Introduction
In a significant ruling on the limitation framework governing reassessment proceedings, the Income Tax Appellate Tribunal (“ITAT”), Ahmedabad Bench, quashed the reassessment order passed against Vishnu Pouch Packaging Pvt Ltd for Assessment Year 2014-15. The Tribunal held that the notice issued under Section 148 of the Income-tax Act, 1961 (“the Act”) on 27.07.2022 was barred by limitation, thereby invalidating the entire reassessment proceedings and the consequential addition made under Section 69C of the Act. The decision is a clear application of the Supreme Court’s pronouncements in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal, read with the jurisdictional High Court’s decision in Dhanraj Govindram Kella. The cross-appeal filed by the Revenue was dismissed as academic, since the foundational assessment itself failed.
Facts
The assessee had filed its return of income for A.Y. 2014-15 declaring Nil income. The original assessment was completed under Section 143(3) on 24.09.2016 at a total income of Rs. 2,42,95,900/-. Subsequently, the case was reopened on the basis of information that the assessee was a beneficiary of an accommodation entry of Rs. 2.15 crores from M/s. Seema Enterprise in respect of purchase of raw materials. A notice under Section 148 was issued on 30.06.2021.
During reassessment, the Assessing Officer (“AO”) noticed that the assessee had made total purchases of Rs. 11,87,19,968/- from M/s. Seema Enterprise. The assessment was completed under Section 147 read with Section 144B on 30.05.2023, making an addition under Section 69C of the Act. On appeal, the National Faceless Appeal Centre (“CIT(A)”) partly allowed the assessee’s appeal and restricted the addition to 6% of the bogus purchases, resulting in a sustained addition of Rs. 71,23,198/-.
Both the assessee and the Revenue challenged the CIT(A)’s order before the ITAT. The assessee’s preliminary and fundamental objection was that the entire reassessment was illegal because the notice under Section 148 was barred by limitation.
Reasoning
The core legal question before the ITAT was whether the order passed under Section 148A(d) and the consequential fresh notice under Section 148, both dated 27.07.2022, were issued within the time permissible under the Act read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (“TOLA”). The Tribunal answered this question in the negative.
The chronology, undisputed before the Tribunal, was critical. The original notice under Section 148 was issued on 30.06.2021. Under the Supreme Court’s decision in Union of India v. Ashish Agarwal, notices issued under Section 148 between 01.04.2021 and 30.06.2021 were deemed to be show-cause notices under Section 148A(b) of the substituted regime. The Supreme Court exercised jurisdiction under Article 142 of the Constitution to create this legal fiction. Consequently, the Revenue was required to supply the relevant material and proceed further in accordance with the new framework.
The Tribunal then applied the Supreme Court’s decision in Union of India v. Rajeev Bansal, which clarified the interplay between the deemed notice under Section 148A(b) and TOLA. The legal fiction in Ashish Agarwal treats the original notice as a deemed notice under Section 148A(b), and the surviving period of limitation under TOLA remains available for completing the reassessment process. This meant that the Assessing Officer was not entitled to a fresh or extended period of limitation beyond what was surviving under TOLA as on 30.06.2021.
On 30.06.2021, the last day of the extended period under TOLA, the surviving period was only one day. However, the Fourth Proviso to Section 149 of the Act provides that where the remaining period of limitation is less than seven days, it stands extended to seven days. Thus, the assessee had a seven-day window. The Tribunal carefully computed this window.
Thereafter, the Revenue supplied information under Section 148A(b) on 18.05.2022, and the assessee was granted time to reply up to 02.06.2022. The assessee in fact filed its reply on 30.05.2022, within the time granted. Under the Third Proviso to Section 149, the period from 18.05.2022 to 02.06.2022 was excluded while computing limitation. Therefore, the last permissible date for passing the order under Section 148A(d) and issuing the fresh notice under Section 148 was 09.06.2022, being seven days from 02.06.2022.
The Assessing Officer, however, passed the order under Section 148A(d) and issued the fresh notice under Section 148 only on 27.07.2022. That was 48 days after the last permissible date. The Tribunal therefore held that the notice was clearly barred by limitation. The legal consequence was that the reassessment proceedings lacked a valid jurisdictional foundation.
The Tribunal also rejected the contention advanced by the CIT-DR that the order under Section 148A(d) was valid because it was passed within one month from the end of the month in which the assessee’s reply was received. The Tribunal clarified that Section 148A(d) does not provide a fresh or independent period of limitation. The overriding limitation is the surviving period under the Act read with TOLA, as interpreted by the Supreme Court. A statutory deadline cannot be circumvented by reference to the procedural timeline within Section 148A(d).
Further, the Tribunal followed the jurisdictional High Court’s decision in Dhanraj Govindram Kella, which had already laid down the principle that such notices are invalid when issued beyond the surviving limitation period. Since the notice under Section 148 was invalid, the entire reassessment order, including the addition under Section 69C, was quashed.
The assessee had also raised substantive grounds challenging the validity of the purchases and the nature of the addition. However, since the preliminary objection succeeded and the reassessment itself failed, the Tribunal did not need to delve into the merits. The Revenue’s cross-appeal, which challenged the CIT(A)’s decision to restrict the addition to 6%, was rendered academic. Once the foundational assessment order was quashed, there was no surviving addition to be contested. The Revenue’s appeal was accordingly dismissed.
Conclusion
The ITAT Ahmedabad Bench delivered a decisive ruling on the limitation framework for reassessment under the amended provisions. By holding that the order under Section 148A(d) and the notice under Section 148 must be issued within the surviving period under TOLA, the Tribunal reinforced the procedural safeguards surrounding reassessment. The mere fact that the AO complied with the internal timeline of Section 148A(d) did not cure the fundamental defect of issuing the notice beyond the permissible period. The assessee’s appeal was allowed, and the Revenue’s cross-appeal was dismissed. This order is a strong reminder that jurisdictional compliance, particularly limitation, is the bedrock of valid reassessment proceedings.