ITAT Quashes ₹11.23 Cr Reassessment as Section 148 Notice Held Time-Barred

DCIT Vs Sterling Agro Industries Limited (ITAT Delhi)

The appeal before the Income Tax Appellate Tribunal, Delhi Bench, concerned reassessment proceedings for AY 2014-15 where the Assessing Officer added Rs. 11.23 crore alleging accommodation entries in the form of bogus milk sales. The Commissioner (Appeals) had allowed the assessee’s appeal, holding that the notice issued under Section 148 on 27.07.2022 was time-barred under Section 149, considering the Supreme Court’s rulings in Union of India v. Ashish Agarwal and Rajeev Bansal. The Tribunal examined the limitation timeline and noted that, after applying statutory exclusions and the legal fiction created by the Supreme Court, the extended deadline for issuing notice expired on 17.06.2022. Since the reassessment notice was issued beyond this date, it was held to be barred by limitation and void ab initio. Consequently, the reassessment proceedings were quashed. The Revenue’s appeal was dismissed, and the assessee’s cross-objection on the legal issue was allowed.

I. Background & Procedural History

1. The assessee filed return for AY 2014-15 on 30.09.2014 declaring income of ₹81.60 Cr.

2. Assessment completed u/s 143(3) on 13.10.2016.

 3. Reassessment completed u/s 147/143(3) on 31.12.2019.

4. Based on Investigation Wing information alleging accommodation entries of ₹11.23 Cr, proceedings were initiated.

5. Notice u/s 148 (old regime) issued on 29.06.2021.

6. TOLA extended the outer time for issuance till 30.06.2021.

7. Supreme Court delivered judgment in Ashish Agarwal on 04.05.2022.

8. AO issued 148A(b) communication on 27.05.2022.

9.  Assessee filed reply on 10.06.2022.

10. AO passed order u/s 148A(d) and issued fresh notice u/s 148 (new regime) on 27.07.2022.

11. CIT(A) allowed appeal holding notice time-barred.

12. Revenue filed appeal; assessee filed cross objection.

II. Legal Issues Before ITAT

1. Whether notice dated 27.07.2022 under section 148 (new regime) was within limitation?

2. Whether extended time under TOLA permitted issuance beyond surviving limitation?

 3. Whether reassessment was valid after Ashish Agarwal and Rajeev Bansal?

III. Assessee’s Arguments (Cross Objection)

The assessee contended:

Original notice under old regime issued on 29.06.2021.

TOLA extended deadline only till 30.06.2021.

Therefore, only one day survived (29.06.2021 to 30.06.2021).

After reply dated 10.06.2022, AO had only the surviving period.

As per Rajeev Bansal, limitation restarted after reply.

Surviving limitation expired on 17.06.2022.

Notice dated 27.07.2022 was beyond time.

Reassessment therefore void ab initio.

IV. Revenue’s Arguments

Revenue contended:

Notice saved by Ashish Agarwal.
Procedural compliance under section 148A followed.
Issue of limitation not raised before AO.
Notice validly issued within time.

V. Detailed Findings of ITAT

1.  Applicability of TOLA

For AY 2014-15:Six-year limitation expired on 31.03.2021.

Hence covered under TOLA.Extended deadline validly available till 30.06.2021.

Therefore original notice dated 29.06.2021 was valid.

2. Effect of Ashish Agarwal

Old notices deemed as 148A(b) notices.

Legal fiction created.

However, limitation computation governed by section 149.

3. Application of Rajeev Bansal

The Tribunal relied heavily on paras 110–112 of Rajeev Bansal:

Limitation clock stopped on 29.06.2021.

Exclusion period allowed till assessee’s reply

After reply dated 10.06.2022, clock restarted.

AO had to act within surviving limitation only.

4. Surviving Limitation Computation

Only 1 day remained as on 30.06.2021.

After exclusion and reply, extended date computed as 17.06.2022.

Notice issued on 27.07.2022.

Therefore clearly beyond limitation.

5. Final Legal Conclusion

Notice dated 27.07.2022 time barred.

Entire reassessment void ab initio.

Legal ground allowed.

Revenue’s appeal dismissed.

Assessee’s cross objection allowed.

VI. Outcome

Revenue’s appeal dismissed.

Assessee’s Cross Objection allowed.

Reassessment proceedings quashed.

Other grounds treated as academic.

VII. Cases Relied Upon

1. Union of India v. Ashish Agarwal-(2022) 444 ITR 1 (SC)Held:Old notices between 01.04.2021–30.06.2021 deemed as 148A(b) notices.

No extension of limitation granted.

Only procedural protection.

