Reassessment Notice Quashed Because It Was Issued Beyond Limitation: Bombay HC

Guru Udyog Private Limited Vs ITO (Bombay High Court)

Limitation for issuance of notice u/s 148 – Surviving period under TOLA – Scope of new reassessment regime- Where the original notice under the old Section 148 was issued on 29-06-2021, the limitation under TOLA expired on 30-06-2021, leaving only 2 days of surviving limitation.

Whether a notice issued under Section 148 on 30.07.2022 for AY 2014-15 was barred by limitation, considering the “surviving limitation period” under TOLA and the mechanism laid down by the Supreme Court in: Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal

Background of the Reassessment Dispute

The petitioner company had filed its return of income for AY 2014-15 on 29 November 2014 declaring income of ₹5,47,060. The case was selected for scrutiny and an assessment order under Section 143(3) of the Income-tax Act, 1961 was passed on 19 December 2016. Thus, the assessment had attained finality under the normal assessment procedure.

Subsequently, the Assessing Officer issued a notice under Section 148 dated 29 June 2021 seeking to reopen the assessment. This notice was issued under the old reassessment regime existing prior to the amendments introduced by the Finance Act, 2021, which substituted Sections 147 to 151 and introduced the new procedure under Section 148A.

The reassessment proceedings initiated under the old regime were later affected by the judgment of the Supreme Court in Union of India v. Ashish Agarwal, which provided a transitional mechanism for reassessment notices issued between 1 April 2021 and 30 June 2021.

2. Statutory Framework Governing Limitation

The dispute in the present case essentially revolves around the limitation for issuance of a valid notice under Section 148, particularly in the context of the interaction between:

(i) Section 149 of the Income-tax Act, 1961 (limitation for issuance of notice),

(ii) Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), and

(iii) Judicial directions issued by the Supreme Court in Ashish Agarwal and Rajeev Bansal.

Prior to the amendments introduced by the Finance Act, 2021, Section 149(1) permitted reopening of assessment up to:

(i) 4 years from the end of the relevant assessment year, or

(ii) 6 years where income escaping assessment exceeded the prescribed threshold.

However, due to the COVID-19 pandemic, the TOLA Act, 2020 extended various limitation periods including the period for issuance of notice under Section 148. Under TOLA, the limitation for issuance of notices that would have otherwise expired earlier was extended up to 30 June 2021.

Thus, in the present case, the last permissible date for issuing notice under the old law was 30 June 2021, and the notice dated 29 June 2021 was issued just one day before the expiry of limitation.

3. Impact of the Supreme Court Decision in Ashish Agarwal

The entire reassessment regime underwent significant procedural changes after the Supreme Court’s decision in Union of India v. Ashish Agarwal.

The Supreme Court held that the reassessment notices issued under the old Section 148 between 1 April 2021 and 30 June 2021 would be treated as show-cause notices under Section 148A(b) of the newly substituted reassessment provisions introduced by the Finance Act, 2021.

While doing so, the Court exercised its powers under Article 142 of the Constitution and laid down a transitional mechanism to regularise these notices. The Court directed that:

(i) The Assessing Officer must provide information and material relied upon for reopening within 30 days from the date of the judgment (4 May 2022).

(ii) The assessee must be given two weeks to file a reply.

(iii) Thereafter, the Assessing Officer must pass an order under Section 148A(d) and, if required, issue notice under Section 148.

Thus, the Supreme Court created a structured timeline for completion of the preliminary reassessment procedure.

4. Concept of “Surviving Limitation” clarified in Rajeev Bansal

Subsequently, the Supreme Court clarified the manner in which limitation would be computed in Union of India v. Rajeev Bansal.

The Court held that the Revenue cannot get a fresh limitation period merely because of the transition from the old law to the new reassessment regime.

Instead, the Revenue can only utilise the “surviving period of limitation” that remained available on 30 June 2021 (the last date under TOLA).

The Court further held that the time consumed in following the procedure prescribed in Ashish Agarwal (i.e., 4 weeks + 2 weeks) must be excluded while computing limitation.

However, after excluding this period, the Revenue must complete the process of passing order under Section 148A(d) and issuing notice under Section 148 within the surviving limitation period.

5. Application of the Surviving Limitation Principle in the Present Case

Timeline Applied by Court

Notice dated 30.07.2022 held time-barred.

In the present case, the original notice under Section 148 was issued on 29 June 2021, just one day before the expiry of the limitation period extended under TOLA.

Therefore, the surviving limitation available to the Revenue was only two days.

Pursuant to the directions in Ashish Agarwal, the Department supplied the reasons for reopening to the assessee on 18 May 2022, and the assessee was required to file a reply by 1 June 2022, which the assessee duly filed.

