The Bombay High Court has quashed a second special audit ordered by the Income Tax Department against assessee Sanjay Nathalal Shah, ruling that the assessment had become time-barred because the department delayed acting on a digitally signed copy of an earlier court order. The Division Bench of Justices B.P. Colabawalla and Farhan P. Dubash held that the limitation period for completing the assessment began running as soon as the digitally signed order was received by the tax authorities, not when a certified copy was formally obtained.

The case arose after the High Court quashed the first special audit directed against Shah on January 8, 2026, on the ground that it was based on invalid prior approval. Following that quashing, the department issued a fresh special audit direction on March 25, 2026. Shah promptly challenged the new order, arguing that the statutory time limit for completing his assessment had already expired by that date.

The central dispute turned on the date from which the department had to compute the limitation period under clause (iv) of Explanation 1 to Section 153 of the Income-tax Act, 1961. That provision excludes the time taken for challenging a special audit direction before a court, and refers to the date on which the order setting aside the audit direction is “received by the Principal Commissioner or Commissioner.” Unlike a separate provision dealing with the vacation of a stay on assessment proceedings, clause (iv) does not specifically require receipt of a certified copy.

Shah’s counsel shared the digitally signed copy of the January 8 order with the Deputy Commissioner of Income Tax through WhatsApp on January 10, 2026. Separately, the ITO (Judicial) emailed the same digitally signed order to the Principal Commissioner on January 12, 2026. The department, however, argued that the limitation period should be calculated from February 4, 2026, when the Principal Commissioner received the certified copy.

The court rejected that position in strong terms. “In this era of electronic filing and electronic uploading, and in order to alleviate difficulties of the litigants before us, this is a practice which this Court has adopted,” the bench observed. “Instead of asking a litigant to apply for a certified copy of the order on payment of fees, a digitally signed copy of the order can be produced before a party, and such order has to be acted upon.”

Why the Department Could Not Wait for a Certified Copy

The High Court examined the language of clause (iv) of Explanation 1 and noted that it does not mandate a certified copy. “Thus, there was no need for the Department to wait for a certified copy of the order to be presented to the Principal Commissioner for the computation of the period of limitation to commence,” the judges said. The court also relied on CBDT Instruction No. 2/2022, which requires the department to promptly circulate High Court orders and download them as soon as they are uploaded on the court’s website.

Because the digitally signed order had reached the tax authorities in January 2026, the court ruled that February 4, 2026 could not be treated as the date of receipt for limitation purposes. The assessment therefore became time-barred by March 13, 2026 at the latest—well before the department issued the second special audit on March 25.

Practical Impact: Returned Income Accepted

Having found that the March 25 special audit direction was issued after the limitation period had expired, the court quashed not only that direction but also any consequential report. Citing the Supreme Court’s decision in CIT v. Shelly Products (2003), the High Court held that in such circumstances, the returned income filed by the assessee is deemed to have been accepted.

The ruling sends a clear message to the Income Tax Department: in an era where digitally signed orders are routinely uploaded and shared electronically, authorities cannot insist on certified copies before acting on court directions. The department’s own internal instructions already mandate prompt downloading and circulation, and the High Court has now reinforced that obligation with a firm judicial interpretation of the limitation provisions.

For the assessee, Sanjay Nathalal Shah, the judgment brings an end to a protracted assessment process that had already seen one special audit quashed. The department’s delay in accepting the digitally signed order proved fatal to its ability to complete the assessment within the statutory timeframe.

The case was argued for the petitioner by Advocate Dharan V. Gandhi, along with Advocate Vinita Nara, while the Income Tax Department was represented by Advocate Swapna Gokhale. The bench did not award costs, but the decision provides important guidance on the interplay between digital court orders and limitation periods under the Income-tax Act.

Going forward, tax officers across the country will need to recalibrate their internal processes to treat digitally signed High Court orders as immediately actionable, without waiting for formal certified copies. The Bombay High Court’s reasoning may also influence other high courts and tribunals grappling with similar procedural disputes in the digital age.