Reassessment notice dated 26.08.2022 under Section 148 held time-barred; surviving TOLA period expired before issuance

ITAT Ahmedabad held the reassessment notice dated 26.08.2022 under section 148 invalid as time-barred. Applying the SC's ruling on TOLA, only the surviving time under the Income Tax Act read with TOLA was available to complete further proceedings; a deemed notice dated 30.06.2021 left one day (extended to seven) to issue a fresh notice after the assessee's reply of 30.07.2022, i.e. until 06.08.2022. The AO's notice issued on 26.08.2022 exceeded that surviving period and was set aside.

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ISSUES PRESENTED AND CONSIDERED

1. Whether an order under section 148A(d) and a fresh notice under section 148, issued after replies to deemed show-cause notices (deemed by operation of the Supreme Court's directions in respect of notices issued between 01.04.2021 and 30.06.2021), are time-barred if issued beyond the "surviving time" available under the Income Tax Act read with TOLA.

2. Whether the temporal provisions of section 148A(d) (one month from end of month of receipt of reply) can enlarge the surviving time available to Revenue for issuing reassessment notices under the new regime in cases of deemed show-cause notices covered by the Ashish Agarwal/Rajeev Bansal decisions.

3. Consequential question: If the order under section 148A(d) and notice under section 148 are held time-barred, whether consequent reassessment proceedings and additions must be set aside without adjudicating merits.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Temporal validity of order u/s 148A(d) and notice u/s 148 where original notice was a deemed 148A(b) notice issued between 01.04.2021 and 30.06.2021

Legal framework: Section 148A (new regime effective 01.04.2021) prescribes that, before issuing a notice u/s 148 (other than search cases), the AO must issue a show-cause notice u/s 148A(b), supply relevant material, afford opportunity to be heard, consider replies and then pass an order u/s 148A(d) whether to issue notice u/s 148. TOLA and subsequent Supreme Court directions (Ashish Agarwal) created a legal fiction treating certain old-regime section 148 notices issued between 01.04.2021 and 30.06.2021 as deemed 148A(b) notices and directed supply of relevant materials and further time for reply.

Precedent treatment: The Court followed and applied the Supreme Court's rulings in Ashish Agarwal and Rajeev Bansal. Rajeev Bansal is treated as authoritative on computation of the "surviving time" available to Revenue (i.e., days remaining between date of deemed notice and 30.06.2021, after excluding the stayed period and the two weeks allowed to assessee to reply). The Tribunal also relied on a recent judgment of the jurisdictional High Court that held notices issued beyond the surviving time are invalid.

Interpretation and reasoning: The Court accepted the legal fiction and the directions in Ashish Agarwal and the time-computation approach in Rajeev Bansal: (i) the deemed show-cause notices stopped the limitation clock until relevant material was supplied; (ii) after supply and exclusion of two weeks for reply, the surviving time (days between original deemed notice date and 30.06.2021) is the total time available to Revenue to complete remaining steps under the new regime, including issuing the reassessment notice u/s 148; (iii) the surviving time must be applied starting from the date the assessee filed its reply to the deemed 148A(b) notice, and Revenue must complete section 148A(d) decision and issue section 148 notice within that surviving time. Applying those principles to the facts (original notice dated 30.06.2021 giving surviving time of one day, extendable to seven days by two-week exclusion), the Tribunal found that the AO's order u/s 148A(d) and subsequent notice u/s 148 dated 26.08.2022 were issued after expiry of the surviving time (available only up to 06.08.2022 given the assessee's reply on 30.07.2022) and therefore time-barred.

Ratio vs. Obiter: Ratio - Where a section 148 notice under the old regime is deemed to be a show-cause notice u/s 148A(b) (per Ashish Agarwal) and the surviving time under Income Tax Act read with TOLA is exhausted, any subsequent order u/s 148A(d) and notice u/s 148 issued beyond that surviving time is invalid. Obiter - observations on Article 142 in Rajeev Bansal and the broad equitable jurisdiction of the Supreme Court are referenced for context but do not alter the binding operative conclusion here.

Conclusion: The order u/s 148A(d) and notice u/s 148 dated 26.08.2022 were issued beyond the surviving time available to Revenue and are therefore invalid. The ground on limitation is allowed.

Issue 2 - Whether the time limit in section 148A(d) (one month from end of month of receipt of reply) displaces the surviving time computation under Rajeev Bansal

Legal framework: Section 148A(d) prescribes AO to pass order within one month from the end of the month in which reply to show-cause notice is received. Rajeev Bansal clarified that the surviving time available to AO (computed under TOLA) governs completion of remaining proceedings where notice is a deemed 148A(b) notice; notices issued beyond surviving time are invalid.

Precedent treatment: The Tribunal adhered to Rajeev Bansal's ruling that the surviving time under Income Tax Act read with TOLA is the outer limit and that the Section 148A(d) timeline cannot be used to enlarge the surviving time in contravention of the Supreme Court's directions.

Interpretation and reasoning: The Tribunal explained that where the original notice is a deemed 148A(b) notice (issued between 01.04.2021 and 30.06.2021), the special regime created by the Supreme Court (including the legal fiction and directions) governs the temporal contours of the proceeding. In such circumstances the one-month rule of section 148A(d) does not operate to extend the surviving time beyond what Rajeev Bansal permits; rather, the AO must act within the surviving time available after receipt of the assessee's reply. The Tribunal held that the Supreme Court's directions effectively override (to that limited extent) the operation of section 148A(d) as to the outer limit in deemed-notice cases.

Ratio vs. Obiter: Ratio - In the context of deemed 148A(b) notices (per Ashish Agarwal), the surviving time under TOLA/Rajeev Bansal, not the standalone compution under section 148A(d), determines the outer limit for completing section 148A(d) and issuing section 148 notices. Obiter - general remarks on the separate statutory one-month period where no deemed-notice/TOLA interplay exists.

Conclusion: Section 148A(d)'s timeline cannot be invoked to supplant the surviving time computed under Rajeev Bansal; AO's order and notice beyond the surviving time are invalid.

Issue 3 - Consequence of invalidity of order u/s 148A(d) and notice u/s 148 on reassessment and appellate adjudication of merits

Legal framework: A notice issued without complying with pre-conditions and within prescribed limitation affects the jurisdiction of the assessing officer; an invalid notice renders consequent proceedings void.

Precedent treatment: The Tribunal relied on the High Court decision applying Rajeev Bansal which quashed notices and consequential orders issued beyond surviving time and set aside subsequent proceedings.

Interpretation and reasoning: Since the Tribunal concluded the impugned order u/s 148A(d) and notice u/s 148 were invalid for being time-barred, it held that all consequential reassessment proceedings (including additions) could not survive. Given the successful legal ground on limitation, the Tribunal declined to adjudicate the substantive grounds of addition.

Ratio vs. Obiter: Ratio - Time-barred/invalid reassessment notices and section 148A(d) orders vitiate consequent reassessment proceedings and any additions made thereunder; appellate authorities should quash such notices and remand or set aside consequential orders. Obiter - none material to outcome.

Conclusion: The reassessment notice and section 148A(d) order being invalid, the reassessment and resultant addition are quashed; appeal is allowed on the limitation ground without deciding merits.

Cross-references

1. Issues 1 and 2 are interdependent: the computation of surviving time under Rajeev Bansal (Issue 1) determines whether section 148A(d)'s timeline can be exercised in the deemed-notice context (Issue 2).

2. Issue 3 is consequential on Issues 1-2: invalidity of notice/order results in quashing of subsequent proceedings and obviates the need to decide substantive additions.

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