The Income Tax Appellate Tribunal Delhi has delivered a decisive ruling affirming that reassessment notices issued under Section 148 of the Income-tax Act beyond the statutory limitation period are void ab initio. This judgment reinforces the non-negotiable nature of limitation timelines in tax proceedings and clarifies the application of legal fictions created by the Supreme Court in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal.
Background & Facts
The Dispute
The appellant, KLM Steel Pipe Pvt. Ltd., faced reassessment proceedings initiated by the Income Tax Department for Assessment Years 2013-14 and 2014-15. The Department issued notices under Section 148 of the Income-tax Act, 1961, on 27.07.2022 and 26.07.2022 respectively, following earlier notices issued under the pre-amendment regime. The assessee challenged the validity of these notices on grounds of limitation, arguing that the notices were issued after the statutory period had expired.
Key Facts
Original notices under Section 148 were issued for AY 2013-14 on 28.06.2021 and for AY 2014-15 on 25.06.2021, under the old provisions of the Act.
The Finance Act, 2021, substituted Section 148 with effect from 01.04.2021, introducing a new procedural regime under Sections 148A and 148.
The Department issued notices under Section 148A(b) on 21.05.2022 for both assessment years.
The assessee filed replies on 27.06.2022 (for AY 2013-14) and 16.06.2022 (for AY 2014-15).
The Assessing Officer passed orders under Section 148A(d) on 27.07.2022 and 26.07.2022 respectively, and issued fresh notices under Section 148 on the same dates.
The reassessment orders under Section 147 were passed on 07.04.2023.
Procedural History
28.06.2021: Original notice under Section 148 issued for AY 2013-14
25.06.2021: Original notice under Section 148 issued for AY 2014-15
21.05.2022: Notices under Section 148A(b) issued for both AYs
04.06.2022: Due date for reply to Section 148A(b) notices
27.06.2022: Reply filed by assessee for AY 2013-14
16.06.2022: Reply filed by assessee for AY 2014-15
27.07.2022: Notice under Section 148 issued for AY 2013-14
26.07.2022: Notice under Section 148 issued for AY 2014-15
07.04.2023: Reassessment orders passed under Section 147
19.11.2025: Order of the National Faceless Appeal Centre (CIT(A)) upholding reassessment
29.04.2026: ITAT Delhi delivered judgment on appeals
Relief Sought
The assessee sought quashing of the reassessment notices and orders for both assessment years on the ground that they were issued beyond the statutory limitation period under Section 149 of the Act. The appellant also sought cancellation of penalty proceedings initiated under Section 271(1)(c) arising from the reassessment.
The Legal Issue
The central question was whether the notices issued under Section 148 of the Income-tax Act on 27.07.2022 and 26.07.2022 for Assessment Years 2013-14 and 2014-15 respectively were issued within the statutory limitation period, in light of the legal fiction and exclusionary rules laid down by the Supreme Court in Union of India v. Rajeev Bansal.
Arguments Presented
For the Appellant
The appellant relied on the Supreme Court’s judgment in Union of India v. Rajeev Bansal (469 ITR 46), which held that the period of limitation for issuing a reassessment notice under the new regime begins to run only after the assessee’s reply to the Section 148A(b) notice is received. The appellant argued that the surviving period of limitation, as preserved under the old regime and extended by TOLA, was exhausted before the notices were issued. For AY 2013-14, the last date for issuance was 29.06.2022, and for AY 2014-15, it was 21.06.2022. The notices issued on 27.07.2022 and 26.07.2022 were therefore time-barred.
For the Respondent
The Revenue contended that the notices under Section 148A(d) and Section 148 were issued within the time permitted under the new procedural framework, and that the seven-day window under the fourth proviso to Section 149 allowed sufficient leeway. It further argued that the AO had acted in good faith and that technicalities should not defeat the revenue’s right to reassess.
The Court's Analysis
The Tribunal carefully examined the timeline and applied the principles laid down in Union of India v. Rajeev Bansal. The Court noted that the legal fiction created in Ashish Agarwal stops the limitation clock from the date of the original notice under the old regime, and excludes the period between issuance of the notice and the supply of material, as well as the two-week reply period granted to the assessee.
"The clock started ticking for the Revenue only after it received the response of the assesses 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 required to complete these procedures within the surviving time limit."
For AY 2013-14, the surviving limitation period was two days (from 28.06.2021 to 30.06.2021). After excluding the reply period and the time between the Supreme Court’s judgment and the issuance of the Section 148A(b) notice, the extended due date for issuing the notice under Section 148 was 29.06.2022. The notice issued on 27.07.2022 was therefore beyond the limitation period.
Similarly, for AY 2014-15, the surviving period was five days. The extended due date was 21.06.2022. The notice issued on 26.07.2022 was clearly time-barred.
The Tribunal also relied on the Delhi High Court’s decision in Ram Balram Buildhome v. ITO, which held that the time available under Section 149 for issuing a notice under Section 148 is not extended by the seven-day window under the fourth proviso if the AO had more than seven days remaining at the time of receiving the reply.
The Court concluded that the reassessment proceedings were initiated without jurisdiction and were void ab initio.
The Verdict
The appeals were allowed. The ITAT quashed the notices issued under Section 148 on 27.07.2022 and 26.07.2022 for Assessment Years 2013-14 and 2014-15 respectively. The reassessment orders under Section 147 dated 07.04.2023 were set aside. The penalty proceedings under Section 271(1)(c) were also quashed as they had no legal basis. The Department was directed to treat the assessments as closed as per the original returns filed.
What This Means For Similar Cases
Limitation Is Absolute in Reassessment Proceedings
Practitioners must calculate the surviving limitation period from the original notice date under the old regime, excluding all statutorily mandated periods.
The two-week reply period under the third proviso to Section 149(1) must be excluded from the limitation computation.
The seven-day window under the fourth proviso does not extend the limitation if the AO had more than seven days remaining after receiving the reply.
Reassessment Notices Are Void Ab Initio if Time-Barred
A notice issued beyond the limitation period cannot be cured by subsequent compliance.
Any assessment order based on such a notice is void and must be quashed, regardless of the merits of the reassessment.
Penalty proceedings initiated on the basis of a void reassessment are also invalid.
Procedural Compliance Is Non-Negotiable
The Revenue cannot rely on administrative convenience or good faith to justify non-compliance with limitation timelines.
The legal fictions created by the Supreme Court are not discretionary; they are mandatory for computation of limitation.
Tax officers must maintain precise timelines and avoid delays in issuing notices under Section 148A(d) and Section 148.
