Deciphering Legal Judgments: A Comprehensive Analysis of Judgment

Reported as:

2025 (7) TMI 1895 - GUJRAT HIGH COURT

Introduction

This decision of the Gujarat High Court concerns a batch of writ petitions challenging reassessment proceedings initiated u/ss 148 and 148A(d) of the Income-tax Act, 1961 ("the Act") for assessment years (AYs) 2013-14, 2014-15, 2016-17 and 2017-18. The dispute arises in the peculiar transitional context created by: (i) the substitution of sections 147-151 by the Finance Act, 2021 with effect from 1 April 2021 ("new regime"); (ii) the COVID-19-related relaxation legislation, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA"); and (iii) the two seminal Supreme Court judgments in Union of India v. Ashish Agarwal (2022) 444 ITR 1 (SC) [2022 (5) TMI 240 - Supreme Court] and Union of India v. Rajeev Bansal (2024) 469 ITR 46 (SC) [2024 (10) TMI 264 - Supreme Court (LB)].

The case is important because it operationalises the Supreme Court's directions in Ashish Agarwal and Rajeev Bansal at the High Court level and clarifies how "surviving time" u/s 149, read with TOLA and the third proviso to section 149(1), is to be computed. It also addresses which authority must grant sanction u/s 151 in transitional reassessment cases, and whether defects in sanction can render reassessment notices void.

Key Legal Issues

1. Validity of sanction u/s 151 (new regime)

The first issue was whether notices u/s 148 issued between July and September 2022, pursuant to the Supreme Court's decision in Ashish Agarwal, suffered from lack of valid "sanction" u/s 151. The question turned on:

• whether the competent "specified authority" was that u/s 151(i) (cases within three years) or section 151(ii) (cases beyond three years); and
• whether the relevant temporal reference for determining the "three years" threshold was the date of the original notice under the old regime (issued between 1.4.2021 and 30.6.2021 under TOLA) or the date of the fresh notice u/s 148 (new regime) issued in 2022.

This is fundamentally a question of statutory interpretation of section 151 (post-1.4.2021) as read with TOLA and the legal fiction created in Ashish Agarwal, as explained in Rajeev Bansal.

2. Limitation and "surviving time" u/s 149 read with TOLA

The second and decisive issue was whether the reassessment notices u/s 148 (new regime), issued in 2022, were time-barred u/s 149(1) as substituted by the Finance Act, 2021, when interpreted in light of TOLA and the Supreme Court's directions in Rajeev Bansal. This required:

• identifying the outer limits for reopening u/s 149(1)(a) and (b) (three years and ten years with conditions);
• applying the Supreme Court's reasoning on how TOLA extends only the "time for action" but not the basic three-year or six-year limitation periods; and
• computing the "surviving time" after excluding the periods mandated by the third proviso to section 149 (time of stay/prohibition under court orders and time allowed to the assessee to respond u/s 148A(b)).

This is a limitation/transition question, closely tied to the machinery provisions and the effect of legal fiction under Article 142 directions.

Detailed Issue-wise Analysis

1. Sanction u/s 151: which authority and at what point?

On behalf of the assessees, it was argued that since the fresh notices u/s 148 (new regime) were actually issued in July-September 2022, they were clearly beyond three years from the end of the relevant AY for all the years in question. Therefore, u/s 151(ii), only the higher authority-Principal Chief Commissioner / Principal Director General / Chief Commissioner / Director General-could validly grant sanction. In these cases, sanction was granted only by the Principal Commissioner / Commissioner (authorities u/s 151(i)), rendering the notices jurisdictionally defective. Reliance was placed on paras 75-81 of Rajeev Bansal, where the Supreme Court characterised valid sanction as a "precondition" to jurisdiction u/s 148 and emphasised the distinction between the lower and higher sanctioning authorities depending on whether three years had elapsed.

The Revenue, conversely, contended that this submission artificially de-links the 2022 notices from their genesis: the original notices u/s 148 issued between 1.4.2021 and 30.6.2021 under the old regime, purportedly saved under TOLA, and later "deemed" to be section 148A(b) notices by Ashish Agarwal. Once Rajeev Bansal is read in full, especially paras 77-78 and the conclusion in para 114(d), two key propositions emerge:

• TOLA applies to the operation of the new regime (post-1.4.2021) where the three-year time-limit u/s 149(1)(a) or the corresponding pre-amendment periods fell for completion between 20.3.2020 and 31.3.2021. In that situation, the sanctioning authority u/s 151(i) has time till 30.6.2021 to grant sanction.
• The Supreme Court uses the example of AY 2017-18 (para 78): the three-year period expired on 31.3.2021 (within the TOLA window); therefore, approval u/s 151(i) could be granted till 30.6.2021. This explicitly recognises that for these transitional years, the appropriate authority is still that u/s 151(i), not 151(ii).