Applying the formula laid down in Rajeev Bansal, the surviving limitation of two days would start running after the expiry of the six-week transitional period (i.e., 4 weeks for the Department and 2 weeks for the assessee).

Consequently, the last date for issuance of notice under Section 148 would fall around 3 June 2022.

However, in the present case, the Assessing Officer issued the notice under Section 148 on 30 July 2022, which was far beyond the surviving limitation period.

6. Invalidity of the Second Notice under Section 148A(b)

An important aspect of the case was the second notice issued under Section 148A(b) on 26 July 2022 by the Mumbai Assessing Officer after the case was transferred from Delhi due to jurisdictional objections raised by the assessee.

The Revenue attempted to justify the delay by relying on this second notice and argued that the limitation should be computed from the date of this notice.

The High Court rejected this contention and held that the Supreme Court in Ashish Agarwal had granted only a limited window of 30 days to the Department to supply material. Once this period expired, the Department could not issue another notice under Section 148A(b) to restart the process.

Issuing such a notice beyond the prescribed period would amount to an artificial extension of the statutory limitation, which is impermissible in law.

Therefore, the second notice dated 26 July 2022 was held to be invalid and incapable of extending the limitation period.

7. Rejection of Revenue’s Reliance on the Fourth Proviso to Section 148A

The Revenue further relied upon the fourth proviso to Section 148A, which provided that where there is a change in jurisdiction of the Assessing Officer, a further period of seven days may be available for completing the proceedings.

The High Court rejected this argument, holding that the Supreme Court in Rajeev Bansal had already examined the entire statutory framework including TOLA and the provisos to Section 148A while prescribing the mechanism for computing the surviving limitation period.

Since the Supreme Court had already settled the method of computation, no additional extension could be granted beyond what was recognised by the Supreme Court.

Thus, the fourth proviso to Section 148A could not be invoked to enlarge the limitation period beyond the surviving limitation recognised by the Supreme Court.

8. Final Decision of the Court

Applying the principles laid down in Ashish Agarwal and Rajeev Bansal, the Bombay High Court held that:

(i) The surviving limitation available to the Revenue was only two days.

(ii) This limitation expired around 3 June 2022.

(iii) The notice under Section 148 issued on 30 July 2022 was clearly time-barred.

Accordingly, the Court quashed the notice under Section 148, the order under Section 148A(d), the reassessment order under Section 147 read with Section 144B, and the consequential demand and penalty notices.

Since the case was decided on the ground of limitation, the Court did not consider other issues such as jurisdiction.

9. Significance of the Judgment

This judgment is significant because it reiterates that reassessment proceedings initiated under the transitional regime cannot override statutory limitation.

The ruling reinforces the principle that:

(i) The Revenue cannot extend limitation by issuing fresh notices beyond the time granted by the Supreme Court.

(ii) The concept of surviving limitation laid down in Rajeev Bansal must be strictly applied.

(iii) Procedural developments such as transfer of jurisdiction cannot enlarge the limitation period.

Thus, the decision provides strong support for taxpayers challenging reassessment notices issued in July–August 2022 where the surviving limitation had already expired.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Rule. Respondents waive service. With the consent of parties, Rule made returnable forthwith and heard finally.

2. The present Petition has been filed primarily challenging the notice under Section 148 of the Income Tax Act, 1961 (“the IT Act”) dated 30th July 2022 issued by Respondent No. 1 seeking to reopen the Petitioner’s assessment for the A.Y. 2014-15, the order passed under Section 148A(d) of the IT Act dated 30th July 2022, the order disposing of objections dated 13th January 2026, and the consequential Assessment Order dated 29th January 2026 passed under Section 147 read with Section 144B of the IT Act for the A.Y. 2014-15.

3. The Petitioner had filed its original Return of Income on 29th November 2014 declaring a total income of Rs. 5,47,060/-. The case was selected for scrutiny and an Assessment Order under Section 143(3) was passed on 19th December 2016.

4. Subsequently, the assessment of the Petitioner for the year under consideration, i.e. A.Y. 2014-15, was reopened vide Notice dated 29th June 2021 issued under Section 148 of the IT Act by the Income Tax Officer, Ward 10(3), Delhi i.e., Respondent No. 3. The said Notice was undisputedly issued under the old regime i.e., under the law before its substitution by the Finance Act, 2021.

5. In Union of India V/S Ashish Agarwal [(2022) 444 ITR 1 (SC)], the Hon’ble Supreme Court held that notices of the present nature were deemed to be a notice under Section 148A(b) of the IT Act. The Hon’ble Supreme Court issued specific directions, mandating that the Assessing Officers shall, within 30 days from the date of the judgment (4th May 2022), provide the information and material relied upon by the Revenue to the assessees.

