A search operation was carried out on 27.02.2017 at the business premises of the AMQ group, which led the department to trigger consequential assessment proceedings against the assessee. Under the search assessment guidelines, the initial limitation period to conclude and pass the final order was at 31.12.2018. Right before the 04.12.2018, the Assessing Officer made a formal reference to the Foreign Tax and Tax Research (FT&TR) Division to gather financial information from the revenue authorities in Hong Kong. Although the Hong Kong administration never ended up sharing any information, the Assessing Officer passed the orders under the impression that the reference successfully pushed the limitation date to 31.12.2019 by virtue of clause (ix) of the Explanation to section 153B. The Tribunal nullified the assessments as time-barred.

Dismissing the revenue’s appeal, the High Court delved into paragraph 5(c) of the Protocol to Article 26 of the India-Hong Kong DTAA, noting that the treaty explicitly restricts the disclosure of past information unless it is foreseeably relevant to a fiscal year or a taxable event falling after the effective execution date of the agreement (30.11.2018). Because a taxable event under the Income-tax Act, 1961 only materializes following the conclusion of a financial year, the department could only validly evoke the treaty to extract information concerning transactions from the financial year 2019-20 (Assessment Year 2020-21) onwards. As the Assessing Officer possessed no legal authority under the protocol to request past transactional data for the Assessment Year 2017-18 or earlier, the entire foreign reference was legally improper and invalid. Consequently, the revenue could not claim the benefit of the one-year limitation extension under section 153B, rendering the final assessment orders completely void by time-barred. (AY. 2011-12 to 2017-18)