Reassessment notice under section 148 after 28.08.2022 held time-barred; reopening under section 147 quashed per TOLA

HC held the reassessment notice issued under section 148 on 30.08.2022 to be invalid and without jurisdiction. Applying the SC rulings interpreting the interaction between the old and new reassessment regimes and the scope of TOLA, the Court held that such notices could not be issued beyond the "surviving time," i.e., after 28.08.2022. Since the impugned notice was issued beyond this cut-off date, it was barred by limitation, rendering the reopening under section 147 unsustainable. The notice and all consequential proceedings were quashed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the notice issued under section 148 of the Income Tax Act, 1961 on 30.08.2022 for Assessment Year 2016-2017, pursuant to an earlier notice under section 148 issued during the TOLA extended period, is time barred and therefore invalid in light of the directions in the decisions in Ashish Agarwal and Rajeev Bansal and the computation of "surviving time" under TOLA.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Validity of reassessment notice under section 148 in view of TOLA, Ashish Agarwal, and Rajeev Bansal ("surviving time" test)

Legal framework

2.1.1 The Court referred to: (i) section 148 and section 148A(b), 148A(d) of the Income Tax Act, 1961; (ii) section 3(1) of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance/Act, 2020 (TOLA); (iii) the decision of the Supreme Court in Union of India v. Ashish Agarwal treating notices issued under section 148 during 01.04.2021-30.06.2021 as notices under section 148A(b) of the new regime; and (iv) the decision of the Supreme Court in Union of India v. Rajeev Bansal laying down that reassessment notices under the new regime must be issued within the "surviving time" under the Act read with TOLA, and that notices issued beyond such surviving period are time barred.

2.1.2 The Court relied on its own earlier judgment in Dhanraj Govindram Kella, which had applied Rajeev Bansal to hold that, for notices originally issued under the old regime between 01.04.2021 and 30.06.2021 under TOLA, the validity of subsequent notices under section 148 (new regime) depends on whether they were issued within the surviving limitation period, after excluding the period deemed stayed between the original notice and the supply of information plus the two weeks allowed to the assessee.

Interpretation and reasoning

2.1.3 The Court adopted the reasoning in Dhanraj Govindram Kella, which required case-wise computation of surviving time based on: (a) the date of the original notice under section 148 issued during the TOLA-extended period; (b) the last date of limitation as extended by TOLA up to 30.06.2021; (c) the period between issuance of the deemed notice (between 01.04.2021 and 30.06.2021) and the supply of information in terms of Ashish Agarwal, plus the two weeks allowed to the assessee to respond; and (d) the date of the subsequent order under section 148A(d) and reassessment notice under section 148 (new regime).

2.1.4 In the present case, the Assessing Officer had originally issued a notice under section 148 on 22.04.2021 for Assessment Year 2016-2017, within the extended period under TOLA. Pursuant to Ashish Agarwal, this notice was treated as a notice under section 148A(b).

2.1.5 The Assessing Officer supplied the information required under section 148A(b) on 01.06.2022. Taking the mandatory period of 15 days for the assessee to respond, the Court held that the due date for filing reply was 15.06.2022. The assessee actually filed its reply on 20.06.2022.

2.1.6 The order under section 148A(d) and the subsequent notice under section 148 (new regime) were issued on 30.08.2022.

2.1.7 Applying the principles laid down in Rajeev Bansal, particularly paragraph 114(g) and (h), the Court held that: (i) the period between issuance of the deemed notice (within 01.04.2021-30.06.2021) and the supply of material plus the two weeks' response time is to be treated as a period during which the show cause notice is deemed stayed; (ii) after excluding this period, the reassessment notice under section 148 (new regime) must still be issued within the "time limit surviving" under the Act read with TOLA.

2.1.8 On the facts, computing the surviving time from the original notice under section 148 issued under TOLA up to 30.06.2021, and then applying the exclusion for the deemed stay period as per Rajeev Bansal, the outer limit for issuance of the valid reassessment notice under section 148 (new regime) for Assessment Year 2016-2017 worked out to 28.08.2022.

2.1.9 The Court recorded that learned Senior Standing Counsel for the Revenue verified the relevant dates and was unable to controvert the computation that the limitation expired on 28.08.2022.

Conclusions

2.1.10 As the reassessment notice under section 148 was issued on 30.08.2022, i.e., beyond the surviving limitation period ending on 28.08.2022, the Court held that the notice was issued beyond the "surviving time" contemplated in Rajeev Bansal and was therefore time barred.

2.1.11 The impugned notice dated 30.08.2022 under section 148 was held to be an invalid notice and was quashed and set aside. Consequently, all proceedings arising therefrom, including the order under section 148A(d) and any subsequent actions, were also quashed and set aside.

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