Reassessment quashed as time-barred; limitation runs from assessee's 148A(b) reply under amended regime and TOLA

The ITAT Delhi-AT held the reassessment proceedings invalid and time-barred. Relying on the SC's interpretation of the "surviving time limit" under the amended reassessment regime read with TOLA, it held that the limitation clock begins when the Revenue receives the assessee's response to notice under section 148A(b). Thereafter, the AO must, within the surviving period, consider the reply under section 148A(c), decide under section 148A(d), and issue notice under section 148. As this timeline was breached, the reassessment was quashed and the assessee's additional grounds were allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in an appeal filed by the Revenue, the respondent-assessee can invoke Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 to raise additional legal grounds challenging the very validity of reassessment proceedings, without filing a separate appeal or cross-objection.

1.2 Whether the notice issued under section 148 dated 21.07.2022 for assessment year 2017-18 was barred by limitation, having regard to the "surviving time limit" under the Income-tax Act read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), as interpreted in the decision of the Supreme Court in PCIT v. Rajeev Bansal and subsequent judicial precedents.

1.3 Consequentially, whether the reassessment proceedings initiated under section 148 for assessment year 2017-18 were bad in law and liable to be quashed, rendering the Revenue's grounds on merits academic.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Invocation of Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 by the assessee-respondent

Legal framework (as discussed)

2.1 The Court referred to Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 and relied upon judicial precedents including B.R. Bamsi v. CIT and other cited decisions to consider whether a respondent can raise a pure question of law in an appeal filed by the opposite party.

Interpretation and reasoning

2.2 The Court observed that, as held in B.R. Bamsi, a respondent-assessee may raise a new question of law even without filing a cross-objection, provided that (i) the ground is a pure question of law, and (ii) it does not require recording of new evidence.

2.3 It was held that such additional legal grounds can be used as a defence to support the order impugned in appeal and may be raised at any stage, particularly where they go to the root of the jurisdiction of the assessing authority.

Conclusions

2.4 The Court admitted the additional grounds raised by the assessee under Rule 27, holding them to be admissible for adjudication as pure questions of law which did not call for fresh evidence.

Issue 2: Limitation and validity of notice under section 148 dated 21.07.2022 in light of "surviving time limit" under TOLA and Rajeev Bansal

Legal framework (as discussed)

2.5 The Court examined the scheme of sections 147, 148 and 148A of the Income-tax Act, 1961, read with TOLA, as interpreted by the Supreme Court in PCIT v. Rajeev Bansal. It took note of the concept of "surviving time limit" available to the Assessing Officer for issuance of a notice under section 148 in the new regime, after receipt of the assessee's reply to show cause under section 148A(b).

2.6 The Court relied on the specific exposition in Rajeev Bansal that, post-deeming fiction, the Assessing Officer must (i) consider the reply under section 148A(c), (ii) decide under section 148A(d), and (iii) issue notice under section 148, all within the surviving time limit calculated from the date of original old-regime notice read with the extended periods under TOLA.

2.7 The Court also referred to the decisions of the Gujarat High Court in Southern Gujarat Chamber Trade and Industrial Development Centre v. ITO and the ITAT Mumbai in DCIT v. Prasad Shetty, which applied Rajeev Bansal to hold notices under section 148 issued beyond the surviving time as invalid and time-barred.

Interpretation and reasoning

2.8 The Court considered the specific date sequence for assessment year 2017-18 as placed on record:

(a) Original notice under section 148 under the old regime issued on 25.05.2021.

(b) Surviving time available up to 30.06.2021: 37 days.

(c) Information under section 148A(b) provided on 19.05.2022.

(d) Due date for reply and actual reply: 02.06.2022.

(e) Order under section 148A(d) and fresh notice under section 148 issued on 21.07.2022.

(f) Last permissible date for issuance of notice under section 148, as per surviving time (from 02.06.2022 + 37 days): 08.07.2022.

2.9 Applying the principle laid down in Rajeev Bansal, the Court held that once the assessee's reply under section 148A(b) was received on 02.06.2022, the Assessing Officer had only the surviving 37 days (as computed from the period 25.05.2021 to 30.06.2021) to complete the process under sections 148A(c) and 148A(d) and to issue notice under section 148.

2.10 Accordingly, the outer limit for issuing the notice under section 148 in the new regime was 08.07.2022. Since the impugned notice under section 148 was issued on 21.07.2022, it fell beyond the surviving limitation period.

2.11 By aligning this computation with the reasoning adopted in Southern Gujarat Chamber Trade and Industrial Development Centre and DCIT v. Prasad Shetty, the Court held that the impugned notice was hit by limitation and was invalid.

Conclusions

2.12 The Court held the impugned notice under section 148 dated 21.07.2022 to be time-barred, as it was issued beyond the surviving time limit available in terms of the Income-tax Act read with TOLA and as interpreted in Rajeev Bansal.

2.13 The initiation of reassessment proceedings for assessment year 2017-18 was therefore held to be bad in law.

Issue 3: Validity of reassessment proceedings and effect on Revenue's grounds on merits

Interpretation and reasoning

2.14 Having held the notice under section 148 to be invalid and the reassessment proceedings to be time-barred, the Court treated the challenge to the jurisdiction as going to the root of the assessment.

2.15 In view of this foundational defect, the Court found it unnecessary to adjudicate on the remaining issues raised in the additional grounds (including mechanical approval under section 151 and initiation by jurisdictional Assessing Officer instead of faceless regime) and the substantive grounds raised by the Revenue on alleged bogus loan, bogus entity, and deletion of additions on merits.

Conclusions

2.16 The Court held the reassessment proceedings to be bad in law and quashed them, allowing the additional grounds of the assessee to this extent.

2.17 The other grounds raised by the Revenue on the merits of additions were kept open and not adjudicated, and the Revenue's appeal was dismissed on the jurisdictional/time-bar ground alone.

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