 38/2026, ITA 41/2026, ITA 43/2026, ITA 34/2026, ITA 36/2026, ITA 37/2026
6. By way of the instant appeals, the revenue has assailed the common order passed by the Income Tax Appellate Tribunal (hereinafter referred to as „the Tribunal‟) for AY 2011-12 to 2017-18, whereby the assessment orders have been held barred by limitation.
7. Before adverting to question involved in these appeals, it will be apposite to give factual backdrop in brief, which unfolds as under :-
7.1 A search was conducted at the premises of an entity known as AMQ group on 27.02.2017. On the basis of material found during said search, the proceedings were taken against the respondent as well.
7.2 The prescribed period of limitation for passing the assessment order (as the case related to search) was 31.12.2018; however, before such date, on 04.12.2018 the AO made a reference to Foreign Tax and Tax Research Division (hereinafter referred to as “FT&TR”).
7.3 It is not in dispute that the authorities at Hong Kong never provided the desired information to the Assessing Officer (AO).
7.4 Consequent to reference made to FT&TR, the limitation for passing the assessment order got extended up to 31.12.2019 by virtue of clause (ix) of the explanation to Section 153(B) of the Income Tax Act, 1961 (hereinafter referred to as „the Act of 1961‟).
7.5 The Commissioner of Income Tax (Appeals) affirmed the addition made by the AO by way of his order dated 30.01.2024.
8. When the matter was taken to the Tribunal in an appeal filed by the assessee, the Tribunal relied upon the judgment of this Court dated 13.05.2025 rendered in the case of Principal Commissioner of Income Tax-Central-1 v. Smt. Sneh Lata Sawhney and Ors. 2025:DHC:3617-DB and allowed the appeal filed by the respondent-assessee.
9. Mr. Puneet Rai, learned Senior Standing Counsel for the appellant, argued that the Tribunal has seriously erred in relying upon the judgment of this Court in the case of Sneh Lata Sawhney (supra), without taking into account the major distinction in the facts inasmuch as in the case of Sneh Lata Sawhney (supra), the treaty in question was one entered into between India and Swiss Federal Council, which contained a specific provision denying the prior period information, whereas the terms of the Hong Kong treaty were not the same.
10. While informing that according to Article 14 (paragraph 3) of the protocol, the information by any contracting country could be asked, he argued that the protocol between India and Swiss Federal Council specifically provided that the same shall apply from the first day of January of the year following the date of the signature of the Amending Protocol. And therefore, the High Court held that since the information sought in the case of Sneh Lata Sawhney (supra) related to a period prior to the date of said protocol, reference itself was invalid.
11. He argued that it was in such circumstances that the High Court took a view that the reference was invalid and the Department could not get the benefit of the extended period of limitation, as per Clause (ix) of the explanation to Section 153(B) of the Act of 1961.
12. He pointed out that the transactions in the case of Sneh Lata Sawhney (supra) related to the date prior to the date of amendment brought in the protocol appended with the agreement between the Government of the Republic of India and the Government of the Swiss Federal Council for the avoidance of double taxation, which was amended w.e.f. 30.08.2010. And then, submitted that as against this, if the protocol of Agreement for exchange of the information with respect to taxes with Foreign Countries Hong Kong (hereinafter referred to as „treaty between India and Hong Kong‟) applicable to its Article 26 is taken into account, para 5 thereof clearly shows that any of the contracting party shall be entitled to seek information that precedes the date on which the treaty between India and Hong Kong was executed.
13. He vehemently argued that since the treaty between India and Hong Kong came into force on 30.11.2018, the appeals filed by the assessee could not have been allowed, as Clause 5 of the Protocol provides for exchange of information that precedes the date of effectiveness of the treaty.
14. We have heard learned counsel for the appellant and perused the material on record. At the first look, it may appear that the Tribunal was not justified in allowing the appeals simply following the judgment of this Court in the case of Sneh Lata Sawhney (supra), as the treaties in question are different and also because the Tribunal has not considered the provisions of the treaty between India and Hong Kong, which were substantially different.
