Reassessment Time-Barred Despite TOLA SC Relaxation – Notice Held Void

ACIT Vs Vihar Infrastructure Private Limited (ITAT Mumbai)

Reassessment Time-Barred Despite TOLA SC Relaxation – Notice Held Void

Mumbai ITAT upheld the quashing of reassessment proceedings, holding that the notice u/s 148 issued on 27.07.2022 was time-barred, even after considering TOLA extensions and Supreme Court rulings in Ashish Agarwal and Rajeev Bansal.

The Tribunal explained that:

• Old notices issued between 01.04.2021–30.06.2021 are deemed as 148A(b) notices under Ashish Agarwal
• As per Rajeev Bansal, “surviving time” must be computed from the original notice date till 30.06.2021
• Further, exclusion applies for:
  • Time till supply of information/material
  • Time granted to assessee to respond

Applying this, the ITAT found:

• Original notice: 29.06.2021
• Surviving time: only 2 days
• After assessee’s reply (12.06.2022), the last permissible date to issue fresh 148 notice was 14.06.2022
• However, actual notice was issued on 27.07.2022, beyond limitation

Accordingly, the Tribunal held that the reassessment notice was barred by limitation and void ab initio, and therefore the entire reassessment failed, irrespective of merits.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

The Revenue has been filed against the impugned order dated 05/08/2025, 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 2014-15.

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

“1. Whether, on the facts and in the circumstances of the case, the learned CIT(A) was justified in holding the reassessment proceedings to be time-barred by adopting a mechanical computation of the “surviving time” u/s. 149 of the Income Tax Act, 1961, read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), without appreciating that the limitation period stood validly extended by notifications issued under TOLA and the legal fiction created by the Hon’ble Supreme Court in Union of India us. Ashish Agarwal (CA No. 3005 of 2022)?

2. Whether the learned CIT(A) erred in law and on facts in misinterpreting the ratio of the Hon’ble Supreme Court’s judgment in Union of India & Ors. us. Rajeev Bansal & Ors. (2024), by applying an arithmetical approach to the computation of the surviving time, instead of adopting the purposive and contextual interpretation envisaged by the Apex Court, thereby rendering a validly initiated reassessment proceeding as time-barred?

3. Whether the learned CIT(A) failed to appreciate that the notice issued u/s. 148 dated 27.07.2022 was a continuation of proceedings validly initiated under the earlier notice dated 29.06.2021, which stood saved and deemed to have been issued under the new regime by virtue of the legal fiction recognized in Ashish Agarwal (supra), and hence could not be treated as barred by limitation?

4. Whether the learned CIT(A) erred in law by ignoring the statutory extensions and relaxations granted under TOLA, which extended the time limit for issuance of notices up to 30.09.2021, and consequently failed to appreciate that the reassessment proceedings were validly initiated within the extended period of limitation?

5. Whether the learned CIT(A) erred in law and on facts by quashing the reassessment proceedings solely on technical grounds of limitation, without adjudicating upon or appreciating the merits of the addition of175,00,000 made u/s. 68 of the Act, even though the assessee failed to discharge the onus of proving the identity, creditworthiness, and genuineness of the transaction as required by law?

6. Whether the learned CIT(A) failed to appreciate that the addition u/s. 68 was based on credible information from the Investigation Wing establishing receipt of accommodation entries, and that the assessee’s failure to produce documentary evidence warranted confirmation of the addition, irrespective of procedural contentions?

7. Whether the learned CITA) was justified in disregarding the principle that procedural irregularities, any, do not vitiate reassessment proceedings where substantial compliance with statutory requirements and opportunity principles has been achieved, and where no prejudice has been caused to the assessee?

8. Whether, in light of the binding nature of the directions issued by the Hon’ble Supreme Court in Ashish Agarwal (supra), the CIT(A) had jurisdiction to hold that reassessment proceedings were invalid when the AO had acted in conformity with those very directions and with requisite sanction u/s. 151?

9. Whether the order of the learned CIT(A) suffers from legal infirmity for failure to consider the principle of harmonious construction between TOLA, section 149, and the saving clause recognized by the Hon’ble Supreme Court, resulting in erroneous quashing of valid reassessment proceedings and loss to the Revenue?”

3. We have considered the submissions of both sides and perused the material available on record. The brief facts of the case are that, on the basis of the information received from the DDIT(Inv.), Mohsana that the assessee is one of the entities from whom funds had been transferred after the cash deposits, a notice under section 148 of the Act was issued on 29/06/2021.

4. 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 29/06/2021 was deemed to be issued under section 148A(b) of the Act. Vide show cause notice dated 30/05/2022, 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.

5. The assessee filed its response to the aforesaid show cause notice on 12/06/2022. After considering the submission of the assessee, the AO passed the order under section 148A(d) of the Act on 27/07/2022, 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 27/07/2022, 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 08/11/2022. The AO, vide order dated 30/05/2023, passed under section 147 of the Act, made an addition of Rs. 75 lakhs, treating it to be the beneficiary of the fund trail.

6. The assessee, in its 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 the initiation of the reassessment proceedings itself was time-barred and void ab initio. Being aggrieved, the Revenue is in appeal before us.

7. 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 I 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 I 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.”

8. 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.”

9. 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.”

10. 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: –

11. 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 2 days to issue notice under section 148 of the Act of the new regime in the present case, i.e. till 14/06/2022, after receipt of response from the assessee on 12/06/2022 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 27/07/2022, i.e., after the surviving/balance time period as per the decision of the Hon’ble Supreme Court in Rajeev Bansal (supra).

12. 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 27/07/2022 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 27/07/2022 for the assessment year 2014-15 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 the same is affirmed. As a result, the grounds raised by the Revenue are dismissed.

In the result, the appeal by the Revenue is dismissed.

Order pronounced in the open Court on 22/04/2026