Reassessment notice under Section 148 held time-barred beyond six-year surviving period; consequential assessment order also quashed

ITAT Ahmedabad-AT held that the reassessment notice issued u/s 148 on 27.07.2022 was invalid as it was issued beyond the "surviving period" of six years prescribed under the new reassessment regime, as clarified by SC in Union of India v. Rajeev Bansal and followed by Gujarat HC. Consequently, the reassessment proceedings initiated u/s 148 were quashed as time-barred. As a result, the consequential assessment order dated 29.05.2023 was set aside, and the legal ground raised by the assessee was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in an appeal by the Revenue, the assessee could invoke Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 to support the relief granted by the first appellate authority on an independent legal ground challenging the validity of the notice issued under section 148 of the Act.

1.2 Whether the reassessment notices issued under section 148 on 27.07.2022, pursuant to original notices dated 30.06.2021 (falling in the period 01.04.2021 to 30.06.2021), were time-barred in view of the "surviving time" doctrine laid down by the Supreme Court in the context of TOLA, the Finance Act, 2021 regime, and the decisions in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal.

1.3 Whether the statutory time-frame under section 148A(d) (one month from end of the month of the assessee's reply) could extend or override the "surviving period" of limitation available to the Assessing Officer as per the law declared by the Supreme Court in Union of India v. Rajeev Bansal.

1.4 Consequentially, whether the reassessment orders passed under section 147 read with section 144B, and the additions made therein, could survive if the notices under section 148 were found to be time-barred.

1.5 Whether, the facts and chronology for A.Y. 2015-16 being identical to A.Y. 2014-15, the same legal conclusion on limitation and validity of notice under section 148 would follow mutatis mutandis.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Invocation of Rule 27 by the assessee to challenge validity of section 148 notice

Interpretation and reasoning

2.1.1 The assessee had raised a legal ground on the validity of the reopening under section 147 before the first appellate authority, which was rejected, though the additions were deleted on merits.

2.1.2 In the appeal filed by the Revenue, the assessee moved an application under Rule 27 to support the order of the first appellate authority on the independent legal ground that the notice under section 148 was time-barred.

2.1.3 The Tribunal held that the legality of notice under section 148 goes to the root of the Assessing Officer's jurisdiction and therefore must be examined first. The assessee was entitled, under Rule 27, to support the ultimate appellate relief on a ground decided against it.

Conclusion

2.1.4 The Tribunal entertained the assessee's challenge to the validity and limitation of the section 148 notice under Rule 27 and proceeded to decide it as a preliminary jurisdictional issue.

2.2 Validity and limitation of reassessment notice under section 148 dated 27.07.2022 in light of TOLA, Ashish Agarwal and Rajeev Bansal

Legal framework as discussed

2.2.1 The original notice under section 148 was issued on 30.06.2021 under the old regime within extended time as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).

2.2.2 In Union of India v. Ashish Agarwal, the Supreme Court held that all notices issued under section 148 between 01.04.2021 and 30.06.2021 under the old regime would be deemed to be show-cause notices under section 148A(b) of the new regime, and directed that:

(i) the Revenue shall within 30 days supply the material/information relied on; and

(ii) the assessee shall be given 15 days (later addressed as two weeks) to respond before passing an order under section 148A(d) and issuing notice under section 148.

2.2.3 In Union of India v. Rajeev Bansal, the Supreme Court considered the interplay of Ashish Agarwal, the amended sections 147-151, and TOLA, and held:

(a) The legal fiction in Ashish Agarwal treated the earlier section 148 notices as deemed section 148A(b) show-cause notices and "stopped the clock of limitation" from the date of issuance of the old notice.

(b) The period from the date of deemed notice until supply of material/information, and the further two weeks granted to the assessee to reply, is excluded from limitation.

(c) The "clock started ticking" for the Revenue only after receipt of the assessee's reply to the deemed section 148A(b) notice.

(d) Thereafter, the Assessing Officer had to: consider the reply under section 148A(c), pass an order under section 148A(d), and, if appropriate, issue a notice under section 148 of the new regime-"within the surviving time limit".

(e) The "surviving time limit" was defined as the balance limitation available under the Income Tax Act read with TOLA, computed as the number of days between the date of issuance of the original (deemed) notice and 30.06.2021.

(f) Any new regime notice under section 148 issued beyond this surviving time limit is time-barred and invalid.

2.2.4 The Tribunal also noted the Gujarat High Court decision in Dhanraj Govindram Kella, where the High Court, applying Rajeev Bansal, computed "surviving time" case-wise and held that notices under section 148 issued beyond such surviving time were invalid.

Application to facts and reasoning

2.2.5 In the present case (A.Y. 2014-15), the chronology was:

- 30.06.2021: Original notice issued under section 148 (old regime).

- 06.05.2022: Final order of jurisdictional High Court on writ against said notice.

- 31.05.2022: Notice issued under section 148A(b) (pursuant to Ashish Agarwal).

- 07.06.2022: Assessee's reply to section 148A(b).

- 27.07.2022: Order under section 148A(d) and fresh notice under section 148 (new regime).

2.2.6 Since the original notice under section 148 (old regime) was dated 30.06.2021, the surviving time available as per the Supreme Court's formulation in Rajeev Bansal (i.e., days between date of original notice and 30.06.2021) was only one day.

