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Facts
The Revenue filed appeals against the orders of the CIT(A) concerning assessment years 2014-15 and 2015-16. The assessee filed a cross-objection for assessment year 2015-16. The core issue revolves around the validity of reassessment notices issued under Section 148, challenging the legality of reassessment proceedings.
Held
The Tribunal held that the notices issued under Section 148 for both assessment years were barred by limitation and thus invalid. Consequently, the reassessment proceedings and orders were quashed.
Key Issues
Whether the reassessment notices issued under Section 148 were within the limitation period prescribed by the Income-tax Act, considering the amendments by the Finance Act, 2021 and the TOLA provisions, as interpreted by the Supreme Court in Ashish Agarwal and Rajeev Bansal.
Sections Cited
147, 148, 148A, 143(3), 149, 151, 3(1)
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Income Tax Appellate Tribunal, “A” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: These captioned appeals filed by the Revenue are against the orders of Ld. CIT(A)-53, Mumbai vide order nos.
ITBA/APL/S/250/2024-25/1067371868(1), dated 06.08.2024 & ITBA/APL/S/250/2024-25/1067371345(1), dated 06.08.2024 and Cross Objection filed by the assessee against the order of Ld. CIT(A)-53, Mumbai vide order no. ITBA/APL/S/250/2024-25/1067371345(1), dated 06/08/2024 passed against the assessment orders by Asst. Commissioner of Income Tax, Central Circle 5(4), Mumbai, u/s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 30.05.2023 for Assessment Years 2014-15 and 2015-16.
2. Grounds taken by the Revenue in A.Y.2014-15 are reproduced as under: “1.On the facts and circumstances of the case, the Ld. CIT(A) erred in holding that notice issued u/s 148 of the Act dated 28.07.2022 as invalid ignoring the fact that the original notice u/s 148 of the Act was issued on 30.06.2021 i.e. within the extended time limit by TOLA, 2021. 2.On the facts and circumstances of the case, the Ld. CIT(A) erred in holding that notice issued 148 of the Act as invalid without appreciating the fact that the notice was issued following the decision of the Hon'ble Supreme Court in the case of Ashish Agrawal.
3. On the facts and circumstances of the case, the Ld. CIT(A) erred in allowing the expense of Rs. 3,28,17,678/- paid as sub contracting charges to Alia Construction without appreciating the fact that the assessee did not file any documentary evidence in support of expense.
4. On the facts and circumstances of the case, the Ld CIT(A) erred in allowing the expense of Rs. 3,28,17,678/- paid as sub contracting charges to Alia Construction without appreciating the fact that the contract work was done by Alia Constructions whereas the payment against the contract was done in the bank account held in the name of Shri Firoz Khan. 5. On the facts and circumstances of the case, the Ld. CIT(A) erred in allowing the expense of Rs. 3,28,17,678/- paid as sub contracting charges to Alia Construction without appreciating the fact that Shri Firoz Khan had never filed his return of income. 6. On the facts and circumstances of the case, the Ld CIT(A) erred in deleting the addition of Rs. 4,89,87,378/- on account of improper gratification ignoring the fact that Shri Asuri Narayanan, financial controller at M/s Cognizant Solutions India Pvt. Ltd., in his statement recorded under oath has specifically stated that improper gratification were paid by L & T and these payments were reimbursed by CTS.
7. On the facts and circumstances of the case, the Ld. CIT(A) erred in deleting the addition of Rs. 4,89,87,378/- on account of improper gratification ignoring the fact that enquiry conducted by Security and Exchange Commission, USA has held that L & T had made payment of improper gratification and same were reimbursed in form of variation bill raised by L & T.
2.1. Grounds taken by the Revenue in A.Y.2015-16 are reproduced as under: “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the expense of Rs. 1,58,18,819/-paid as sub contracting charges to Alia Construction without appreciating the fact that the assessee did not file any documentary evidence in support of expense.
2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the expense of Rs. 1,58,18,819/- paid as sub contracting charges to Alia Construction without appreciating the fact that the contract work was claimed to have been done by Alia Constructions whereas the payment against the contract was done in the bank account held in the name of Shri Firoz Khan.
3. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the expense of Rs. 1,58,18,819/- paid as sub contracting charges to Alia Construction without appreciating the fact that Shri Firoz Khan had never filed his return of income.
4. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 13,47,00,000/- on account of improper gratification ignoring the fact that Shri Asuri Narayanan, financial controller at M/s Cognizant Solutions India Pvt. Ltd., in his statement recorded under oath has specifically stated that improper gratification were paid by L & T and these payments were reimbursed by CTS.
5. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 13,47,00,000/- on account of improper gratification ignoring the fact that enquiry conducted by Security and Exchange Commission, USA has held that L & T had made payment of improper gratification and same were reimbursed in form of variation bill raised by L & T.”
2.2. Grounds of objections raised by the assessee in its Cross Objection No.282/Mum/2024 for A.Y.2015-16 are reproduced hereunder:- “1. On the facts and circumstances of the case and for various propositions in law, the Ld. Commissioner of Income-tax (Appeals)-53 erred in upholding the reopening u/s 147 of the Income-tax Act, 1961 ("the Act") and passing the reassessment order u/s 148 of the Act,
The Cross objector prays that the reopening u/s.148 and the reassessment order passed u/s. 147 of the Act be held as bad in law, invalid, void ab initio and be quashed.”
