Section 149’s savings proviso bars reopening beyond the ten-year Section 153A/153C limit, counting the search year.

A search under Section 132 of the Income Tax Act, 1961, was conducted in the Sambhaav Nila Group case during 2021.

Documents seized from a third party were said to record cash transactions involving the petitioner and to show escaped income of ₹2,83,41,000 for Assessment Year (AY) 2012–13.

Relying on that material, the respondent issued a notice under Section 148 on 31 March 2023.

The petitioner challenged the notice, principally contending that it was barred by limitation under the first proviso to Section 149(1).

Whether the notice under Section 148 for AY 2012–13 was barred by limitation under the first proviso to Section 149(1), having regard to the time limits in the pre-Finance Act, 2021 provisions of Sections 149, 153A and 153C.

Whether, for the ten-year period under Explanation 1 to Section 153A, the assessment year relevant to the previous year of search is included in the reckoning.

Section 149(1)(b), as substituted by the Finance Act, 2021, permits reopening beyond three years, but within ten years from the end of the relevant assessment year, where the statutory conditions concerning escaped income represented in an asset are met.

However, the first proviso to Section 149(1) bars a notice for an assessment year beginning on or before 1 April 2021 if, under the provisions as they stood immediately before the Finance Act, 2021, a notice under Section 148, 153A or 153C could not have been issued because the applicable time limit had expired.

Under the former Section 149(1)(b), the general limit was six years from the end of the relevant assessment year.

Sections 153A and 153C provide a search-related assessment framework; Section 153C applies the Section 153A framework to another person.

Explanation 1 to Section 153A defines the extended period by reference to assessment years falling “not later than ten assessment years from the end of” the search-year assessment year.

The Court followed West India Infratech (P.) Ltd. v. Assistant Commissioner of Income Tax and Jayantibhai Karamshibhai Maniya v. Income Tax Officer, holding that the search-year assessment year is included in that ten-year reckoning; it distinguished the “immediately preceding” wording used for the separate six-year block.

The Court held that the first proviso applied notwithstanding that the search occurred after 1 April 2021: it required the notice’s permissibility to be tested against the former limitation provisions, and the new Section 148 framework expressly contemplated material seized after that date.

The former six-year limit for AY 2012–13 had expired on 31 March 2019.

For the Section 153C inquiry, the Court counted AY 2022–23—the assessment year relevant to the search year—as year one under Explanation 1 to Section 153A; AY 2013–14 was therefore year ten, leaving AY 2012–13 outside the ten-year period.

The Court also found that using AY 2023–24 as the reference year, based on the year the seized material was received or satisfaction recorded, would not bring AY 2012–13 within the ten-year block.

It quashed and set aside the notice and all proceedings pursuant to it, allowed the petition, and made the rule absolute.