2.2.7 The Tribunal held that, in conformity with the Supreme Court's directions, this surviving one day was effectively extended to seven days from the date of the assessee's reply to the section 148A(b) notice. The assessee's reply was filed on 07.06.2022; hence, the Assessing Officer had only up to 14.06.2022 to:

- consider the reply under section 148A(c);

- pass order under section 148A(d); and

- issue a notice under section 148 (new regime).

2.2.8 The Assessing Officer, however, passed the order under section 148A(d) and issued the new notice under section 148 on 27.07.2022, i.e., beyond the seven-day surviving period (beyond 14.06.2022), rendering the notice time-barred under the principle laid down in Rajeev Bansal.

Conclusion

2.2.9 The Tribunal held that, in view of the binding law declared by the Supreme Court in Rajeev Bansal and followed by the jurisdictional High Court in Dhanraj Govindram Kella, the notice under section 148 dated 27.07.2022 was issued beyond the "surviving time" and was therefore invalid and time-barred.

2.3 Whether section 148A(d) one-month time-frame could extend or override the surviving limitation period

Legal framework as discussed

2.3.1 The Revenue argued that under section 148A(d), the Assessing Officer is required to pass the order within one month from the end of the month in which the assessee's reply to section 148A(b) is received; and that the order under section 148A(d) and the consequent section 148 notice dated 27.07.2022 were within that prescribed period.

2.3.2 The Tribunal referred to the Supreme Court's discussion in Rajeev Bansal on Article 142, where the Court held that its directions in Ashish Agarwal and Rajeev Bansal were issued to do "complete justice", supplement existing legal framework, and could, in appropriate circumstances, override strict statutory timelines to prevent inequitable results.

Interpretation and reasoning

2.3.3 The Tribunal reasoned that the Supreme Court had explicitly mandated that all further actions-including passing order under section 148A(d) and issuing notice under section 148 of the new regime-must be completed within the surviving time under the Income Tax Act read with TOLA.

2.3.4 Consequently, the specific period of one month from the end of the month of receipt of reply, as mentioned in section 148A(d), could not be construed to enlarge or override the surviving period of limitation fixed by the Supreme Court under Article 142.

2.3.5 The Tribunal concluded that, to the extent of conflict, the law declared by the Supreme Court in Rajeev Bansal, operating under Article 142, prevails over the literal application of section 148A(d)'s time-frame for passing the order and issuing the section 148 notice.

Conclusion

2.3.6 The Revenue's contention that compliance with section 148A(d)'s one-month time-limit validated the notice was rejected. The controlling limitation is the surviving period as defined in Rajeev Bansal, and the impugned notice dated 27.07.2022, having been issued beyond that period, was held to be invalid.

2.4 Consequential validity of reassessment proceedings and assessment order

Interpretation and reasoning

2.4.1 Once the notice under section 148 dated 27.07.2022 was held invalid and time-barred, the very jurisdiction to reassess under section 147 stood vitiated.

2.4.2 The Tribunal noted that a reassessment notice issued without complying with the preconditions of limitation and procedure is invalid and affects the jurisdiction of the Assessing Officer, as recognized by the Supreme Court in Rajeev Bansal.

2.4.3 Consequently, all proceedings taken pursuant to an invalid section 148 notice, including the assessment order passed under section 147 read with section 144B on 29.05.2023, cannot survive.

Conclusion

2.4.4 The proceedings initiated under section 148 were quashed as time-barred. Accordingly, the consequential assessment order dated 29.05.2023 was also quashed and set aside for A.Y. 2014-15.

2.4.5 As the reassessment itself was annulled on jurisdictional grounds, the grounds raised by the Revenue on merits of the addition under section 69A and on the nature of alleged accommodation entries became infructuous and were not adjudicated.

2.5 Application of the same reasoning to A.Y. 2015-16

Interpretation and reasoning

2.5.1 For A.Y. 2015-16, the material dates were:

- 30.06.2021: Original notice under section 148 (old regime);

- 24.05.2022: Notice under section 148A(b);

- 06.06.2022: Assessee's reply to section 148A(b);

- 27.07.2022: Order under section 148A(d) and fresh notice under section 148.

2.5.2 The Tribunal recorded that the facts and sequence of events for this year were identical in principle to A.Y. 2014-15. The original notice under section 148 was again dated 30.06.2021, giving the Assessing Officer only one-day "surviving time" under the Act read with TOLA, subject to the same seven-day extension logic after the assessee's reply.

2.5.3 The impugned notice under section 148 dated 27.07.2022 was thus also issued beyond the surviving period available post reply dated 06.06.2022, and hence equally hit by limitation as per Rajeev Bansal and the Gujarat High Court's approach in Dhanraj Govindram Kella.

Conclusion

2.5.4 Applying mutatis mutandis the reasoning and conclusion reached for A.Y. 2014-15, the Tribunal held the notice under section 148 dated 27.07.2022 for A.Y. 2015-16 to be invalid and time-barred.

2.5.5 The reassessment proceedings and assessment order for A.Y. 2015-16 were quashed and set aside, and the Revenue's appeal for this year was dismissed, the legal ground of the assessee being allowed.

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