2.3. Revenue is in appeal for Assessment Year 2014-15 and 2015-16 whereas assessee has filed its cross objection for Assessment Year 2015-16 only. Issues involved in these appeals and cross objection are common and therefore taken up together for adjudication by passing this consolidated order. Essentially, the issue contested is on legal grounds challenging the validity of reassessment proceedings, initiated u/s. 148 and thereby reassessment order u/s.143(3) rws 147.
2.4. Both the parties have made their extensive submissions on the issues relating to legal grounds along with written synopsis, charts and copies of various judicial precedents relied upon. Assessee has also placed on record a factual paper book containing 202 pages to corroboratively demonstrate factual matrix of the case relevant to the legal issues to be dealt herein. Merits of the case have not been argued upon by either parties nor any submission made to that effect. Accordingly, we draw facts from the records relating to legal grounds, argued before the Bench.
Facts as culled out from records are that assessee is engaged in the business of manufacture and selling of heavy engineering, electrical and electronic goods and allied products, construction and other diversified business activities of marketing, construction and earth moving machineries, welding electrodes, valves and related products. We first take up appeal for Assessment Year 2014-15 for which return of income was filed on 29.11.2014, reporting total income at Rs.4751,33,29,070/-. This return was revised on 31.03.2016, reporting revised total income at Rs. 4710,15,22,440/-. Assessment u/s. 143(3) was completed by passing an order dated 30.12.2016 after making certain additions and disallowances, resulting in total assessed income at Rs.4672,95,29,799/-.
3.1. Subsequently, case of the assessee was taken up for re- assessment by issuing notice u/s. 148, dated 30.06.2021 alleging escapement of income from the assessment. Reasons to believe recorded for the purpose of invoking re-assessment proceedings were supplied to the assessee vide letter dated 03.11.2021 wherein objections filed by the assessee were also disposed of. In its objection on notice issued u/s.148, the moot point contested by the assessee was that notice had been issued without following the law applicable u/s.148A, which is effective from 01.04.2021 and hence the proceedings so initiated are bad in law. According to the assessee, said notice issued on 30.06.2021 is barred by limitation, taking into consideration the amended provisions of Section 149 of the Act.
3.2. Ld. Assessing Officer, while dismissing the objections raised by the assessee observed that impugned notice was issued within the powers of the Department owing to time extended for the operation of old provisions of section 148 of the Act, till 30.06.2021. According to him, this was done by the Ministry of Finance by way of conditional legislation in the peculiar circumstances which arose during the pandemic and lock down for Covid-19. He thus, held the impugned notice as valid and legal.
3.3. To delve on the issue in hand before us, let us take note of the litigation journey so far and then adjudicate upon the same taking into consideration the amendments brought into the statute by the Finance Act, 2021 relating to re-assessment procedures, judgements of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal [2022] 138 taxmann.com 64 (SC) dated 04.05.2022 followed by decision in the case of Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC), dated 03.10.2024 as well as provisions contained in Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (hereinafter referred to as ‘TOLA’) and Suo moto Writ Petition by Hon'ble Supreme Court in Suo Moto Writ Petition (C)No. 3 of 2020, dated 10.01.2022.
3.4. While TOLA was already in vogue, Finance Act, 2021 amended re- assessment related provisions w.e.f. 01.04.2021. These amended provisions made a significant change in the way re-assessment proceedings are initiated and the limitation period in relation thereto. One of the key amendments is introduction of section 148A. Pursuant to section 148A, it is mandatory for the Assessing Officer to provide an opportunity of being heard to the assessee by serving a notice of show cause as to why the notice u/s. 148 should not be issued. Further, Assessing Officer is required to consider reply, if any, filed by the assessee in response to the said show cause notice. The procedural requirement contained in section 148A, for the Assessing Officer to comply with, mentions that – i. Assessing Officer shall conduct any enquiry, if required, with the approval of the specified authority, with respect to information which suggests that income chargeable to tax has escaped assessment. ii. He shall provide an opportunity of being heard to the assessee with the prior approval of the specified authority. iii. He shall consider the reply of the assessee furnished, if any in response to the show cause notice. iv. He shall decide on the basis of material available on record and after considering the reply of the assessee as to fitness of the case to issue a notice u/s.148 for which a specific order shall be passed within the stipulated time. v. Thus, section 148A under the new regime of re-assessment is a provision brought on the statute which is in the nature of condition precedent to issuing of notice u/s.148.
3.5. Also, first proviso to section 149 under the new regime introduced by the Finance Act, 2021 prescribed limitation on issuance of notice by taking into consideration the time limit available under the old regime for the relevant assessment year. First proviso to section 149 states, “Provided that no notice u/s.148 shall be issued at any time in a case for the relevant Assessment Year beginning on or before 1st day of April, 2021, if a notice under section 148 or section 153A or section 153C could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section or section 153A or section 153C, as the case may be, as they stood immediately before the commencement of the Finance Act, 2021”
3.6. This proviso to section 149 provided a defence and limitation on issuance of notices under the new regime of re-assessment relating to the Assessment Years covered by the old regime. Thus, first proviso to section 149 under the new regime limits the retrospective operation to protect the interest of assessees. In the present case for A.Y. 2014-15, under the old regime as per section 149(1)(b), no notice u/s 148 could have been issued beyond 31.03.2021, considering limitation of six years. TOLA read with the Act, extended the time for issuing re- assessment notices u/s.148 which fell for completion from 20.03.2020 to 31.03.2021 till 30.06.2021.