6. Pursuant to the directions in Ashish Agarwal (supra), Respondent No. 3 issued letter/notice dated 17th May 2022 and 18th May 2022 providing information to the Petitioner. The last day to file reply was 1st June 2022. The Petitioner filed a detailed reply on 1st June 2022. In the said reply, the Petitioner specifically objected to the jurisdiction of the Delhi Officer, pointing out that the Petitioner’s registered office had shifted to Mumbai in 2018, the PAN was migrated, and the return for A.Y.2020-21 was filed in Mumbai.

7. It appears that accepting the objection regarding jurisdiction, the proceedings were transferred to Mumbai. Thereafter, Respondent No. 1 (Mumbai Officer) issued a second notice under Section 148A(b) on 26th July 2022 and passed an order under Section 148A(d) on 30th July 2022 and issued the impugned notice under Section 148 on the same date, i.e., 30th July 2022. In the order disposing of the objections under Section 148A(d) of the IT Act, it has been accepted that the jurisdiction was transferred pursuant to the objection raised by the Petitioner.

8. The entire reassessment proceedings were challenged before this Court in Writ Petition No. 5737 of 2023. This Court, vide its order dated 1st March 2024, quashed the said notice, holding it to be barred by limitation. It appears that aggrieved by the said order, the Respondents preferred a Special Leave Petition before the Hon’ble Supreme Court. The Hon’ble Supreme Court, vide its order dated 24th January 2025, set aside the order of this Court with a direction to follow the decision of the Hon’ble Apex Court in the case of UOI V/S Rajeev Bansal [(2024) 469 ITR 46 (SC)].

9. Consequent to the revival of the assessment proceedings, Respondent No. 1 issued a notice under Section 142(1) of the IT Act dated 15th December 2025, reiterating the allegations and requiring the Petitioner to furnish various details.

10. The Petitioner, vide its detailed submission dated 7th January 2026, filed its objections to the reassessment proceedings. The primary objection raised was that the notice under Section 148 of the IT Act dated 30th July 2022 was barred by limitation based on the “surviving period” calculation as laid down in the case of Rajeev Bansal (supra).

11. Respondent No. 1, vide order dated 13th January 2026, disposed of the said objections. Respondent No. 1 rejected the Petitioner’s contention on limitation by invoking the fourth proviso to Section 148A of the IT Act, claiming that the period of limitation was extended to 7 days due to the transfer of jurisdiction.

12. Thereafter, further notices were issued, including a detailed notice under Section 142(1) dated 15th January 2026. Subsequently, a Show Cause Notice dated 20th January 2026 was issued proposing an addition of Rs. 50,82,540/-. The Petitioner’s request for adjournment was rejected vide letter dated 23rd January 2026.13. It is the Petitioner’s case that without allowing the Petitioner sufficient time, Respondent No. 1 passed the impugned Assessment Order under Section 147 read with Section 144B of the IT Act on 29th January 2026, confirming the addition of Rs. 50,82,540/- to the Petitioner’s income. A notice of demand was also raised on the same date.

14. In this factual backdrop, Mr. Gandhi, the learned counsel appearing on behalf of the Petitioner submitted as under:-

(a) The proceedings are time-barred as per the decision of the Hon’ble Supreme Court in Rajeev Bansal (supra). The original notice under Section 148 was issued on 29th June 2021. The time limit under TOLA expired on 30th June 2021. Thus, the “surviving period” available to the Revenue was only 2 days.

(b) The Petitioner replied to the show cause notice on 1st June 2022. Applying the ratio of Rajeev Bansal (supra), the notice under Section 148 ought to have been issued within 2 days from the date of the reply. However, the impugned notice under Section 148 was issued on 30th July 2022, which is clearly beyond the limitation period.

(c) The issuance of a second notice under Section 148A(b) on 26th July 2022 is bad in law. The Hon’ble Supreme Court in Ashish Agarwal (supra) granted a specific window of 4 weeks (30 days) for the Revenue to provide material. This period expired in early June 2022. The Department cannot issue a fresh notice in July 2022 to artificially extend the time-barring dates.

(d) The original notice under Section 148 (dated 29th June 2021) and the first Section 148A(b) notice (dated 18th May 2022) were issued by the Office in Delhi who had no jurisdiction over the Petitioner, a fact which was accepted by the Department by transferring the case. Therefore, the initiation of proceedings itself was without jurisdiction.

