Notice under Section 148 held invalid as time-barred; fresh reassessment beyond surviving time under TOLA and Ashish Agarwal

HC held the impugned notice u/s 148 for AY 2016-17 invalid and time-barred. The AO had issued the original notice within the extended period under TOLA, which, in view of the SC ruling in Ashish Agarwal, was to be treated as a notice u/s 148A(b) under the new regime effective 01.04.2021. Applying the subsequent SC judgment in Rajeev Bansal, HC held that the fresh notice dated 18.07.2022 was issued beyond the "surviving time" available up to 17.06.2022 and was therefore without jurisdiction.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reassessment notice issued under section 148 of the Income Tax Act, 1961 on 18.07.2022, pursuant to earlier notices covered by TOLA and the directions in Ashish Agarwal, was barred by limitation in view of the "surviving time" doctrine laid down in Rajeev Bansal.

1.2 Consequentially, whether the order passed under section 148A(d) and subsequent proceedings based on the time-barred notice under section 148 could be sustained.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and limitation of notice under section 148 issued on 18.07.2022 in light of TOLA, Ashish Agarwal and Rajeev Bansal

Legal framework

2.1 The earlier notice under section 148 dated 29.06.2021 was issued during the extended time period under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 ("TOLA").

2.2 Pursuant to the decision in Ashish Agarwal, such notices issued between 01.04.2021 and 30.06.2021 under the old regime are to be treated as notices under section 148A(b) of the new regime.

2.3 The decision in Rajeev Bansal lays down that validity of subsequent reassessment notices under section 148 (new regime) depends on the "surviving time" of limitation under the Income-tax Act read with TOLA, and that such notices must be issued within that surviving period; notices issued beyond the surviving period are time-barred and liable to be set aside.

2.4 A co-ordinate bench, in Dhanraj Govindram Kella, applied Rajeev Bansal and held that for notices issued under the old regime between 01.04.2021 and 30.06.2021 (treated as section 148A(b) notices), the subsequent section 148 notice under the new regime must be issued within the surviving period of limitation computed as per TOLA and Rajeev Bansal, failing which it is invalid.

Interpretation and reasoning

2.5 The Court adopted the methodology in Dhanraj Govindram Kella to compute "surviving time" for each case, based on: (i) date of original notice under section 148 issued under TOLA; (ii) the remaining limitation ("surviving time") as on 30.06.2021; (iii) date of providing information under section 148A(b); (iv) time allowed to the assessee for reply; and (v) date of order under section 148A(d) and subsequent notice under section 148 (new regime).

2.6 In the present matter, for Assessment Year 2016-2017, the original notice under section 148 was issued on 29.06.2021 under TOLA, and the information pursuant to Ashish Agarwal was provided on 27.05.2022. Considering the two-week period allowed to the assessee to respond, the due date for reply was 10.06.2022; the assessee replied on 01.06.2022.

2.7 Applying Ashish Agarwal and Rajeev Bansal, and computing limitation from the date of issuance of the original notice under section 148 (read with TOLA) up to 30.06.2021 and thereafter, the Court held that the last permissible date ("surviving time") for issuance of notice under section 148 (new regime) was 17.06.2022.

2.8 The order under section 148A(d) was passed on 15.07.2022 and the impugned notice under section 148 was issued on 18.07.2022, both after 17.06.2022. The dates were verified by the Revenue and not controverted.

2.9 Referring to paragraph 114(g) and (h) of Rajeev Bansal, the Court reiterated that: (i) the period between the deemed notice (01.04.2021-30.06.2021) and the supply of information plus the two weeks' response period is excluded; and (ii) reassessment notices under section 148 must be issued within the surviving period of limitation under the Act read with TOLA, failing which they are time-barred.

Conclusions

2.10 The reassessment notice under section 148 dated 18.07.2022 was issued beyond the surviving period of limitation, i.e., after 17.06.2022, and is therefore an invalid and time-barred notice in terms of Ashish Agarwal and Rajeev Bansal.

Issue 2: Validity of order under section 148A(d) and consequential proceedings

Interpretation and reasoning

2.11 As the foundational notice under section 148 (new regime) was held to be invalid and time-barred, any order passed under section 148A(d) predicated on such notice, and any subsequent proceedings, have no legal sustenance.

Conclusions

2.12 The order under section 148A(d) dated 15.07.2022 and the impugned notice under section 148 dated 18.07.2022 are quashed and set aside, and all consequential reassessment proceedings are also quashed and set aside.

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