3.7. TOLA on one hand extending the time limits as specified therein and on the other hand, first proviso to section 149 under the new regime limiting the retrospective operation for protecting the interest of assessees, led to legal jurisdictional controversies. Owing to non- compliance of mandatory and conditional procedural requirements u/s.148A and retrospective limitation by first proviso to section 149, several of such notices issued u/s.148 were contested under writ jurisdiction of various Hon'ble High Courts across the country, who held in favour of the assessee by holding such notices as bad in law and quashing the re-assessment proceedings so initiated. Revenue took up such quashing by various Hon'ble High Courts before the Hon'ble Supreme Court with the lead case in Union of India vs. Ashish Agarwal (supra).
3.8. Hon'ble Apex Court in the case of Ashish Agarwal (supra) delivered its judgment in the context of deciding the validity of notices issued during TOLA period which refers to the period beginning with 20.03.2020 to 31.3.2021 or any date notified by the Central Government in order to mitigate the hardships caused to humanity by Covid-19 pandemic. Central Government extended the application of TOLA legislation till 30.6.2021. Significance of TOLA is that all the compliances/completion of pending proceedings as per various statutes which were due in the TOLA period got an extension of time for compliance or completion of proceedings. In short, TOLA extended the time for completion of proceedings or compliance in accordance with various statutes covered in section 3 of TOLA legislation. Accordingly, the Income-tax Act, 1961 was also one of the statutes covered by TOLA legislation and notices issued during the TOLA period were judged in this background.
3.9. Hon'ble Apex Court in the case of Ashish Agarwal (supra) were convinced that Revenue authorities had issued notices u/s. 148 of the Act as per the pre-amended provisions under a bonafide belief. Hon'ble Court was also convinced with the view taken by various High Courts in holding that the benefit of new provisions shall be made available in respect of proceedings relating to past assessment years, provided section 148 notice has been issued on or after 01.04.2021 since new provisions are remedial and benevolent in nature which are substituted with specific object to protect the rights and interest of assessees as well as same being in public interest. In order to strike a balance, Hon'ble Court exercised its discretionary jurisdiction under Article 142 of the Constitution of India so as to balance the interest of, both the Revenue and the assessee since, according to the Hon'ble Court, Revenue cannot be made remediless and so also not to frustrate the object and purpose of reassessment proceedings. Thus, showing some leeway, it was directed that re-assessment notices issued under the old regime shall be deemed to have been issued u/s.148A(b) of the Act (new regime), thereby, upholding the validity of notices issued on or after 01.04.2021, following the unamended provisions for re-opening of assessment. Accordingly, impugned notices issued to the assessees under unamended section 148 of the Act were deemed to be show cause notices in terms of section 148A(b) of the Act. Even though notices issued under the unamended section were deemed to be issued under the new regime, yet, Revenue was permitted to proceed for reassessment proceedings subject to compliance of procedural requirements and defences available to the assessee under the new regime and Finance Act, 2021. For this purpose, it modified certain procedural requirements for compliance as contained in section 148A of the Act.
3.10. A legal fiction was created by directing that the deemed notices u/s. 148A(b) of the Act shall relate back to the date when the original notices were issued as per the old regime. To give logical effect to the legal fiction so created, Hon'ble Court also directed that Assessing Officers shall within 30 days from the date of their judgment in Ashish Agarwal (supra) provide to the respective assessee, information and material relied upon, so that the assessee can reply to the show cause notices within two weeks thereafter. As a one-time measure, Hon'ble Court dispensed with the requirements of conducting any enquiry, if required as contained in section 148A(a). Thereafter, it directed that ld. Assessing Officer shall pass order in terms of section 148(d) and then issue notice u/s.148, if deemed fit. It is important to note that Hon'ble Apex Court while upholding the validity of notices issued as per the old regime on or after 01.04.2021, prescribed timeline of 30 days for the Assessing Officers for supplying the information and material and of two weeks for the assessees to reply to the show cause notices issued u/s. 148A(b) of the Act.
3.11. In compliance with the directions given in the case of Ashish Agarwal (supra), ld. Assessing Officer in the case of present assessee, issued a letter of proceeding for A.Y. 2014-15, dated 26.05.2022. This letter communicated that the notice initially issued u/s.148, dated 30.12.2016 is deemed to be a notice in compliance with provisions u/s. 148A(b) of the new regime. Along with this letter, reasons to believe recorded for reopening were also communicated to the assessee. In the said letter, assessee was requested to submit its reply with documentary evidence and comply within two weeks from the date of receipt of this letter. It further, stated that reply of assessee, if any, will be considered before passing order u/s.148A(d) and before issuance of notice u/s.148 of the Act, if deemed fit.
3.12. On receipt of this letter, assessee filed an application dated 09.06.2022, before the ld. Assessing Officer seeking adjournment. To corroborate this, e-proceedings response acknowledgement along with copy of said application is placed on record in the paper book. Further, in response to this application seeking adjournment, ld. Assessing Officer granted the adjournment to the assessee till 23.06.2022 and asked to furnish the reply by 24.06.2022, failing which proceedings u/s.148A(d) will be completed on merits of the case. Ld. Assessing Officer granted the adjournment by issuing letter dated 09.06.2022, content of which are extracted below: “In response to your adjournment letter filed by you on 09.06.2022 in the case of Larsen & Tubro Limited having PAN AAACL0140P, you are hereby given adjournment, till 23.06.2020 and you are requested to submit your reply by 24.06.2022. In case you fail to submit the reply within given time, the proceedings u/s 148A(d) will be completed on merit of the case.
