Reassessment Time-Barred Despite TOLA & Ashish Agarwal: ITAT Upholds Quashing

ACIT Vs Vinay Kumar Gupta (ITAT Mumbai)

The core issue was whether a reassessment notice issued on 31.07.2022 was within the limitation period considering extensions under TOLA and the Supreme Court rulings in Ashish Agarwal and Rajeev Bansal.

The Revenue argued that extended timelines and legal fiction under Ashish Agarwal preserved the validity of notices and allowed sufficient time to complete reassessment. However, the Tribunal applied the computation method laid down by the Supreme Court in Rajeev Bansal, which requires calculating the “surviving time” after factoring exclusions (including time for supply of material and assessee’s reply).

On facts, only 10 days of surviving time remained (from 21.06.2021 to 30.06.2021). After the assessee’s reply on 07.06.2022, the AO was required to issue notice by 17.06.2022, but instead issued it on 31.07.2022, beyond limitation.

Accordingly, the ITAT held the notice time-barred, void ab initio, and upheld the CIT(A)’s order quashing the entire reassessment. The Revenue’s appeal was dismissed, and the assessee’s cross-objection became infructuous

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The present appeal by the Revenue and the cross-objection by the assessee have been filed against the impugned order dated 13/11/2025, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2013-14.

2. In its appeal, the Revenue has raised the following grounds: –

“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the notice issued under section 148 of the Income-tax Act, 196l, on 21.06.2021 for AY. 2013-14 was barred by limitation, without considering the statutory extensions granted by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (“TOLA Act”) due to the COVID-19 pandemic?

2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in interpreting the Supreme Court judgment in Union of India v. Ashish Agarwal (2022) as rendering the reassessment notice under section 148 invalid, when the Hon’ble Supreme Court had expressly preserved such notices as show-cause notices under section 148A(b) and mandated compliance with procedural safeguards?

3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the extended limitation period provided under amended section 149(1)(b) of the income-tax Act, 1961, which allows reassessment up to ten years in cases where escaped income exceeds Rs. 50 lakhs, particularly when the unaccounted credits in the assessee’s accounts exceeded this threshold?

4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the reassessment proceedings under section 147 r.w.s. 144B as invalid and without jurisdiction, despite the Assessing Officer having complied with the timelines and procedural requirements prescribed under section 148A(d)?

5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in quashing the assessment order on limitation grounds, when the assessee had misconstrued the computation of the statutory timeline under section 148A(d), thereby depriving the Revenue of its legitimate right to reassess escaped income?

6. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the legal fiction created by the Supreme Court in Ashish Agarwal allows the Revenue adequate time to complete reassessment proceedings, and whether the CIT(A)’s restrictive interpretation undermines the legislative intent behind the reassessment provisions?

7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not construing the limitation provisions under the Income-tax Act liberally in favour of the Revenue to prevent escape of income, especially when all procedural safeguards had been complied with?

8. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) decision conflicts with settled judicial precedents emphasizing substantial compliance over strict adherence to limitation periods in reassessment proceedings?”

3. While the assessee has raised the following grounds in its cross-objection: –

“1. CROSS-OBJECTION 1: NOTICE U/S. 148 OF THE ACT IS BARRED BY LIMITATION

1.1. On the facts and in the circumstances of the case and in law, the Id. AO erred in issuing notice u/s. 148 of the Income-tax Act, 1961 (*the Act) in the absence of any income chargeable to tax represented in the form of “Asset” which has escaped assessment as required under Section 149(1)(b) of the Act.

1.2. The Id. AO failed to appreciate that as per section 149(l)(b) of the Act, notice u/s 148 of the Act can be issued beyond 3 years only if income chargeable to tax is represented in the form of an asset.

1.3. The Cross Objector prays that the notice u/s. 148 issued without considering Section 149(1)(b) of the Act is void-ab-initio, bad in law and therefore said notice and consequent reassessment proceedings be quashed.

WITHOUT PREJUDICE TO ABOVE

2. CROSS OBJECTION 2: ADDITION OF RS. 2,20,85,843/-AS UNEXPLAINED CASH CREDIT U/S. 68 OF THE ACT

2.1. On the facts and in the circumstances of the case and in law, the Id. AO erred in making addition of Rs. 2,20,85,843/- as unexplained cash credit u/s 68 of the Act based on conjuncture and surmises.

