Gujarat HC Quashes Time-Barred Section 148 Reassessment Notices

Dhanraj Govindram Kella Vs ITO (Gujarat High Court)

The Gujarat High Court delivered its ruling in the case of Dhanraj Govindram Kella v. ITO, examining the validity of reassessment notices issued under Section 148 of the Income Tax Act in the context of the transitional legal framework following amendments effective from 1 April 2021.

The central issues before the Court were:

1. Whether the approval granted by the Principal Commissioner of Income Tax (PCIT) for passing orders under Section 148A(d) and issuance of notices under Section 148 was valid in light of amended Section 151, effective from 1 April 2021.
2. Whether the reassessment notices issued were time-barred under the amended limitation provisions of Section 149.

Background

• For Assessment Years (AYs) 2013–14 to 2017–18, the Revenue issued reassessment notices under Section 148 after 1 April 2021 by relying on the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).
• From 1 April 2021, the reassessment regime underwent significant change with the substitution of Sections 147 to 151, introduction of Section 148A, and incorporation of the principles of natural justice as laid down in GKN Driveshafts (India) Ltd. v. ITO (259 ITR 19, SC).
• The Supreme Court in Union of India v. Ashish Agarwal (2022) held that reassessment notices issued under the old regime post-1 April 2021 were invalid. However, in exercise of its powers under Article 142, the Court salvaged nearly 90,000 notices by treating them as show-cause notices under Section 148A(b) of the new regime. The Court directed the Revenue to provide necessary information within 30 days and proceed under Section 148A(d) before issuing fresh notices under Section 148. Importantly, it also mandated compliance with the amended limitation provisions under Section 149(1).
• Following this, assessees challenged notices on the grounds that (a) they were time-barred under Section 149, and (b) approval of the “specified authority” under Section 151 of the new regime was absent. Various High Courts accepted these objections.
• The Revenue once again approached the Supreme Court, resulting in Union of India v. Rajeev Bansal (2023), which clarified how TOLA, Section 151 approvals, and limitation under Section 149 should apply to such transitional reassessment notices.

Supreme Court’s Guidance