3.13. Pursuant to aforesaid adjournment granted by ld. Assessing Officer, assessee filed its response on 28.06.2022. Ld. Assessing Officer passed order u/s. 148A(d) on 28.07.2022, considering the submissions of the assessee. Thereafter, notice u/s.148 of the Act was also issued on 28.07.2022.
3.14. Ld. Counsel for the assessee submitted a chart of events by listing the facts relevant to contentions raised on the legality of the re- assessment notice and impugned reassessment order thereon passed by the ld. Assessing Officer. Chart so submitted in the course of hearing is extracted below:
On the above submission, ld. CIT DR submitted that assessee has not come up in cross objection to contest on the legal grounds for Assessment Year 2014-15. In this respect, we note from the grounds raised by Revenue in its appeal for Assessment Year 2014-15 that ground no.1 and 2 relate to the legal issues relating to notice issued u/s.148 of the Act for which ld. CIT(A) had held in favour of the assessee. Since the Revenue has contested on the legal issues relating to notice u/s, assessee not coming up in its cross objection does not have a bearing to adjudicate on the legal issue in hand before the Bench.
While bringing logical effect to the creation of the aforesaid legal fiction, issues relating to limitation and approvals arose which led to various controversies, ultimately resulting into another judgement by the Hon'ble Supreme Court in the case of Union of India vs. Rajeev Bansal (supra). By exercising defence made available from the judgement of Ashish Agarwal (supra), it is contended by the assessee that impugned notice u/s. 148 issued by the ld. Assessing Officer is barred by limitation as per the provisions contained in section 149, as dealt by the decision in the case of Rajeev Bansal (supra).
5.1. Judgement of Rajeev Bansal brought the legal fiction created by Ashish Agarwal to its logical fit by the concept of “surviving time” under the Act read with TOLA, available to the Revenue to complete the remaining proceedings in furtherance to the deemed notices. This judgement of Rajeev Bansal (supra) also explained the “exclusion period” while calculating the limitation for issuance of notices u/s.148 under the new regime. Relevant paragraphs from 106 to 114 in this respect from the judgment of Rajeev Bansal (supra) are reproduced below for ready reference: “106. In Ashish Agarwal (supra), this Court directed the assessing officers to provide relevant information and materials relied upon by the Revenue to the assesses within thirty days from the date of the judgment. A show cause notice is effectively issued in terms of Section 148A(b) only if it is supplied along with the relevant information and material by the assessing officer. Due to the legal fiction, the assessing officers were deemed to have been inhibited from acting in pursuance of the Section 148A(b) notice till the relevant material was supplied to the assesses. Therefore, the show cause notices were deemed to have been stayed until the assessing officers provided the relevant information or material to the assesses in terms of the direction issued in Ashish Agarwal (supra). To summarize, the combined effect of the legal fiction and the directions issued by this Court in Ashish Agarwal (supra) is that the show cause notices that were deemed to have been issued during the period between 1 April 2021 and 30 June 2021 were stayed till the date of supply of the relevant information and material by the assessing officer to the assessee. After the supply of the relevant material and information to the assessee, time begins to run for the assesses to respond to the show cause notices.
The third proviso to Section 149 allows the exclusion of time allowed for the assesses to respond to the show cause notice under section 149A(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. In Ashish Agarwal (supra), this Court provided two weeks to the assesses to reply to the show cause notices. This period of two weeks is also liable to be excluded from the computation of limitation given the third proviso to Section 149. Hence, the total time that is excluded for computation of limitation for the deemed notices is: (i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices. b. Interplay of Ashish Agarwal with TOLA
The Income-tax Act read with TOLA extended the time limit for issuing reassessment notices under section 148, which fell for completion from 20 March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices under challenge in the present appeals were issued from 1 April 2021 to 30 June 2021 under the old regime. Ashish Agarwal (supra) deemed these reassessment notices under the old regime as show cause notices under the new regime with effect from the date of issuance of the reassessment notices. The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction. East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109. [Lord Asquith, in his concurring opinion, observed: "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it."] Therefore, the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) is that the time surviving under the Income- tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under section 148 of the new regime. The surviving or balance time limit can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021.
If this Court had not created the legal fiction and the original reassessment notices were validly issued according to the provisions of the new regime, the notices under section 148 of the new regime would have to be issued within the time limits extended by TOLA. As a corollary, the reassessment notices to be issued in pursuance of the deemed notices must also be within the time limit surviving under the Income-tax Act read with TOLA. This construction gives full effect to the legal fiction created in Ashish Agarwal (supra) and enables both the assesses and the Revenue to obtain the benefit of all consequences flowing from the fiction. See State of A P v. A P Pensioners Association [2005] 13 SCC 161. [This Court observed that the "legal fiction undoubtedly is to be construed in such a manner so as to enable a person, for whose benefit such legal fiction has been created, to obtain all consequences flowing therefrom."]
The effect of the creation of the legal fiction in Ashish Agarwal (supra) was that it stopped the clock of limitation with effect from the date of issuance of Section 148 notices under the old regime [which is also the date of issuance of the deemed notices]. As discussed in the preceding segments of this judgment, the period from the date of the issuance of the deemed notices till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra) has to be excluded from the computation of the period of limitation. Moreover, the period of two weeks granted to the assesses to reply to the show cause notices must also be excluded in terms of the third proviso to Section 149.