2. Union of India v. Rajeev Bansal(2024) 469 ITR 46 (SC)Held:Legal fiction stops limitation clock.Exclusion period allowed.AO must complete proceedings within surviving limitation.TOLA applies only where limitation expired by 31.03.2021.

3. ⁠Notice beyond surviving limitation invalid.

VIII. Legal Position Emerging for AY 2014-15

1. TOLA validly extended time till 30.06.2021.

2. Old notice dated 29.06.2021 valid.

3. However, after Ashish Agarwal, fresh notice must comply with surviving limitation.

4. Only 1 day survived.

5. Notice dated 27.07.2022 beyond limitation.

6.  Reassessment void

FULL TEXT OF THE ORDER OF ITAT DELHI

The Revenue preferred the appeal, challenging the order dated 29-04-2025 passed by The Commissioner of Income –tax (Appeals)-27 New Delhi (in short Ld. CIT(A) passed assessment order dated 24-05­2023 of the Assessing Officer for A.Y. 2014-15 under the section 147 r.w.sc144B of the Income Tax Act, 1961(In short “the Act”). The assessee also filed the cross objection in the appeal.

2. The revenue following grounds in appeal:

1.Whether the Ld.CIT(A) has erred in the facts and in law in not appreciating the fact that addition were made by the AO on the basis of credible information received from the Investigation Wing that the assessee has availed accommodation entry of Rs.11,23,42,220/- in the form of bogus sales to Sh. Mohan Kumar Aggarwal & Sons (HUF) prop Nandan Dairy Products.

2. Whether the Ld.CIT(A) has erred in the facts and in law by ignoring the fact the Nandan Dairy Products to when the assessee purportedly made these sales, was unable to produce original bills cash books or any documentation identifying the parties to whom the onward sales were made.

3. Whether the Ld.CIT(A) has erred in not appreciating the fact that 97.2% of the credits in the bank account of Nandan Dairy Products were in form of cash? Why would a regular customer buying 200 to 500 litres of milk daily pay cash.

4. Whether the Ld.CIT(A) has erred in not appreciating that there were only 30-4- persons who allegedly brought the milk daily and yet Nandan Dairy Products was not able to provide details of even a single buyers?

5. Whether the Ld.CIT(A) has erred in not appreciating that the assessee was engaged in producing milk products like milk powder, ghee, etc. therefore it could not have sold milk to Nandan Dairy Products in lien of receipt of Rs.11,23,42,220/-.

6. Whether the Ld.CIT(A) has erred in not appreciating that not even a single cash memo was issued by Nandan Dairy Products for sale of such huge quantities of milk and it had no facility to store 5000-7000 litres of milk which it nllegedly bought daily from the assessee?

7. Whether the Ld.CIT(A) has erred in not appreciating that there was no compliance of summons from M/s Laxmi Roadlines which had allegedly transported the milk?

8. That the appellant craves to add alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.

3. The brief facts of the case are that the assessee filed his return of income for A.Y. 2014-15 on 30-09-2014 by declaring total income of Rs.81,60,50,600/-. The case was assessed u/s 143(3) of the Act for the year under consideration vide order dated 13-10-2016 at income of Rs.82,66,39,306/-. Therefore the case was re-assessed u/s 147 /143(3) on 31-12-2019 at income Rs.83,67,64,121/-. The assessee company was a beneficiary of the entry provide group run by Shri Mohan Kumar Agarwal Karta Mohan Kumar Agarwal & Sons (HUF) of Rs.11,23,42,220/-. The proceedings u/s 147 of the Act was initiated in the case of the assessee for A.Y. 2014-15 and notice u/s 148 of the Act was served on the assessee. The Assessing Officer completed the assessment after making the addition of Rs.11,23,42,220/.

4. Being aggrieved with the order of the AO, the assessee filed the appeal before the Ld. CIT(A), who vide hid order dated 29-04-2025 allowed the appeal of the assessee. The ld. CIT(A) has observed in his order as under:

5.1 During the appellant proceedings it was contented by the appellant that notice was issued u/s 148 of the Act on 29-06-2021. Thus, after accounting for exclusion the assessing officer will have 2 days (days between 29-06-2021 and 30-06-2021) to issue a notice u/s 148 of the new regime i.e. from the date of receipt of response from the appellant which was submitted 10-06-2022. Therefore, notice u/s 148 of the Act under new regime had to be issued by 12-06-2022 in the case of the appellant, however the same was issued on 27-07-2022 by the JAO i.e. after delay of 45 days keeping in mind principles laid down by the Hon’ble Supreme Court in the case of Sh. Rajeev Bansal and others. Therefore, notice u/s 148 of the Act issued on 27-07-2022 by the JAO under new regime is time barred by limitation and hence, bad in law.