2.2. The Cross Objector prays that the addition of Rs. 2,20,85,843/- be deleted.

3. CROSS OBJECTION 3: INTEREST U/S. 234B OF THE ACT

3.1. On the facts and in the circumstances of the case and in law, the Id. AO erred in levying interest u/s 234B of the Act.

3.2. The Cross Objector therefore prays that the Id. A0 be directed to delete the interest u/s 234B or reduce appropriately.”

4. As the Revenue in its appeal has challenged the relief granted by the learned CIT(A) in quashing the notice issued under section 148 of the Act on the ground of limitation, we are considering the Revenue’s appeal at the outset. During the hearing, the learned Authorised Representative (“learned AR”) submitted that the notice issued under section 148 of the Act on 31/07/2022 is barred by limitation as per the decision of the Hon’ble Supreme Court in Union of India v/s Rajeev Bansal, reported in (2024) 469 ITR 46 (SC).

5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is an individual and for the year under consideration, filed his return of income on 30/09/2013, declaring a total income of Rs. 1,24,02,850. The return of income filed by the assessee was selected for scrutiny, and vide order dated 03/03/2016, passed under section 143(3) of the Act, was assessed at the returned income. On the basis that the assessee has traded in non-genuine stock of the entity M/s. Frontline Business Solutions Limited, which is a penny scrip, notice under section 148 of the Act was issued on 21/06/2021.

6. Subsequently, in view of the decision of the Hon’ble Supreme Court in Union of India vs. Ashish Agarwal, reported in [2022] 444 ITR 1 (SC), the original notice issued under section 148 on 21/06/2021 was deemed to be issued under section 148A(b) of the Act. Vide show cause notice dated 24/05/2022, the information and material relied upon by the Revenue were provided to the assessee, and two weeks’ time was granted to the assessee to respond to the notice in terms of the provisions of section 148A(b) of the Act.

7. The assessee filed his response to the aforesaid show cause notice on 07/06/2022. After considering the submission of the assessee, the AO passed the order under section 148A(d) of the Act on 31/07/2022, declaring that it is a fit case for issuance of notice under section 148 of the Act. On the very same date, i.e., on 31/07/2022, notice under section 148 of the Act was issued by the Jurisdictional Assessing Officer. In response to the notice issued under section 148 of the Act, the assessee filed his return of income on 23/08/2022, declaring a total income Rs. 1,24,02,850. The AO, vide order dated 12/05/2023, passed under section 147 read with section 144B of the Act, treated the entire transaction in scrip of M/s. Frontline Business Solutions Limited as bogus and made the addition under section 68 of the Act. The assessee in his appeal before the learned CIT(A), inter alia, challenged the proceedings initiated under section 147 of the Act on the basis that the notice issued under section 148 of the Act is barred by limitation. The learned CIT(A), vide impugned order, allowed the ground raised by the assessee on this issue and held that as the initiation of the assessment proceedings itself was time-barred and void ab initio, the assessment order cannot withstand. Being aggrieved, the Revenue is in appeal before us. While the assessee filed the cross-objection raising, inter alia, the grounds on merits.

8. We have considered the submissions of both sides and perused the material available on record. We find that the Hon’ble Supreme Court in paragraphs 106 and 107 of its decision in Rajeev Bansal (supra), observed as follows: –

“106. In Ashish Agarwal (supra), this Court directed the assessing officers to provide relevant information and materials relied upon by the Revenue to the assesses within thirty days from the date of the judgment. A show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and material by the assessing officer. Due to the legal fiction, the assessing officers were deemed to have been inhibited from acting in pursuance of the Section 148A(b) notice till the relevant material was supplied to the assesses. Therefore, the show cause notices were deemed to have been stayed until the assessing officers provided the relevant information or material to the assesses in terms of the direction issued in Ashish Agarwal (supra). To summarize, the combined effect of the legal fiction and the directions issued by this Court in Ashish Agarwal (supra) is that the show cause notices that were deemed to have been issued during the period between 1 April 2021 and 30 June 2021 were stayed till the date of supply of the relevant information and material by the assessing officer to the assessee. After the supply of the relevant material and information to the assessee, time begins to run for the assesses to respond to the show cause notices.