The clock started ticking for the Revenue only after it received the response of the assesses to the show causes 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. The surviving time limit, as prescribed under the Income-tax Act read with TOLA, was available to the assessing officers to issue the reassessment notices under section 148 of the new regime.
Let us take the instance of a notice issued on 1 May 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show cause notices will also come into effect from 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 2021] to issue a notice under section 148 of the new regime. This time starts ticking for the assessing officer after receiving the response of the assessee. In this instance, if the assessee submits the response on 18 June 2022, the assessing officer will have sixty- one days from 18 June 2022 to issue a reassessment notice under section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under section 148 of the new regime will end on 18 August 2022.
In Ashish Agarwal (supra), this Court allowed the assesses to avail all the defences, including the defence of expiry of the time limit specified under section 149(1). In the instant appeals, the reassessment notices pertain to the assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017, and 2017- 2018. To assume jurisdiction to issue notices under section 148 with respect to the relevant assessment years, an assessing officer has to: (i) issue the notices within the period prescribed under section 149(1) of the new regime read with TOLA; and (ii) obtain the previous approval of the authority specified under section 151. A notice issued without complying with the preconditions is invalid as it affects the jurisdiction of the assessing officer. Therefore, the reassessment notices issued under section 148 of the new regime, which are in pursuance of the deemed notices, ought to be issued within the time limit surviving under the Income-tax Act read with TOLA. A reassessment notice issued beyond the surviving time limit will be time-barred.
G. Conclusions
In view of the above discussion, we conclude that:
a. After 1 April 2021, the Income-tax Act has to be read along with the substituted provisions; b. TOLA will continue to apply to the Income-tax Act after 1 April 2021 if any action or proceeding specified under the substituted provisions of the Income- tax Act falls for completion between 20 March 2020 and 31 March 2021; c. Section 3(1) of TOLA overrides Section 149 of the Income-tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under section 148; d. TOLA will extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(i) has extended time till 30 June 2021 to grant approval; e. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(2) has extended time till 31 March 2021 to grant approval; f. The directions in Ashish Agarwal (supra) will extend to all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021; g. The time during which the show cause notices were deemed to be stayed is from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra), and the period of two weeks allowed to the assesses to respond to the show cause notices; and h. The assessing officers were required to issue the reassessment notice under section 148 of the new regime within the time limit surviving under the Income-tax Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside;”
5.2. According to the Apex Court in Rajeev Bansal, the combined effect of legal fiction created and directions issued thereupon in the case of Ashish Agarwal was analysed whereby show cause notices that were deemed to have been issued during the period between 01.04.2021 and 30.06.2021, were stayed till the date of supply of relevant information and material by the Assessing Officer to the assessee. After the supply of relevant material and information to the assessee, time begins to run for the assessee to respond to the show cause notice. While analysing third proviso to section 149, Hon'ble Court noted that it excludes the time allowed for the assessee to respond to the show cause notice u/s. 148A(b) for computing the period of limitation. It is very categorically noted in para 107 of judgement in Rajeev Bansal (supra) that two weeks were provided to the assessee to reply to the show cause notice which is also liable to be excluded from the computation of limitation given in the third proviso to section 149. According to the decision of Rajeev Bansal (supra), notice u/s 148 to be issued in pursuance to the deemed notices had to be within the time limit surviving under the Act read with TOLA so as to give full effect to the legal fiction created by the judgment of Ashish Agarwal (supra). According to the Hon'ble Court, this would enable, both the assessees and the Revenue to obtain the benefit of all the consequences flowing from the fiction so created.
5.3. Hon'ble Court pin-pointedly noted that creation of legal fiction stopped the clock of limitation with effect from the date of notices issued u/s 148 under the old regime, i.e. the deemed notices u/s 148A(b) under the new regime, up to the date of furnishing of response by the assessee to the show cause notice issued by ld. Assessing Officer pursuant to direction given in Ashish Agarwal (supra). Thus, clock of limitation starts ticking for the Revenue upon receipt of response from the assessee, after which the Assessing Officer is required to complete the remainder procedure of section 148A within the available ‘surviving time limit’. Directions issued by the Hon'ble Apex Court were reiterated in Rajeev Bansal (supra) in para 114(g) while drawing its conclusion.
5.4. Based on this, ld. Counsel for the assessee applied the concept of “exclusion period” and “surviving time” on the facts of the present case to contest for impugned notice being barred by limitation. The chart calculating surviving time and exclusion period as computed by the ld. Counsel is reproduced below for ready reference:
5.5. Ld. Counsel thus, explained that since the first notice originally issued under the unamended section 148 is on 30.06.2021, considering which the surviving time available between the period from 01.04.2021 to 30.06.2021 is one day. Further, period from 30.6.2021 to 28.06.2022 is to be excluded since assessee filed its response on 28.06.2022 against the letter of proceedings issued by the ld. Assessing Officer u/s. 148A(b) in compliance with the direction given in the case of Ashish Agarwal (supra). Thereafter, based on the judgement of Rajeev Bansal (supra), the last date, i.e., limitation period to issue notice u/s. 148 of the Act by taking into account one day of surviving time comes to 29.062022. In the present case, since the impugned notice u/s.148 is issued on 28.07.2022, it is barred by limitation and therefore bad in law, liable to be quashed resulting into making the impugned re-assessment proceedings and reassessment order also bad in law, liable to be quashed.
