Section 148 reassessment notice time-barred by 35 days under surviving period computation method from Rajeev Bansal precedent

The ITAT Chennai held that a notice issued under section 148 of the New Regime dated 28.07.2022 for assessment year 2013-14 was time-barred by 35 days. Following Supreme Court precedent in Rajeev Bansal, the tribunal applied the surviving period computation method, which requires all procedures under sections 148A(c), 148A(d), and 148 to be completed within the surviving period calculated from the date of receipt of the assessee's response. The reassessment order was consequently set aside and the assessee's appeal was allowed.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this appeal pertain to the validity and jurisdiction of the reassessment notice issued under section 148 of the Income Tax Act, 1961, particularly in the context of the transitional period between the "Old Regime" and the "New Regime" of reassessment procedures effective from 1 April 2021. Specifically, the issues are:

• Whether the notice issued under section 148 of the Act dated 28.07.2022, under the New Regime, is time barred as it was issued beyond the "surviving period" prescribed by the Supreme Court in the case of Rajeev Bansal vs Union of India.
• The applicability and effect of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) in extending limitation periods for issuance of reassessment notices under the Old Regime during the COVID-19 pandemic.
• The validity of issuance of reassessment notices under the Old Regime during the period 1 April 2021 to 30 June 2021, which is after the Old Regime had officially ended.
• The procedural compliance required under the New Regime, including issuance of notices under section 148A(b) and passing of orders under section 148A(d) before issuance of reassessment notices under section 148.
• The proper computation and application of the "surviving period" for issuance of reassessment notices post receipt of the assessee's response, as laid down in judicial precedents, especially the Supreme Court's judgment in Rajeev Bansal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and limitation of reassessment notice issued under section 148 dated 28.07.2022

Relevant legal framework and precedents: The reassessment procedure under the Income Tax Act underwent significant changes effective 1 April 2021, with the introduction of a New Regime under sections 147 to 151. The Old Regime ceased on 31 March 2021. The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) extended the limitation period for issuance of reassessment notices under the Old Regime for notices falling due between 20 March 2020 and 31 March 2021, extending the time to 30 June 2021. The Supreme Court's judgment in Union of India vs Ashish Agarwal clarified that reassessment notices issued under the Old Regime between 1 April 2021 and 30 June 2021 shall be deemed to be show cause notices under section 148A(b) of the New Regime. Subsequently, in Union of India vs Rajeev Bansal, the Supreme Court held that reassessment notices under the New Regime must be issued within the "surviving period" calculated from the date of receipt of the assessee's response, failing which such notices are time barred and liable to be set aside.

Court's interpretation and reasoning: The Tribunal noted that the original notice under the Old Regime was issued on 30.06.2021, within the extended TOLA period. The information and material forming the basis of reassessment was communicated to the assessee on 02.06.2022, who replied on 11.06.2022. The order under section 148A(d) and the reassessment notice under the New Regime were both issued on 28.07.2022. Applying the Supreme Court's guidelines in Rajeev Bansal, the Tribunal computed the surviving period as 7 days (higher of the balance days from issuance of deemed notice to 30.06.2021 or the minimum 7 days as per proviso to section 149(1)). The surviving period started from the date of receipt of the assessee's response (11.06.2022) plus the two-week period allowed to the assessee to respond, ending on 16.06.2022, plus 7 days extension, culminating in 23.06.2022 as the last valid date for issuance of the reassessment notice. Since the notice was issued on 28.07.2022, it was held to be time barred by 35 days.

Key evidence and findings: The dates of notices, communications, responses, and orders were undisputed and corroborated by the Assessing Officer's report. The AO did not dispute the calculation of the surviving period but contended that the order under section 148A(d) and notice under section 148 were issued within the one-month period prescribed under section 148A(d). However, the Tribunal held that the Supreme Court's ruling in Rajeev Bansal and subsequent judicial pronouncements clarified that the time available under section 148A(d) is "necessarily truncated" by the surviving period, and cannot be extended beyond it.

Application of law to facts: The Tribunal applied the Supreme Court's principles strictly, emphasizing that the reassessment notice under the New Regime must be issued within the surviving period computed from the date of receipt of the assessee's reply to the deemed show cause notice. The notice issued beyond this period was invalid and liable to be quashed.