5. Aggrieved the order of the Ld.CIT(A), the Revenue is in appeal before the tribunal. The assessee also filed the cross objection in the appeal.

6. Cross Objection No. 283/Del/2025

In the cross objection has filed on the following grounds:

(i) Because on facts and in law, the CIT(A) erred in not holding that the order passed under section 148A(d) and notice issued under section 148 both dt. 27-07-2022 were invalid and bad in law being time barred as per the provisions of section 149 of the Act as laid down by the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal [2024] 469 ITR 46 SC. Accordingly the impugned assessment order is liable to be quashed.

(ii) Because the order appealed against (filed by revenue) to the extent mentioned above is contrary to law and facts of the case.

7. The assessee has moved an application to condone the delay in filing the cross objection. The assessee stated that the assessee has received the papers of the appeal on 14-08-2025 then in the month of, November the assessee company approached the CA to file the cross objections before the tribunal The assessee company has shown the sufficient cause not to file the cross objection within time. Therefore, the delay is condoned and cross objection is admitted.

8. Firstly we take the ground of the cross objection which is legal. The Ld. AR for the assessee has raised the legal issue and stated that the notice dated 27-07-2022 issued by AO u/s 148 of the Act is time barred. In this regard he has submitted as under :

9. In consequence to the directions issued by the Hon’ble Supreme court in the case of Union of India vs. Ashish Agarwal dated 04-05­2022 the Assessing Officer issued the fresh notice u/s 148 of the Act on 27-07-2022. He further submitted that as per the section 149 of the Act the notice u/s 148 of the Act could be issued within a period of six years from the end of the relevant assessment year i.e 2014-15. In the present case the notice u/s 148 of the Act was issued on 27-07-2022 which is beyond time. Reliance has placed on the decisions of Union of India & Ors Vs. Rajeev Bansal 2024 (10) TMI 264 Supreme Court (LB) in this Case the Hon’ble Supreme Court held as under:

“110. The effect of the creation of the legal fiction in Ashish Agarwal (Supra) was that it stopped the clock of limitation with effect from the date of issuance of section 148 notices under the old regime {Which is also the date of issuance of the deemed notices}. As discussed in the preceding segment of the judgment, the period from the date of the issuance of the deemed notices till the supply of relevant information and material by the assessing officer to the assessee in terms of the direction issued by this court in Ashish Agarwal (Supra) has to be excluded from the computation of the period of limitation. Moreover, the period of two weeks granted to the assessee to reply to the cause notices must be excluded in terms of the third proviso to section 149.

111. The clock started ticking for the Revenue only after it received the response of the assessee to the show cause notices. After the receipt of the reply, the assessing officer had to perform the following responsibilities; (i) consider the reply of the assessee under section 149A(C );(ii) take a decision under section 149A(d ) based on the available material and the reply of the assessee; and (iii) issue a notice under section 148 if it was a fit case for reassessment. Once the clock started ticking, the assessing officer was see State of AP v. AP Pensioners Association, (2005) 13 SCC 161 [28]. [This court observed that the “legal fiction undoubtedly is to be construed in such a manner so as to enable a person, for whose benefit such legal fiction has been created, to obtain all consequences flowing there form.”]

PART F required to complete these procedures within the surviving time limit. The surviving time limit, as prescribed under the Income Tax Act read with TOLA, was available to the assessing officers to issue the reassessment notices under section 148 of the new regime.

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, notice 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 202 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. In the above sited case, the revenue concedes that for the assessment year 2015-16, all notices issued on or after 1st April 2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA.

11. The Ld. DR has submitted that assessee, company has never raised this issue that the assessment, is time barred before the Ld.AO during the re-assessment proceedings. The notice was issued within time in the pursuant to the judgment of the Hon’ble Supreme Court in Union of India v. Ashish Agarwal after complying the all conditions. She relied the order of the Assessing Officer.

12. We have heard the parties and perused the material available on record. In view of the observation of the Hon’ble Supreme Court in the case of Rajeev Bansal (Supra) the extended due date for issuance of notice u/s 148 of the Act expired on 17-06-2022 and since, the notice is u/s 148 of the Act was issued on 27-07-2022 the said notice is to be treated as time barred by limitation and consequentially reassessment proceedings would be liable to be quashed as void ab initio. Respectfully following the decision of the Hon’ble Supreme Court, we hold that the notice issued u/s 148 of the Act on 27-07-2022 is time barred by limitation. Accordingly the legal issue raised by the assessee is allowed.

13. Since we have decided the legal ground in favour of the assessee in his cross objection, the other grounds have become academic and keep them open for adjudication.

14. In the result the appeal of the Revenue is dismissed and the cross objection of the Assessee is allowed.

Order pronounced in the open court on 18/02/2026.