On this submission made by the ld. Counsel, ld. CIT DR observed that case of the assessee does not fall within the judgements of Ashish Agarwal (supra) and Rajeev Bansal (supra) since the time line prescribed in these judgements of two weeks for filing of reply by the assessee to the show cause notices issued u/s. 148A(b) has not been complied with. According to the ld. CIT DR, assessee filed a letter of adjournment dated 09.06.2022 which was accepted by the ld. Assessing Officer by granting extension of time limit up to 24.06.2022. Assessee filed its reply on 28.06.2022 which is beyond the period of two weeks as prescribed by the Hon'ble Apex Court and therefore according to the ld. CIT DR, assessee cannot claim relief provided in the judgement of Rajeev Bansal (supra).
6.1. According to ld. CIT DR, reply by the assessee is not within the permissible period of two weeks as provided by the aforesaid judgements and therefore provisions of section 148A(d) which provides for a period of 30 days is to be taken into account for passing the order u/s.148A(d) and issuing notice u/s.
Thus, applying the provisions of section 148A(d), the ld. Assessing Officer had time till 30.07.2022 and therefore impugned notice dated 28.07.2022 is well within the time allowed as per the provisions of section 148A r.w.s. 149 of the Act.
In the light of these arguments, let us first take note of specific observations made by the Hon'ble Apex Court in its judgment of Rajeev Bansal (supra) explaining the purpose of creating the legal fiction, supplementing the existing legal framework of procedure of reassessment and exercising its discretionary jurisdiction under Article 142 of the Constitution of India. It states that purpose is to strike a balance between the rights of the assessees and the Revenue, to avoid any further appeals by the Revenue on the same issue and to give effect to the legislative scheme of reassessment under the new regime by modifying the procedure of reassessment with a remedy, grounded in equitable standards. Relevant paragraphs from the judgment of Rajeev Bansal (supra) are extracted below: “The purpose of this Court in deeming the reassessment notices issued under the old regime as show cause notices under the new regime was two-fold: (i) to strike a balance between the rights of the assesses and the Revenue which issued approximately ninety thousand reassessment notices after 1 April 2021 under the old regime; and ii) to avoid any further appeals before this Court by the Revenue on the same issue by challenging similar judgments and orders of the High Courts (arising from approximately nine thousand writ petitions). … … … 93. In Ashish Agarwal (supra), this Court was aware of the fact that it could not have used its jurisdiction under Article 142 to affect the vested rights of the assesses by deeming Section 148 notices under the old regime as Section 148 notices under the new regime. Hence, it deemed the reassessment notices issued under the old regime as show cause notices under section 148A(b) of the new regime. Further, the Court directed the Revenue to provide all the relevant material or information to the assesses and thereafter allowed the assesses to respond to the show cause notice by availing all the defences, including those available under section 149. Thus, the Court balanced the equities between the Revenue and the assesses by giving effect to the legislative scheme of reassessment as contained under the new regime. It supplemented the existing legal framework of the procedure of reassessment under the Income-tax Act with a remedy grounded in equitable standards.”
7.1. Hon'ble Apex Court while propounding its judgment in Rajeev Bansal (supra) elaborately analysed and discussed about the legal fiction it created, its consequences, incidental or inevitable corollaries, inhibition faced by the Assessing Officers from performing their responsibility u/s 148A. Hon'ble Court also noted in para-108 that “…The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction.” Thus, to give logical effect to the legal fiction and modified procedure, it brought out the concept of ‘exclusion period’ and ‘surviving time limit’.
7.2. At this juncture, it is important to note that legal framework of procedure for reassessment under Act created by the Hon'ble Supreme Court through its judgments in Ashish Agarwal and Rajeev Bansal (supra), is a fiction by deeming the notice issued u/s 148 of the old regime as a show cause notice u/s 148A(b) of the new regime on which modified procedure is to be applied to give it a logical effect. Hence, the modified procedure is to be applied strictly for the purpose to be achieved, as already stated and extracted above. It is a well-established principle of interpretation that the courts must give full effect to a legal fiction by having due regard to the purpose for which the legal fiction is created. A legal fiction is created for a definite purpose and it should be limited to the purpose for which it is enacted or applied.
On the contention of ld. CIT DR that since assessee did not furnish its response within the stipulated time of two weeks to the show cause notice issued by ld. Assessing Officer on 26.05.2022, it is out of the purview of the judgments of Rajeev Bansal (supra), we do not ascribe to the same since Hon'ble Apex Court very categorically laid down the law on pan India applicability from its judgment in Ashish Agarwal and Rajeev Bansal (supra) to include ninety thousand reassessment notices issued under the old regime during the period from 01.04.2021 to 30.06.2021. Present case of the assessee unhesitatingly falls well within the purview of both the judgments. Relevant extracts in this respect from the judgment of Rajeev Bansal (supra) is as below: “91. …The scope of the directions in Ashish Agarwal (supra) applied PAN INDIA, including all the ninety thousand reassessment notices issued under the old regime during the period 1 April 2021 and 30 June 2021... 92. …The operation of the directions cannot be limited to the above three categories, especially when this Court has specifically held that “the present order shall be applicable PAN INDIA.”