Treatment of competing arguments: The Department's argument that the notice was valid as it was issued within the one-month period under section 148A(d) was rejected on the basis of binding Supreme Court authority and consistent judicial precedents. The Tribunal relied on multiple judicial decisions from various High Courts and ITAT Benches upholding the Rajeev Bansal ratio, including the jurisdictional Madras High Court and Delhi High Court judgments.

Conclusion: The reassessment notice dated 28.07.2022 under the New Regime was held to be time barred and invalid.

Issue 2: Validity of issuance of reassessment notices under the Old Regime during 1 April 2021 to 30 June 2021

Relevant legal framework and precedents: The Old Regime of reassessment ended on 31 March 2021. However, due to TOLA, the limitation period for issuance of notices under the Old Regime falling due between 20 March 2020 and 31 March 2021 was extended to 30 June 2021. The Supreme Court in Ashish Agarwal clarified that notices issued under the Old Regime during 1 April 2021 to 30 June 2021 shall be treated as deemed show cause notices under section 148A(b) of the New Regime.

Court's interpretation and reasoning: The Tribunal accepted the Supreme Court's directive that such notices issued under the Old Regime during the extended period are valid but are to be treated as show cause notices under the New Regime, triggering the procedural safeguards therein.

Key evidence and findings: The original notice under the Old Regime was issued on 30.06.2021, within the extended TOLA period, thus validly issued as per Ashish Agarwal judgment.

Application of law to facts: The Tribunal applied the Ashish Agarwal ruling to validate the original notice under the Old Regime and the subsequent procedural steps under the New Regime.

Treatment of competing arguments: No contrary submissions were found disputing the validity of the original notice under the Old Regime within the extended period.

Conclusion: The original notice under the Old Regime was validly issued and deemed to be a show cause notice under the New Regime.

Issue 3: Procedural compliance under the New Regime and computation of surviving period

Relevant legal framework and precedents: The New Regime requires issuance of notice under section 148A(b) and passing of order under section 148A(d) before issuance of reassessment notice under section 148. The Supreme Court in Rajeev Bansal elaborated the computation of surviving period, emphasizing that all procedural steps must be completed within this period, which starts from the date of receipt of the assessee's response to the deemed notice.

Court's interpretation and reasoning: The Tribunal noted that the AO issued the order under section 148A(d) and reassessment notice under section 148 on the same date (28.07.2022), which was beyond the surviving period. The Tribunal rejected the AO's contention that the one-month period under section 148A(d) could extend the surviving period.

Key evidence and findings: The dates of communication, response, and issuance of orders were undisputed. The Tribunal relied on authoritative judicial pronouncements to conclude that the surviving period truncates the time available under section 148A(d).

Application of law to facts: The Tribunal applied the Rajeev Bansal principles to hold that the procedural steps were not completed within the surviving period, rendering the reassessment notice invalid.

Treatment of competing arguments: The AO's argument based on section 148A(d) was rejected as inconsistent with the Supreme Court's ruling and other judicial precedents.

Conclusion: The procedural requirements under the New Regime were not complied with within the surviving period, invalidating the reassessment notice.

3. SIGNIFICANT HOLDINGS

"The notice u/s 148 of the Act issued under Old Regime between the period of 01.04.2021 to 30.06.2021, shall be deemed to be a show cause notice u/s 148A(b) of the New Regime."

"Only notices issued within the surviving period calculated from the date of receipt of response by AO is valid. The notices issued beyond surviving period is time barred and liable to be set-aside."

"The time available u/s 148A(d) was necessarily truncated and the same was required to be passed within the surviving period."

"The notice dated 28.07.2022 issued u/s 148 of the New Regime in respect of assessment year 2013-14 is time barred and re-assessment order pursuant to the same is set-aside."

Core principles established include:

• The transitional provisions relating to reassessment notices issued during the COVID-19 extended period must be treated as show cause notices under the New Regime.
• The surviving period is a strict limitation period computed from the date of receipt of the assessee's response and must be adhered to strictly.
• Procedural steps under the New Regime, including issuance of notices and passing of orders, must be completed within the surviving period.
• Any reassessment notice issued beyond the surviving period is invalid and liable to be quashed.

Final determinations:

• The reassessment notice dated 28.07.2022 under the New Regime is time barred.
• The reassessment order passed pursuant to such notice is set aside.
• The appeal filed by the assessee is allowed accordingly.

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