15. Per contra, the learned counsel for the Respondents relied upon the order disposing of objections dated 13th January 2026. It was submitted that since the jurisdiction was transferred to Mumbai, the time should be reckoned from the date of the second notice issued by the Mumbai Officer on 26th July 2022. Reliance was placed on the fourth proviso to Section 148A (as it then stood) to contend that the Revenue is entitled to an extension of 7 days, and therefore the notice dated 30th July 2022 is within time.

16. We have heard the learned counsel for the parties. The primary controversy revolves around the limitation period for issuing the notice under Section 148 of the Act in light of the judgment in Rajeev Bansal (supra). The Hon’ble Supreme Court has categorically held that the Revenue must issue the notice under Section 148 within the “surviving period” available under the IT Act read with TOLA. Further, the Hon’ble Supreme Court has also specified the method to compute the surviving period. The entire working of the surviving period hinges on the initial time frames given in the judgment of the Hon’ble Supreme Court in case of Ashish Agarwal (supra).

17. We find merit in the contention of the Petitioner regarding the second notice dated 26th July 2022. The Hon’ble Supreme Court in Ashish Agarwal (supra)exercised its powers under Article 142 to grant a one-time opportunity to the Revenue to regularize the notices issued under the old regime. The Court specifically directed the Assessing Officers to provide information within 30 days from the date of the judgment (4th May 2022). This timeline was to be strictly followed. The Department cannot unilaterally issue a second show cause notice under Section 148A(b) or any other notice on 26th July 2022, well beyond the 4 week period granted by the Hon’ble Supreme Court, merely to overcome the limitation or jurisdictional defects or for any other purposes. By issuing a notice beyond the prescribed period, the time-barring dates cannot be extended. This amounts to an artificial extension of time limits which is not permissible in law. The second notice dated 26th July 2022 is therefore, bad in law. Even assuming such notice is valid, still the limitation period has to be counted as per the decision in case of Rajeev Bansal (supra) i.e., on expiry of 30 days (time given to the Department to provide material to the assessees) and a further period of 2 weeks which was the time given to the assessees to file its reply. The second notice which is issued beyond the period for 4 weeks from the date of the decision in case of Ashish Agarwal (supra), and the due date to reply to such notice or the date of actual filing of reply to such notice, cannot be taken into account for computing the surviving period.

18. Regarding the Respondent’s reliance on the fourth proviso to Section 148A for a further extension of 7 days, we are unable to accept this submission. The Hon’ble Supreme Court in Rajeev Bansal (supra) have duly considered the proviso and statutory extensions available under the IT Act including the special extension granted by TOLA. Having considered the same, the Court derived a specific mechanism to calculate the “surviving period”. The Court has categorically held that the limitation period has to be counted on expiry of 6 weeks period (4 weeks for the Department to provide material and 2 weeks for the assessees to file reply). No further extension based on the fourth proviso can be granted over and above the mechanism settled by the Hon’ble Supreme Court, as no such additional time was granted by the Court.

19. To demonstrate that the impugned notice is time-barred, it would be apposite to set out the timelines in the present case in the following table:-

21. From the table set out above and applying the law laid down by the Hon’ble Supreme Court in Rajeev Bansal (supra) the remaining days for conclusion of the procedure for passing of an order in terms of Section 148A(d) and issuance of notice under Section 148 of the Act would be 2 days. As evident from the table above, the surviving period of 2 day expired on or about 3rd June 2022 (calculating from the date of reply/last date to file reply). The impugned notice under Section 148 was issued on 30th July 2022, which is patently beyond the limitation period prescribed by the Hon’ble Supreme Court. The issuance of the second notice on 26th July 2022 and time granted in the said notice upto 28th July 2022 cannot save the proceedings.

22. The Writ Petition accordingly succeeds. Since, we have allowed the Petition on the ground of limitation, we are not inclined to delve into the issue of jurisdiction or any other issues, at this stage.

23. In view of the foregoing discussion, the Writ Petition is allowed in terms of prayer clauses (a) which reads thus:-

“(a) that this Hon’ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, Order of direction, calling for the records of the Petitioner’s case and after going into the legality and propriety thereof, to quash and set aside the said notice under section 148 of the Act dated 30.07.2022 (“Exhibit K”), Order under section 148A(d) of the Act dated 30.07.2022 (“Exhibit J”) and show cause notice under section 148A(b) of the Act dated 29.06.2021 (“Exhibit D”), impugned Assessment Order dated 29.01.2026 (“Exhibit O”), notice dated 26.07.2022 (exhibit I1), the Order disposing objections dated 13.01.2026 (“Exhibit N”) and the consequential notice of demand and penalty notices.

24. Rule is made absolute in the aforesaid terms, and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.

25. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.