One of the most misunderstood areas in tax litigation is the impact of an appeal on limitation. Many taxpayers — and sometimes even officers — assume that once a matter travels to the ITAT, the assessment clock somehow pauses. Unfortunately, the Income-tax Act does not work on assumptions. Limitation is governed strictly by statute, not by litigation mood.

A recent practical situation illustrates this perfectly. The CIT(A) set aside an assessment and restored the issue to the Assessing Officer for fresh adjudication. The Department, unhappy with the set-aside, filed an appeal before the ITAT claiming the order itself was erroneous. Meanwhile, the fresh assessment was pending and the time-barring date was approaching — 31 March 2026. The natural question arises: does the pendency of the departmental appeal automatically extend the limitation period for the fresh order?

The short answer is: No. Filing of an appeal before the ITAT does not automatically extend the time limit for completing assessment.

To understand why, one has to look at how the Act structures limitation after appellate orders.

When an assessment is set aside or restored by the CIT(A), the limitation for passing a fresh order is governed by Section 153(3) read with Section 153(5). These provisions clearly state that the Assessing Officer must pass the fresh order within twelve months from the end of the financial year in which the appellate order is received by the Department. This is a statutory clock. Once it starts, it runs unless specifically stopped by law.

The crucial point is this: the CIT(A) order remains operative and binding unless stayed or reversed by a higher authority. Merely filing an appeal before the ITAT does not suspend the operation of the CIT(A) order. The Act nowhere says that limitation stops simply because an appeal is pending. Courts have consistently held that unless there is a stay of the appellate order, the Assessing Officer must proceed and complete the assessment within the prescribed time.

This principle flows from a basic legal rule — an order continues to operate unless stayed. Litigation does not freeze statutory timelines. If limitation could be extended merely by filing appeals, there would be no certainty in tax proceedings.

There are, however, a few situations where the limitation may legitimately extend.

First, if the ITAT grants a stay on the operation of the CIT(A) order, then the Assessing Officer cannot proceed with the fresh assessment. In such cases, the period during which the stay operates may be excluded while computing limitation. This is not automatic; it depends on the actual stay order and the facts of the case.

Second, if the ITAT reverses the CIT(A) order before the time-barring date expires, then the nature of proceedings changes. A fresh limitation may begin from the date of the ITAT’s order, depending on what directions the Tribunal gives. But this again requires an actual order, not merely a pending appeal.

Third, limitation may extend if any specific exclusion applies under the Explanation to Section 153. For example, periods covered by court stays, special audits, valuation references, or certain statutory processes may be excluded. These are clearly defined situations. Pendency of an appeal by itself is not one of them.

This distinction is extremely important in practice. If the Assessing Officer waits for the ITAT’s decision and does not complete the assessment within the time limit, the proceedings can become time-barred. Once limitation expires, jurisdiction itself collapses. Even if the ITAT later rules in favour of the Department, it may be too late to pass a valid order.

That is why, in real-life litigation, departments often adopt protective strategies. They may rush to complete the fresh assessment before the time-barring date, or they may seek an early hearing or stay from the Tribunal. Experienced tax officers know that limitation is unforgiving. It does not wait for appeals to conclude.

For taxpayers, this issue can be a powerful defence. If an order is passed after limitation merely because the Department was waiting for the ITAT, such an order can be challenged as void. Courts have repeatedly emphasised that limitation provisions must be strictly followed and cannot be relaxed on administrative convenience.

The takeaway is simple but critical. An appeal does not stop the clock. Only a legal stay or statutory exclusion can do that. Whenever a case is set aside and fresh proceedings are pending, both taxpayers and professionals should track the limitation date carefully. Many disputes are won not on merits but on jurisdictional lapses.

In tax litigation, dates are often more decisive than arguments. And as this situation shows, sometimes the calendar decides the case before the Tribunal does.