Ld. CIT DR also submitted that in the factual matrix of the present case, the surviving time available is ‘zero’ since the original notice u/s 148 under the old regime [deemed notice u/s 148A(b)] was issued on 30.06.2021. In this given factual position, ld. Assessing Officer is required to complete the entire procedural requirements on 28.06.2022 itself, i.e. the date on which assessee filed its response to show cause notice, since surviving time available with the ld. Assessing Officer is ‘zero’. According to him, Assessing Officer cannot be made to do the impossible and therefore resort is to made to the time limit provided in section 148A(d) r.w.s. 149 of ‘within one month from the end of the month in which time or extended time allowed to furnish a reply as per 148A(b) expires.’ Thus, in view of legal framework of procedure for reassessment under the Act created by the Hon'ble Supreme Court through its judgments in Ashish Agarwal and Rajeev Bansal (supra), according to us, aforesaid contention on impossibility of performance made by ld. CIT DR is not tenable, more importantly when Hon'ble Court had given the leeway and balanced the equities between the Revenue and the assessees while giving effect to the new regime of legislative scheme of reassessment.
Ld. Assessing Officer was given 30 days from the date of judgment in Ashish Agarwal (supra), i.e. from 04.05.2022 to provide respective assessees, information and material relied upon, for reply by the assessee thereon. In the present case, ld. Assessing Officer complied with this direction by issuing the letter of proceedings (show cause notice) on 26.05.2022. Similarly, Hon'ble Court provided two weeks to the assessees to reply to the aforesaid show cause notices as noted in para 107 of Rajeev Bansal (supra). Hon'ble Court while fixing the time limit of two weeks for the assessee to respond to the show cause notice, nowhere, in both the judgments of Ashish Agarwal and Rajeev Bansal (supra) considered any extension of time limit which can be granted by the Assessing Officer at the instance of the assessee.
10.1. By taking the date of 26.05.2022 from the show cause notice in the present case, period of two weeks ended on 09.06.2022 for the assessee to furnish its reply. On this very date, when time limit of two weeks expires, assessee moved an application before the ld. Assessing Officer, seeking adjournment for 2 to 3 weeks. Ld. Assessing Officer accepted the same and granted adjournment on the same date, asking the assessee to submit the reply by 24.06.2022. Assessee did not comply with the extended time limit and furnished its response on 28.06.2022. On these given set of facts, one has to bear in mind the legal fiction within which one has to operate and the same has to be construed strictly. Since assessee did not file its response to the show cause notice within the permissible two weeks expiring on 09.06.2022, except for moving an application seeking adjournment, the clock started ticking for the Revenue on expiry of permissible two weeks, i.e. on 09.06.2022. Surviving time period calculated by the ld. Counsel for the assessee in the above extracted table is one day whereas according to the ld. CIT DR, it is zero. Ld. Assessing Officer has issued the impugned notice u/s 148 on 28.07.2022 which does not meet the criteria of ‘surviving time limit’ laid down by the Hon'ble Supreme Court, whether one or zero day is considered.
10.2. In view of above stated exhaustive deliberation, both on facts and law including the applicable jurisprudence, we hold that notice for A.Y. 2014-15 issued on 28.07.2022 u/s 148 of the new regime is barred by limitation and hence bad in law, liable to be quashed, resulting in impugned reassessment proceedings as well as the impugned reassessment order bad in law. Accordingly, ground nos. 1 and 2 raised by the Revenue are dismissed. Resultantly, grounds raised on the merits of the case are rendered academic and hence not adjudicated upon.
We now take up appeal by the Revenue and Cross Objection by the assessee for A.Y. 2015-16. Appeal by the Revenue is on the merits of the case whereas cross objection by the assessee is on challenging the legal issue of notice u/s 148 as bad in law, invalid, void ab initio, to be quashed. Accordingly, we take up the legal issue raised by the assessee through its cross objection as it goes to the root of the matter.
Identical chronology of events exists for A.Y. 2015-16 as discussed while adjudicating appeal for A.Y. 2014-15 in the above paragraphs, except for date of filing of return. Notice u/s. 148 of the old regime was issued on 30.06.2021. Later, pursuant to the judgment in case of Ashish Agarwal (supra), it was directed among other things that notice issued u/s.148 shall be deemed to have been issued u/s. 148A as substituted by the Finance Act, 2021 and construed or treated to be the show cause notice in terms of section 148A(b). In view of this direction, the said notice u/s. 148, dated 30.06.2021 was deemed to be a show cause notice u/s. 148A(b) for which another one was issued on 26.05.2022, complying with the direction given in the case of Ashish Agarwal (supra).
12.1. Thereafter, provisions of section 148A(d) were complied with by passing an order, dated 28.07.2022 and issuing a notice u/s.148 of the same date (under the new regime). Assessee has contested by raising a ground of cross objection that the notice so issued is bad in law, invalid, void ab initio, to be quashed. Ld. Counsel strongly submitted that it is barred by limitation making the impugned reassessment proceedings and resultant reassessment order bad in law.
