Introduction
The recent ruling by the Income Tax Appellate Tribunal (ITAT), Bangalore Bench, in Narayana Srinivasa v. Income Tax Officer (ITA 1539/BANG/2026), delivers a decisive blow to the Revenue’s attempt to reopen an assessment beyond the strict timelines mandated by the new reassessment regime. The Tribunal quashed the reassessment proceedings for Assessment Year 2016-17, holding that the notice issued under section 148 of the Income-tax Act, 1961, was time-barred by 28 days and that the mandatory approval under section 151 was obtained from an incompetent authority. This case serves as a critical precedent on the interplay between the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA), the Finance Act, 2021, and the Supreme Court’s directives in Ashish Agarwal and Rajeev Bansal. The decision underscores that jurisdictional defects in reopening cannot be cured by mere participation in proceedings and that the “surviving period” doctrine is a mandatory limitation, not a directory formality.
Facts of the Case
The assessee, a contractor, filed his return of income on 29.09.2016 for AY 2016-17, declaring a total income of Rs.3,16,600/-. The Assessing Officer (AO) issued a notice under section 148 of the old regime on 29.06.2021, within the extended period under TOLA. Following the Supreme Court’s decision in Ashish Agarwal, the AO treated this old-regime notice as a show-cause notice under section 148A(b) of the new regime and supplied information to the assessee on 02.06.2022. The assessee filed a reply on 16.06.2022. Subsequently, the AO passed an order under section 148A(d) and issued a notice under section 148 of the new regime on 13.07.2022. The AO considered income escaping assessment at Rs.39,11,259/- (25% of Rs.1,56,45,036/-) and brought it to tax as business income. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO’s action, prompting the assessee to appeal before the ITAT.
Reasoning and Legal Analysis
The ITAT’s reasoning is a masterclass in statutory interpretation and judicial discipline. The Tribunal framed the core issue: whether a notice under section 148 of the new regime, issued on 13.07.2022, was valid when the old regime had ended on 31.03.2021 and TOLA had extended the old-regime limitation only up to 30.06.2021. The Tribunal meticulously traced the legislative history: the Finance Act, 2021, replaced the entire reassessment scheme under sections 147 to 151 with effect from 01.04.2021. TOLA, however, extended the time limit for issuing notices under the old regime for cases falling between 20.03.2020 and 31.03.2021, up to 30.06.2021. The Supreme Court in Ashish Agarwal, exercising powers under Article 142, held that notices issued under the old regime between 01.04.2021 and 30.06.2021 would be deemed to be show-cause notices under section 148A(b) of the new regime, with the AO required to provide information and materials to the assessee.
The pivotal legal question was the limitation period for issuing the final notice under section 148 of the new regime. The Supreme Court in Rajeev Bansal held that such notices must be issued within the “surviving period.” The Tribunal extracted the principles: the surviving period is calculated by computing the number of days between the date of issuance of the deemed notice and 30th June, 2021; it starts ticking from the date of receipt of the assessee’s response by the AO; and the AO must consider the response, pass an order under section 148A(d), and issue the notice under section 148 within this surviving period. Notices issued beyond this period are time-barred and liable to be set aside.
Applying these principles, the Tribunal computed the surviving period in the assessee’s case. The original notice under section 148 was issued on 29.06.2021. The last date of TOLA was 30.06.2021. The balance, using the inclusive method, was 2 days. The minimum days available under the fourth proviso to section 149(1) was considered. The surviving period was determined as the higher of these two figures. The assessee filed its response to the 148A(b) notice on 16.06.2022. The period of two weeks allowed to the assessee to respond ended on 16.06.2022 (deemed stay as per the third proviso to section 149 and Para 114(g) of Rajeev Bansal). The last date for issuing notice under section 148 was computed as 16.06.2022 plus 7 days, i.e., 23.06.2022. However, the actual notice was issued on 13.07.2022. The Tribunal calculated the delay as 28 days (13.07.2022 minus 23.06.2022). Consequently, the notice was held to be time-barred under section 149 of the Act.
The Tribunal further reinforced its conclusion by referencing the jurisdictional preconditions for issuing a notice under section 148: (i) issuance within the period prescribed under section 149(1) read with TOLA, and (ii) obtaining previous approval under section 151. A notice issued without complying with these preconditions is invalid as it affects the AO’s jurisdiction. The Tribunal held that the reassessment notice, being beyond the surviving time limit, was void ab initio and bad in law. Consequently, the entire reassessment proceedings and the assessment order passed under section 147 read with section 144 read with section 144B were quashed.
Additionally, the Tribunal examined an alternative jurisdictional defect. The assessee challenged the validity of the approval obtained under section 151(ii) of the amended Act. The notice under section 148 dated 13.07.2022 had been issued after obtaining prior approval from the Principal Commissioner of Income Tax, Bangalore-3. However, the Tribunal noted that the reassessment proceedings under section 147 were amended by the Finance Act, 2021, with effect from 01.04.2021. The substituted section 151 specifies the sanctioning authority: for cases where three years or less have elapsed from the end of the relevant assessment year, the Principal Commissioner or Principal Director or Commissioner or Director is competent; but where more than three years have elapsed, the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General is the competent authority. In the assessee’s case, more than three years had elapsed from the end of AY 2016-17. Therefore, the approval from the Principal Commissioner was invalid, as it did not comply with section 151(ii). The Tribunal found merit in this argument and held that the AO lacked jurisdiction to initiate proceedings under section 147. This alternative finding further fortified the quashing of the reassessment.
The Tribunal’s reasoning is significant for its strict adherence to statutory timelines and jurisdictional requirements. It rejected any notion that the Revenue could assume jurisdiction based solely on the Ashish Agarwal judgment without complying with the subsequent limitations clarified in Rajeev Bansal. The computation of the surviving period, though technical, is a mandatory safeguard against arbitrary reopening. The Tribunal also clarified that the requirement of valid approval under section 151 is not a mere procedural formality but a jurisdictional precondition. The decision aligns with the broader judicial trend of protecting assessees from stale or improperly authorized reassessments.
Conclusion
The ITAT Bangalore’s ruling in Narayana Srinivasa is a robust affirmation of the rule of law in tax reassessment. By quashing the notice under section 148 as time-barred by 28 days and invalid for want of competent approval under section 151, the Tribunal has reinforced the mandatory nature of the “surviving period” doctrine and the strict hierarchy of sanctioning authorities. The case serves as a caution to the Revenue that the extraordinary powers of reopening cannot be exercised beyond the bounds of statutory limitation, even in the wake of the Ashish Agarwal transition. For assessees, it provides a potent jurisdictional defense against belated and improperly authorized reassessments. The decision is a testament to the ITAT’s commitment to legal precision and taxpayer protection.