The High Court adopts this reading. It notes that the Supreme Court in Rajeev Bansal deliberately framed a test: if "the time limit of three years from the end of an assessment year falls between March 20, 2020 and March 31, 2021, then the specified authority u/s 151(i) has extended time till June 30, 2021 to grant approval" (para 77). In these petitions:

• for AY 2016-17 and AY 2017-18, three years from the end of the AY expired on 31.3.2020 and 31.3.2021 respectively - both dates within or at the edge of the TOLA period; and
• the original notices u/s 148 under the old regime were issued on 30.6.2021.

Thus, the sanction requirement must be tested with reference to that original "window" (ending 30.6.2021), not the later 2022 notices that are merely a continuation under the fiction created in Ashish Agarwal. The later notices are "nothing but substitution" of the earlier notices under TOLA, and the Supreme Court itself has treated the entire chain as one continuous proceeding for the purpose of jurisdiction and limitation.

On this reasoning, the Court rejects the assessees' challenge to sanction. It holds that approval by the Principal Commissioner / Commissioner u/s 151(i) suffices, because: (i) the three-year time-limit fell within the TOLA window; and (ii) the Supreme Court in Rajeev Bansal explicitly contemplated the use of section 151(i) in such cases. The jurisdictional challenge on sanction, therefore, fails.

2. Limitation and "surviving time" u/s 149

The more substantial-and ultimately decisive-issue relates to limitation. The High Court is guided entirely by the Supreme Court's structured analysis in Rajeev Bansal, especially paras 61-69 and 105-114.

The important principles, as restated and applied by the High Court, are:

• After 1.4.2021, only the substituted provisions of sections 147-151 apply (para 114(a)); the old regime cannot be "kept alive" beyond that date.
• TOLA is a freestanding legislation that relaxes "time limits" for completion or compliance of actions falling due between 20.3.2020 and 31.3.2021 (paras 61-63). It does not extend the basic three-year or six-year limitation periods under the old or new regime (paras 68-69, 72).
• Section 3(1) of TOLA overrides section 149 only "to the extent of relaxing the time limit for issuance" of notice; it does not authorize reassessment beyond the statutory outer years (para 114(c)).
• The third proviso to section 149 mandates exclusion of: (i) the period during which proceedings u/s 148A are "stayed" by court order; and (ii) the "time or extended time" allowed to the assessee to respond to the show-cause u/s 148A(b). This exclusion applies fully to the legal fiction created in Ashish Agarwal (paras 105-107).
• Crucially, the legal fiction in Ashish Agarwal is treated as "stopping the clock" for limitation from the date of the original section 148 notice (old regime) until supply of material and the expiry of the response period u/s 148A(b). The "surviving" or "balance" time which remained as of 30.6.2021 (when TOLA's extension ended) is then available for the Revenue to issue a valid notice u/s 148 (new regime) (paras 108-110, 114(h)).

Applying these principles, the High Court structures a two-step computation:

1. First, compute the "surviving time" as of 30.6.2021, i.e., the number of days between the date of the original notice u/s 148 (old regime, issued relying on TOLA between 1.4.2021 and 30.6.2021) and 30.6.2021.
2. Second, examine whether the fresh order u/s 148A(d) and the new section 148 notice were issued within that surviving time, after excluding the period from the original notice (treated as a deemed section 148A(b) notice) till supply of information and the further two weeks allowed to reply, as per Rajeev Bansal.

The Court then applies this to each of the four petitions and summarises the material dates in tabular form. A crucial part of the reasoning is recognising that for:

• AY 2013-14 and 2014-15 - the three-year period u/s 149(1)(a) had already expired before 20.3.2020, but the extended six-year window (under the pre-2021 law) expired between 20.3.2020 and 30.6.2021. As Revenue itself conceded in Rajeev Bansal, such years could be reached only if the extended reassessment notices travelled "back in time" and otherwise satisfied the proviso to section 149(1) and the six-year outer limit.
• AY 2016-17 and 2017-18 - the three-year period expired within the TOLA window (31.3.2020 and 31.3.2021 respectively), so TOLA extended the period for issuance of the original reassessment notices only till 30.6.2021, not beyond.

The High Court's final computation for each petition (accepted as undisputed) shows that the "surviving days" as of 30.6.2021 were as follows:

• AY 2013-14: 13 days
• AY 2014-15: 21 days
• AY 2016-17: 1 day
• AY 2017-18: 1 day

Based on the SC's logic in paras 105-110 of Rajeev Bansal, these surviving days constituted the only permissible window, after exclusion of the stayed period and response time, within which the Revenue could complete the section 148A(d) order and issue a fresh notice u/s 148 (new regime).

