The Income Tax Appellate Tribunal, Delhi has delivered a critical ruling on the limitation period for issuing reassessment notices under Section 148 of the Income Tax Act, 1961. The judgment clarifies that notices issued beyond the prescribed time limit, even after the Supreme Court's directions in Union of India v. Ashish Agarwal, are void ab initio. This decision provides much-needed certainty for taxpayers facing reassessment proceedings and reinforces the principle that procedural compliance is non-negotiable in tax matters.
Background & Facts
The Dispute
The appellant, K&S Fincon Pvt. Ltd., challenged a reassessment order passed under Section 147 read with Section 144B of the Income Tax Act for the Assessment Year 2013-14. The Assessing Officer (AO) initiated reassessment proceedings based on information received through the Insight Portal, which alleged that the appellant was a beneficiary of bogus transactions routed through entities like M/s Zubri Fibers Pvt. Ltd.. The AO issued a notice under Section 148 on 07-06-2021, followed by a fresh notice on 20-07-2022 after the Supreme Court's directions in Ashish Agarwal.
Procedural History
The case progressed through the following stages:
- 26-10-2013: Original return filed declaring income of Rs. 29,820/-
- 13-03-2014: Return processed under Section 143(1)
- 14-03-2016: Scrutiny assessment completed under Section 143(3) with assessed income of Rs. 6,75,260/-
- 07-06-2021: First notice under Section 148 issued
- 04-05-2022: Supreme Court's judgment in Ashish Agarwal directed conversion of old regime notices to new regime
- 18-05-2022: Fresh notice issued under Section 148A(b)
- 20-07-2022: Final notice under Section 148 issued
- 29-05-2023: Reassessment order passed with income assessed at Rs. 12,38,71,899/-
- 29-08-2025: NFAC partly allowed the appeal and remanded the matter to the AO
Relief Sought
The appellant contended that the notice dated 20-07-2022 under Section 148 was barred by limitation and sought quashing of the reassessment proceedings.
The Legal Issue
The central question before the Tribunal was whether a notice issued under Section 148 of the Income Tax Act beyond the limitation period prescribed under Section 149, even after the Supreme Court's directions in Ashish Agarwal, is valid and enforceable.
Arguments Presented
For the Appellant
The appellant argued that the notice dated 20-07-2022 was time-barred as the limitation period for issuing a notice under Section 148 for the Assessment Year 2013-14 expired on 31-03-2021. The appellant relied on the Supreme Court's judgment in Union of India v. Rajeev Bansal, which held that:
- The legal fiction created in Ashish Agarwal stopped the clock of limitation from the date of issuance of the original notice under the old regime.
- The period from the issuance of the deemed notice to the supply of information to the assessee must be excluded from the computation of the limitation period.
- The assessing officer must complete the reassessment procedures within the surviving time limit.
The appellant also cited several ITAT decisions, including Deveshi Sharma v. ITO and Honeywell Exim Pvt. Ltd. v. ACIT, to support the contention that notices issued beyond the limitation period are void.
For the Respondent
The respondent contended that the appeal before the NFAC was partly allowed, and the matter was remanded to the AO, implying that the Tribunal lacked jurisdiction to decide the legal issue at this stage. The respondent relied on the orders of the lower authorities and argued that the limitation issue was not conclusively decided by the NFAC.
The Court's Analysis
The Tribunal examined the Supreme Court's judgment in Rajeev Bansal in detail, which clarified the application of the legal fiction created in Ashish Agarwal. The Court observed that:
"The effect of the creation of the legal fiction in Ashish Agarwal was that it stopped the clock of limitation with effect from the date of issuance of Section 148 notices under the old regime. 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 has to be excluded from the computation of the period of limitation."
The Tribunal noted that the Supreme Court in Rajeev Bansal had held that the assessing officer must issue the reassessment notice within the surviving time limit after accounting for all exclusions. In the present case, the original notice was issued on 07-06-2021, and the extended due date for issuing the notice under Section 148 expired on 25-06-2022. However, the final notice was issued on 20-07-2022, which was beyond the permissible time limit.
The Tribunal also rejected the respondent's argument that it lacked jurisdiction to decide the limitation issue, holding that legal issues not decided by the NFAC could be adjudicated by the Tribunal.
The Verdict
The Tribunal allowed the appeal and held that the notice issued under Section 148 on 20-07-2022 was time-barred by limitation. Consequently, the reassessment proceedings were quashed as void ab initio. The Tribunal did not adjudicate the other grounds raised by the appellant, as they had become academic.
What This Means For Similar Cases
Reassessment Notices Must Strictly Comply With Limitation Periods
The judgment reinforces the principle that reassessment notices under Section 148 must be issued within the limitation period prescribed under Section 149. Practitioners should:
- Verify the date of issuance of the original notice and the final notice under Section 148.
- Calculate the surviving time limit after excluding the periods specified in Rajeev Bansal.
- Challenge notices issued beyond the limitation period as void ab initio.
Legal Fiction in Ashish Agarwal Does Not Extend Limitation Indefinitely
The Tribunal's decision clarifies that the legal fiction created in Ashish Agarwal does not grant the revenue an indefinite extension of time. The assessing officer must adhere to the surviving time limit after accounting for exclusions. Taxpayers can rely on this judgment to challenge reassessment proceedings initiated beyond the permissible period.
Procedural Compliance Is Non-Negotiable
The judgment underscores the importance of procedural compliance in tax matters. Even where the revenue seeks to rely on judicial directions, such as those in Ashish Agarwal, it must ensure that all procedural requirements, including the limitation period, are strictly followed. Failure to do so will render the reassessment proceedings void.
- Actionable Takeaways for Practitioners:
- Always check the limitation period for reassessment notices under Section 149.
- Exclude the periods specified in Rajeev Bansal when calculating the surviving time limit.
- Argue that notices issued beyond the limitation period are void ab initio, even if issued pursuant to judicial directions.
- Cite Rajeev Bansal and this judgment to support challenges to time-barred reassessment proceedings.