15. Be that as it may. We have examined and delved into the relevant provisions of the protocol between two countries, namely Swiss Confederation vis-a-vis the treaty with Hong Kong. It will not be out of place to reproduce the corresponding and relevant part of both the treaties, for ready reference and comparative analysis.
16. So far as the relevant part of the protocol between India and Swizerland is concerned, Article 14 thereof is relevant, for which purpose it is reproduced as under:-
“Notwithstanding paragraph 2 of this Article, with respect to Article 26 of the Agreement, the exchange of information provided for in this Amending Protocol will be applicable for information that relates to any fiscal year beginning on or after the first day of January of the year next following the date of signature of this Amending Protocol.”
(emphasis supplied)
17. In contrast to the aforesaid protocol to Article 26 particularly para no.5 of the treaty between India and Hong Kong, is reproduced hereunder:-
“With reference to Article 26 (Exchange of Information) of the Agreement, it is understood that:
(a) Information exchanged shall not be disclosed to any third jurisdiction.
(b) The competent authority of India may disclose information to:
(i) Parliamentary Committees;
(ii) Special Investigation Team (SIT) constituted by Government; and
(iii) Any other oversight bodies mutually agreed upon in writing.
(c) The requested Contracting Party shall disclose any information that precedes the date on which the Agreement has effect for the taxes covered by the Agreement, insofar the information is foreseeably relevant for a fiscal year or taxable event following that date.
(d) in addition to the taxes covered by the Agreement, the provisions of this Article also apply to the following taxes that are administrated and enforced in India:
(i) the wealth tax;
(ii) the excise and customs duties;
(iii) the goods and services tax (GST); and
(iv) the sales and value added taxes.”
(emphasis supplied)
18. A close and comparative reading of the relevant parts, which have been bolded by us, reveals that the treaty between India and Swiss Confederation, provides that the protocol will be applicable for information that relates to any fiscal year beginning on or after the first day of January of the year next following the date of its signature.
19. The expression therefore, means that the Article 26 of Treaty of India and Swiss Confederation would apply to any information relatable to the fiscal year, after 01.01.2011 (date of amendment being 30.08.2010) meaning thereby 01.04.2011.
20. Whereas clause 5(c) of the Protocol applicable to Article 26 of the treaty between India and Hong Kong if interpreted, clearly suggests that it provides for disclosure of information that precedes the date on which the agreement was signed, but such clause is qualified by the expression that the information should be relevant for a fiscal year or taxable event following that date.
21. In other words, Clause 5(c) of the Protocol to Article 26 of the treaty between India and Hong Kong, which came into force on 30.11.2018 provides that the information can be provided for a fiscal year or taxable event falling after such date. Hence, the information can be elicited for a transaction having taxable event after 01.04.2019 or at best after 30.11.2018.
22. Needless to observe that in the case of tax under the Income Tax Act, the taxable event is the first day of the assessment year or in other words first date following the end of financial year.
23. If the aforesaid Clause 5(c) of Article 26 of the treaty between India and Hong Kong is taken into account, it clearly postulates that the Income Tax Department can elicit any information relevant to Financial Year 201920 or for the Assessment Year 2020-21 in respect of the transaction taking place after 01.04.2019 or a transaction qua which the taxable event is 01.12.2018
24. As an upshot of the discussion foregoing, we are of the considered view that the AO could not demand any information for the Assessment Year 2017-18.
25. Hence, may be for different reason that has been recorded by the Tribunal, the reference made to FT&TR was improper and impermissible in the eye of law. Therefore, the AO cannot get the advantage of extension of limitation period by a year, as provided in clause (ix) of the explanation to Section 153(B) of the Act of 1961.
26. To this limited extent only, the judgment of this Court rendered in the case of Sneh Lata Sawhney (supra) is relevant regardless of the covenants.
27. The appeals, therefore, fail. All pending applications also stand disposed of.
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