12.2. At the outset, we find that this issue has been settled in the case of Rajeev Bansal (supra) wherein reference is made to the submissions made on behalf of the Revenue vide para 19 which is relevant and the same is reproduced hereunder:- “19. Mr N Venkataraman, learned Additional Solicitor General of India, made the following submissions on behalf of the Revenue: a. Parliament enacted TOLA as a free-standing legislation to provide relief and relaxation to both the assessees and the Revenue during the time of COVID- 19. TOLA seeks to relax actions and proceedings that could not be completed or complied with within the original time limits specified under the Income Tax Act, b. Section 149 of the new regime provides three crucial benefits to the assesses: (i) the four-year time limit for all situations has been reduced to three years, (ii) the first proviso to Section 149 ensures that re-assessment for previous assessment years cannot be undertaken beyond six years, and (iii) the monetary threshold of Rupees fifty lakhs will apply to the re- assessment for previous assessment years, c. The relaxations provided under Section 3(1) of TOLA apply "notwithstanding anything contained in the specified Act." Section 3(1), therefore, overrides the time limits for issuing a notice under Section 148 read with Section 149 of the Income Tax Act; d. TOLA does not extend the life of the old regime. It merely provides a relaxation for the completion or compliance of actions following the procedure laid down under the new regime; e. The Finance Act 2021 substituted the old regime for re-assessment with a new regime. The first proviso to Section 149 does not expressly bar the application of TOLA. Section 3 of TOLA applies to the entire Income Tax Act including Sections 149 and 151 of the new regime. Once the first proviso to Section 149(1)(b) is read with TOLA, then all the notices issued between 1 April 2021 and 30 June 2021 pertaining to assessment years 2013-2014, 2014-2015, 2015-2016, 2016-2017 and 2017-2018 will be within the period of limitation as explained in the tabulation below;
Assessme Within 3 Years Expiry of Within six Years Expiry of nt Year (2) Limitation (4) Limitation read (1) read with with TOLA for (4) TOLA for (2) (3) (5) 2013- 31.03.2017 TOLA not 31.03.2020 30.06.2021 2014 applicable 2014- 31.03.2018 TOLA not 31.03.2021 30.06.2021 2015 applicable 2015- 3103.2019 TOLA not 31.03.2022 TOLA not 2016 applicable applicable 2016- 31.03.2020 30.06.2021 31.03.2023 TOLA not 2017 applicable 2017- 31.03.2021 30.06.2021 31.03.2024 TOLA not 2018 applicable f. The Revenue concedes that for the assessment year 2015-16, all notices issued on or after 1 April 2021 will have to be dropped as they will not fall for completion during the period prescribed under TOLA; g. Section 2 of TOLA defines "specified Act" to mean and include the Income Tax Act. The new regime, which came into effect on 1 April 2021, is now part of the Income Tax Act. Therefore, TOLA continues to apply to the Income Tax Act even after 1 April 2021; and h. Ashish Agarwal (supra) treated Section 148 notices issued by the Revenue between 1 April 2021 and 30 June 2021 as show-cause notices in terms of Section 148A(b). Thereafter, the Revenue issued notices under Section 148 of the new regime between July and August 2022. Invalidation of the Section 148 notices issued under the new regime on the ground that they were issued beyond the time limit specified under the Income Tax Act read with TOLA will completely frustrate the judicial exercise undertaken by this Court in Ashish Agarwal (supra).
12.3. Thus, it can be seen that Revenue conceded before the Hon’ble Supreme Court in para 19(f) for dropping all the notices issued on or after 01.04.2021 for A.Y. 2015-16 as they will not fall for completion during the period prescribed under TOLA.
12.4. This issue had come up before the Hon'ble Delhi High Court in the case of IBIBO Group Pvt. Ltd. vs. ACIT, WP(C)17639 of 2022, dated 13.12.2024 wherein re-assessment action for Assessment Year 2015- 16 was held to be not sustainable. Hon'ble Court quashed the notice issued u/s.148 as well as order passed u/s. 148A(d), dated 23.07.2022 for Assessment Year 2015-16 by following the decision in the case of Rajeev Bansal (supra).
12.5. In the case of present assessee, since the notice issued u/s.148 is dated 28.07.2022, period of six years expired on 31.03.2022 and is thus barred by limitation. Accordingly, notice so issued and re-assessment completed thereafter u/s. 147 is liable to be quashed, in view of the decision of Hon'ble Supreme Court in the case of Rajeev Bansal (supra) which was followed by Hon'ble Delhi High Court in the case of IBIBO (supra).
12.6. Hon'ble Supreme Court while dismissing the SLP filed by Revenue in the case of ACIT vs. Nehal Ashit Shah in SLP (Civil) Diary No(s). 57209/2024, dated 04.04.2025 held that it does not survive for further consideration. While holding so, Hon'ble Court noted in para 5 as under: “5. In this regard, reference could also be made to paragraph 19(e) and (f) in the case of Union of India vs. Rajeev Bansal, Civil Appeal No.8629 of 2024 on 03.10.2024 (2024 SCC ONLINE 754) under which the learned Additional Solicitor General for India has made a concession insofar as the assessment year 2015-16 is concerned.”
12.7. In view of above stated deliberation, both on facts and law including the applicable jurisprudence, we hold that notice for A.Y. 2015-16 issued on 28.07.2022 u/s 148 of the new regime is barred by limitation and hence bad in law, liable to be quashed, resulting in impugned reassessment proceedings as well as the impugned reassessment order bad in law. Accordingly, grounds of cross objection raised by the assessee are allowed. Resultantly, grounds of appeal raised on the merits of the case by the Revenue are rendered academic and are therefore, dismissed.
In the result, for A.Y. 2015-16, appeal by the revenue is dismissed and cross objection by the assessee is allowed. For A.Y. 2014-15, appeal by the revenue is dismissed.