Case Commentary: ITAT Ahmedabad Quashes Reassessment for Failure to Follow Post-Ashish Agarwal Procedure
Pranav Prakashchandra Kansara v. Income Tax Officer, Ward 5(3)(2), Ahmedabad
ITA No. 911/AHD/2026 | AY 2013-14 | ITAT “SMC” Bench, Ahmedabad
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Introduction
In a significant ruling delivered on 24.09.2026, the Income Tax Appellate Tribunal (ITAT), Ahmedabad Bench, quashed a reassessment proceeding initiated under Section 147 of the Income Tax Act, 1961, for Assessment Year 2013-14. The Tribunal, comprising Shri Sanjay Garg (Judicial Member) and Shri Narendra Prasad Sinha (Accountant Member), held that a notice under Section 148 dated 31.03.2021—but actually issued on 01.04.2021—was invalid because the Assessing Officer (AO) failed to follow the procedure mandated by the Supreme Court in Union of India v. Ashish Agarwal [441 ITR 1 (SC)] and Rajeev Bansal [167 taxmann.com 70 (SC)]. This case commentary analyses the ITAT’s reasoning and its implications for reassessment proceedings initiated during the transitional period governed by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).
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Facts of the Case
The assessee, Shri Pranav Prakashchandra Kansara, filed his return of income for AY 2013-14 on 28.01.2014, declaring total income of Rs. 3,38,388/-, which was processed under Section 143(1). Subsequently, the AO received information that the assessee was a Director in M/s. Aanal Aluminium Pvt Ltd., holding 38.35% shareholding. During the assessment of that company, it transpired that the company had advanced a loan to the assessee, resulting in a debit balance of Rs. 30,80,796/- as on 31.03.2013. Since the company had reserves and surplus of Rs. 34,26,240/-, the AO treated the loan as deemed dividend under Section 2(22)(e) of the Act.
The AO reopened the case by recording reasons and issuing a notice under Section 148 on 31.03.2021. The assessment was completed under Section 147 read with Section 144B on 27.03.2022, adding Rs. 30,80,796/- as deemed dividend, bringing the total income to Rs. 34,19,184/-. The assessee’s appeal before the National Faceless Appeal Centre (NFAC), Delhi, was dismissed on 05.01.2026. Aggrieved, the assessee filed a second appeal before the ITAT, raising multiple grounds, including the validity of the Section 148 notice, non-issuance of notice under Section 143(2), borrowed satisfaction, and the merits of the deemed dividend addition.
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Reasoning and Legal Analysis
The ITAT’s decision rests on a careful examination of the timeline and the legal framework governing reassessment notices issued during the transitional period. The assessee’s counsel, Shri Satish Solanki, argued that the notice under Section 148 was barred by limitation. The six-year limitation period for AY 2013-14 expired on 31.03.2020. Although the notice was dated 31.03.2021, the e-proceeding records showed it was actually issued on 01.04.2021—a fact not controverted by the Revenue.
The Revenue’s counsel, Shri Ashish K Pandey, contended that the notice was issued on 31.03.2021 and was within the extended time limit under TOLA, 2020. The ITAT acknowledged that the notice issued on 01.04.2021 fell within the TOLA-extended period. However, the Tribunal focused on the procedural consequences flowing from the Supreme Court’s landmark rulings.
In Ashish Agarwal (supra), the Supreme Court held that all notices issued under Section 148 during the period from 01.04.2021 to 30.06.2021 are deemed to be notices under Section 148A(b) of the Act, as amended by the Finance Act, 2021. The Court directed that the AO must supply the relevant materials to the assessee within 30 days and grant 15 days’ time to reply before passing an order under Section 148A(d). This direction was intended to harmonise the old and new reassessment regimes during the transitional period.
Furthermore, in Rajeev Bansal (supra), the Supreme Court clarified that only the time surviving under the Income Tax Act read with TOLA would be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notice under Section 148A(b), including the issuance of a fresh notice under Section 148 under the new regime. The surviving period is calculated by computing the number of days between the date of issuance of the original notice under Section 148 and 30.06.2021.
Applying these principles, the ITAT found that since the original notice was issued on 01.04.2021, the AO had a surviving period of 89 days. The AO was obligated to provide the materials to the assessee, obtain his reply, pass an order under Section 148A(d), and thereafter issue a fresh notice under Section 148 under the new regime—all within this 89-day window. The Tribunal noted that the AO failed to take any of these steps. No notice under Section 148A(b) was issued, no order under Section 148A(d) was passed, and no fresh notice under Section 148 was issued within the surviving period.
The ITAT held that this failure was fatal to the reassessment proceeding. The notice under Section 148 dated 31.03.2021, issued on 01.04.2021, was declared invalid, and the consequent assessment order passed under Section 147 read with Section 144B on 27.03.2022 was quashed. The Tribunal allowed the ground taken by the assessee on the validity of the notice.
Since the assessment order stood quashed, the other grounds raised by the assessee—including the non-issuance of notice under Section 143(2), the alleged borrowed satisfaction, the change of opinion argument relying on Adani Power Rajasthan Ltd. v. ACIT [150 taxmann.com 136 (Gujarat)], and the merits of the deemed dividend addition under Section 2(22)(e)—became infructuous and were not adjudicated.
This decision underscores the mandatory nature of the procedural safeguards introduced by the Finance Act, 2021, and affirmed by the Supreme Court. The ITAT’s ruling reinforces that reassessment notices issued during the transitional period cannot bypass the Section 148A mechanism. The AO’s failure to comply with the Ashish Agarwal directions and the Rajeev Bansal timeline renders the entire reassessment proceeding void. The Tribunal’s reliance on the e-proceeding records to establish the actual date of issuance of the notice also highlights the importance of documentary evidence in challenging jurisdictional defects.
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Conclusion
The ITAT Ahmedabad’s ruling in Pranav Prakashchandra Kansara is a significant affirmation of the procedural rigour required in reassessment proceedings. By quashing the assessment order for the AO’s failure to follow the post-Ashish Agarwal procedure within the surviving period of 89 days, the Tribunal has reinforced the supremacy of the Supreme Court’s directions. This case serves as a cautionary tale for tax authorities: reassessment notices issued during the transitional period must strictly comply with the deemed notice fiction under Section 148A(b), and any deviation renders the entire proceeding invalid. The decision also highlights the importance of maintaining accurate e-proceeding records, as the actual date of issuance proved decisive in this case.
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