However, in every case, the fresh section 148 notice was issued much later than the last permissible date computed on this basis. For example:

• In the AY 2013-14 case, the last permissible date (on surviving time computation) was 22.6.2022, but the notice u/s 148 was issued on 29.7.2022.
• In the AY 2017-18 case, only one day of surviving time existed, expiring on 18.6.2022, whereas the new notice was issued on 19.7.2022.

In all four petitions, the High Court finds that the section 148 notices under the new regime were issued beyond the surviving time available u/s 149 read with TOLA and the Supreme Court's directions. In terms of para 114(h) of Rajeev Bansal, "all notices issued beyond the surviving period are time barred and liable to be set aside". The Court therefore holds that all impugned notices are invalid on limitation grounds.

Key Holdings and Reasoning

1. Ratio on sanction u/s 151

The operative principle on sanction is:

• For reassessment proceedings arising from notices originally issued between 1.4.2021 and 30.6.2021 under TOLA, where the three-year time limit from the end of the relevant AY fell between 20.3.2020 and 31.3.2021, the competent authority for sanction under the new regime is that specified in section 151(i) (Principal Commissioner / Principal Director / Commissioner / Director).
• The later notices issued u/s 148 (new regime) in 2022 are to be viewed as part of the same continuum, not as fresh and independent proceedings for purposes of determining the proper sanctioning authority.

This is a straightforward application of the Supreme Court's ratio in Rajeev Bansal, particularly paras 77-78 and 114(d). The Court rejects the contrary view that the mere fact that the section 148 notice was actually issued in 2022 automatically invokes section 151(ii). In effect, the ratio is that the identity of the sanctioning authority in transitional reassessment depends on when the three-year period originally expired and how TOLA operates on that expiry, not on the mechanical date of the final section 148 notice.

2. Ratio on limitation and surviving time

The central holding is that:

• Once the legal fiction in Ashish Agarwal is given full effect in the manner clarified by Rajeev Bansal, the only time available to the Revenue to complete the section 148A(d) stage and issue a new notice u/s 148 is the "surviving time" as on 30.6.2021, computed from the date of the original section 148 notice under TOLA.
• The period between the original notice (deemed section 148A(b) notice) and (i) the date of supply of information and material to the assessee; plus (ii) two weeks allowed to respond, is to be excluded for limitation in terms of the third proviso to section 149, as interpreted in paras 105-107 of Rajeev Bansal.
• Where the Revenue issues the fresh section 148 notice under the new regime beyond that surviving period, the notice is time-barred and "liable to be set aside".

This is the explicit basis on which all the writ petitions succeed, despite the Court having upheld the validity of sanction. The ratio is a direct application, at the individual-case level, of the abstract principles articulated in para 114 of Rajeev Bansal.

Any discussion that might be characterised as obiter is limited and largely explanatory-for instance, the Court's restatement of background facts on TOLA or the changes brought in by the Finance Act, 2021. The decisive rules applied are entirely sourced from the Supreme Court's binding precedents.

Conclusion

The decision exemplifies the process by which High Courts must now work within the framework created by Ashish Agarwal and Rajeev Bansal to scrutinise reassessment notices issued in the transitional period. On the one hand, the Court rejects the assessees' argument that sanction was fatally defective: the appropriate sanctioning authority in such cases is determined with reference to the original three-year expiry date and its extension under TOLA, not with reference to the eventual date of the section 148 notice under the new regime. On the other, it gives full effect to the limitation safeguards of section 149 and to the Supreme Court's "surviving time" methodology, resulting in the quashing of all the impugned reassessment notices as time-barred.

Practically, this judgment underscores that:

• Revenue authorities must carefully compute surviving time on a case-to-case basis, taking into account TOLA, the third proviso to section 149, and the actual dates of supply of information and reply u/s 148A(b);
• mere reliance on the Supreme Court's saving exercise in Ashish Agarwal does not immunise reassessment notices from limitation challenges; and
• assessees, even where sanction is proper, may still successfully assail proceedings if the strict temporal structure u/s 149, as elucidated in Rajeev Bansal, is not met.

Going forward, the logic applied here will likely guide other High Courts in disposing of similar pending writ petitions involving AYs 2013-14 to 2017-18. It may also prompt the Revenue to adopt standardised internal computations of surviving time before issuing any reassessment notice under the new regime in transitional cases, to avoid further invalidations on purely temporal grounds.

Full Text:

2025 (7) TMI 1895 - GUJRAT HIGH COURT