107. The third proviso to Section 149 allows the exclusion of time allowed for the assesses to respond to the show cause notice under section 149A(b) to compute the period of limitation. The third proviso excludes “the time or extended time allowed to the assessee.” Resultantly, the entire time allowed to the assessee to respond to the show cause notice has to be excluded for computing the period of limitation. In Ashish Agarwal (supra), this Court provided two weeks to the assesses to reply to the show cause notices. This period of two weeks is also liable to be excluded from the computation of limitation given the third proviso to Section 149. Hence, the total time that is excluded for computation of limitation for the deemed notices is: (i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices.”

9. From the perusal of the aforesaid findings of the Hon’ble Supreme Court in Rajeev Bansal (supra), it is evident that the Hon’ble Supreme Court directed that while computing the time limit for issuance of notice under section 148, the time during which the show cause notice was stayed till the supply of relevant information or material by the AO and further period of two weeks allowed to the assessee to respond to the show cause notice should be excluded. We find that while examining the validity of notices issued from 01/04/2021 to 30/06/2021 under the old regime, the Hon’ble Supreme Court in Rajeev Bansal (supra), analysing the interplay of Ashish Agarwal (supra) with the TOLA, in paragraph 108 of its judgment observed as follows: –

“108. The Income Tax Act read with TOLA extended the time limit for issuing reassessment notices under Section 148, which fell for completion from 20 March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices under challenge in the present appeals were issued from 1 April 2021 to 30 June 2021 under the old regime. Ashish Agarwal (supra) deemed these reassessment notices under the old regime as show cause notices under the new regime with effect from the date of issuance of the reassessment notices. The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction. Therefore, the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021.”

10. Thus, the Hon’ble Supreme Court held that the surviving time under the Act read with the TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notice, including issuance of a reassessment notice under section 148 of the Act under the new regime. While explaining the methodology for computation of the surviving or balance time limit, the Hon’ble Supreme Court in paragraph 112 of Rajeev Bansal (supra) observed as follows: –

“112. Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under Section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty-one days from 18 June 2022 to issue a reassessment notice under Section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under Section 148 of the new regime will end on 18 August 2022.”

11. Therefore, the surviving/balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30/06/2021. In the present case, in order to compute the surviving/balance time as per the decision of the Hon’ble Supreme Court in paragraph 108, it is relevant to note the following dates: –

12. Therefore, computing the surviving/balance time limit, as per the decision of the Hon’ble Supreme Court in Rajeev Bansal (supra), we find that the Revenue had 10 days to issue notice under section 148 of the Act of the new regime in the present case, i.e. till 17/06/2022, after receipt of response from the assessee on 07/06/2022 to the show cause notice issued under section 148A(b) of the Act. However, undisputedly, in the present case, the notice under section 148 of the Act was issued on 31/07/2022, i.e., after the surviving/balance time period as per the decision of the Hon’ble Supreme Court in Rajeev Bansal (supra).

13. Therefore, in the light of the decision of the Hon’ble Supreme Court in Ashish Agarwal (supra) and Rajeev Bansal (supra), we are of the considered view that the notice issued under section 148 of the Act on 31/07/2022 is barred by the limitation period specified under section 149 of the Act. Accordingly, we are of the considered view that the notice issued under section 148 of the Act on 31/07/2022 for the assessment year 2013-14 is void ab initio and bad in law. Therefore, we do not find any infirmity in the findings of the learned CIT(A) in quashing the notice issued under section 148 of the Act, and consequently, quashing of the entire reassessment proceedings and the assessment order passed under section 147 read with section 144 of the Act for the assessment year 2013-14 is also affirmed. As a result, the grounds raised by the Revenue are dismissed.

14. As we have dismissed the appeal filed by the Revenue, the cross-objection filed by the assessee becomes infructuous and is accordingly dismissed.

15. In the result, the appeal by the Revenue and the cross-objection by the assessee are dismissed.

Order pronounced in the open Court on 16/04/2026