The Income Tax Appellate Tribunal, Mumbai, has invalidated reassessment proceedings initiated under Section 147 of the Income Tax Act, holding that the notice under Section 148 was issued beyond the statutory limitation period. The decision hinges on the Supreme Court’s interpretation in Union of India v. Rajeev Bansal, clarifying how the survival time for reassessment notices must be computed by excluding both the period of judicial stay and the time granted to the assessee to respond to show cause notices under Section 148A(b).
Background & Facts
The Dispute
The assessee, Ketan Chatrabhuj Thakker, filed his return of income for Assessment Year 2014-15 on 08/08/2015, declaring a total income of Rs. 2,19,770. The Revenue later initiated reassessment proceedings on the ground that the assessee had acquired shares of a company at a price below market value, triggering potential tax liability under Section 68. A notice under Section 148 was issued on 22/06/2021. However, following the Supreme Court’s judgment in Ashish Agarwal v. Union of India ([2022] 444 ITR 1), this notice was deemed to have been issued under the newly introduced Section 148A(b) regime, requiring the Revenue to provide material and information to the assessee before proceeding.
Key Facts
- The assessee filed return of income on 08/08/2015
- Notice under Section 148 issued on 22/06/2021
- Due to Ashish Agarwal, the 22/06/2021 notice was treated as a deemed show cause notice under Section 148A(b)
- Show cause notice under Section 148A(b) issued on 26/05/2022, with response deadline of 13/06/2022
- Assessee did not file any reply to the show cause notice
- Order under Section 148A(d) passed on 27/07/2022, declaring it fit to issue notice under Section 148
- Second notice under Section 148 issued on 27/07/2022
- Assessment order under Section 147 read with Section 144B passed on 25/05/2023, adding Rs. 2,36,97,035 under Section 68
- Appeal filed before CIT(A) on jurisdictional grounds
- CIT(A) dismissed appeal on 09/12/2025
- Appeal filed before ITAT on 12/04/2026
- ITAT order dated 05/05/2026
Procedural History
- 08/08/2015: Assessee filed return of income for A.Y. 2014-15
- 22/06/2021: Original notice under Section 148 issued
- 26/05/2022: Show cause notice under Section 148A(b) issued
- 13/06/2022: Deadline for assessee’s reply expired (no reply filed)
- 27/07/2022: Order under Section 148A(d) passed; Section 148 notice issued same day
- 25/05/2023: Assessment order under Section 147 r.w. Section 144B passed
- 09/12/2025: CIT(A) dismissed appeal
- 12/04/2026: Appeal filed before ITAT
- 27/04/2026: Hearing held
- 05/05/2026: ITAT order pronounced
Relief Sought
The assessee sought quashing of the reassessment notice dated 27/07/2022 and the consequent assessment order dated 25/05/2023, on the ground that the notice was issued beyond the limitation period under Section 149 of the Act.
The Legal Issue
The central question was whether the notice under Section 148 issued on 27/07/2022 was within the limitation period prescribed under Section 149, considering the Supreme Court’s directive in Rajeev Bansal that the surviving time under the old regime must be computed by excluding both the period of judicial stay and the time granted to the assessee to respond to the show cause notice under Section 148A(b).
Arguments Presented
For the Appellant
The learned Authorized Representative contended that the notice under Section 148 issued on 27/07/2022 was time-barred. Relying on Union of India v. Rajeev Bansal (2024) 469 ITR 46 (SC), he argued that the surviving time under the old regime (as extended by TOLA till 30/06/2021) was only nine days (from 22/06/2021 to 30/06/2021). After the show cause notice under Section 148A(b) was issued on 26/05/2022 and the assessee was granted time till 13/06/2022 to respond, the limitation period resumed only after that date. The Revenue had nine days from 13/06/2022 to issue the notice under Section 148, making the last date for issuance 22/06/2022. Since the notice was issued on 27/07/2022, it was beyond the limitation period and void ab initio.
For the Respondent
The Revenue did not contest the applicability of Rajeev Bansal but argued that the time for response under Section 148A(b) was not mandatory and that the assessee’s failure to reply did not affect the computation of limitation. It further contended that the notice under Section 148A(d) and the subsequent Section 148 notice were issued within a reasonable time after the show cause notice, and that the assessee had ample opportunity to be heard.
The Court's Analysis
The Tribunal meticulously applied the Supreme Court’s reasoning in Rajeev Bansal, particularly paragraphs 106 to 112, to compute the limitation period. The Court noted that the legal fiction created by Ashish Agarwal required the 22/06/2021 notice to be treated as a deemed show cause notice under Section 148A(b), and that the time between 01/04/2021 and 30/06/2021 was stayed until material was supplied. The surviving time under the old regime was calculated as nine days (22/06/2021 to 30/06/2021). The Tribunal held that the third proviso to Section 149 mandates exclusion of the entire time granted to the assessee to respond to the show cause notice, regardless of whether a reply was filed.
"The third proviso to Section 149 allows the exclusion of time allowed for the assessee to respond to the show cause notice under section 148A(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."
The Tribunal emphasized that the assessee’s non-response does not negate the statutory right to time, and that the limitation clock only resumes after the expiry of the granted period. The Revenue’s right to issue the notice under Section 148 thus began on 14/06/2022, and the nine-day surviving period expired on 22/06/2022. The notice issued on 27/07/2022 was therefore beyond the limitation period.
The Court further held that since the notice under Section 148 was void ab initio, the entire reassessment proceedings and the assessment order under Section 147 r.w. Section 144B were also invalid.
The Verdict
The appeal was allowed. The ITAT quashed the notice under Section 148 issued on 27/07/2022, and consequently set aside the assessment order dated 25/05/2023 passed under Section 147 r.w. Section 144B. The reassessment proceedings for A.Y. 2014-15 are declared void ab initio. The order of the CIT(A) dated 09/12/2025 is also set aside. The original return filed on 08/08/2015 stands restored.
What This Means For Similar Cases
Limitation Is Computed Strictly by Statutory Formula
- Practitioners must now compute the limitation for reassessment notices using the exact formula: surviving time under TOLA minus days elapsed, plus exclusion of time granted to assessee under Section 148A(b)
- Even if the assessee does not respond to the show cause notice, the full time granted must be excluded from limitation computation
- Failure to apply this formula renders the notice void, regardless of the merits of the case
Non-Response Does Not Extend Revenue’s Time
- The Revenue cannot argue that non-response by the assessee justifies delay in issuing the notice under Section 148
- The statutory exclusion under the third proviso to Section 149 is automatic and mandatory
- Any reassessment notice issued after the expiry of the computed period is liable to be quashed
Procedural Compliance Is Non-Negotiable
- The ITAT’s reliance on Rajeev Bansal confirms that procedural compliance under Section 148A is not optional
- Revenue authorities must strictly adhere to timelines and cannot rely on equitable considerations
- Tax practitioners should routinely verify limitation periods in reassessment notices using the Rajeev Bansal methodology, especially for notices issued between 01/04/2021 and 30/06/2021
