SHIVRAM S SHETTY ,MUMBAI vs. INCOME TAX OFFICER WARD 2(1), MUMBAI

At the outset, it needs to be clarified that although reference is made to the above judgments at para 17 of the written synopsis, the following is stated: i. The Hon'ble Supreme Court in the case of Rajeev Bansal (supra) has set aside the decision of the Allahabad High Court which had quashed the re-opening notices for the AYs 2013-14 and other years as time barred under the Amended provisions of the IT Act (as amended from 1-4-2021). ii. The decision of this Court in New India Assurance Company Ltd (supra) for AY 2013- 14 which was followed in Virendra Ship Recyclers and Sanman Impex Ltd. (supra) were set aside by the Hon'ble Supreme Court based on Rajeev Bansal (supra). iii. The decision of the Gujarat High Court in Ashish Acharatlal Varaiya (supra) for AY 2013-14 was also set aside by the Hon'ble Supreme Court based on Rajeev Bansal's (supra). iv. The decision of this Court in New India Assurance Co. Ltd. (supra) which was followed in Hexaware Technologies (supra) for the same AYs 2013-14 by this Court quashing the re-opening notices on this and other grounds were now subject matter of challenge before the Hon'ble Supreme Court in Pr. CIT v. Hexaware Technologies Ltd. [SLP (C) No. 21188 of 2024].

In view of the controversy involved, it is necessary to refer to the decisions in Ashish Agarwal and Rajeev Bansal (supra). Since the decision in Ashish Agarwal (supra) has been considered in Rajeev Bansal (supra), it would be advantageous to refer to its observations in this regard in paragraphs 106 and 107. It held as under :- "106............. To summarize, the combined effect of the legal fiction and the directions issued by this Court in Union of India v. Ashish Agarwal, (2023) 1 SCC 617 is that the showcause notices that were deemed to have been issued during the period between April 1, 2021 and June 30, 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 assessees to respond to the show-cause notices. 107. The third proviso to Section 149 allows the exclusion of time allowed for the assessees 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 Union of India v. Ashish Agarwal, this Court provided two weeks to the assessees 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 & 5653/Mum/2024 Shri Shivram S. Shetty 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 April 1, 2021 and June 30, 2021 till the supply of relevant information or material by the Assessing Offices to the assessees in terms of the directions in Union of India v. Ashish Agarwal ; and (ii) two weeks allowed to the assessees to respond to the show-cause notices. "

It further held in paragraphs 108, 111 and 113 as under :- "108........... Therefore, the logical effect of the creation of the legal fiction by Union of India v. Ashish Agarwal is that the time surviving under the Income-tax Act read with Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 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 June 30, 2021.

The clock started ticking for the Revenue only after it received the response of the assessees 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 limt, as prescribed under the Income-tax Act read with Taxation and other Laws (Relaxation and Amendmnet of Certain Provisions) Act, 2020, was available to the Assessing Officers to issue the reassessment notices under Section 148 of the new regime. 113...........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 Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. A reassessment notice issued beyond the surviving time limit will be time-barred. '"

Thus, the effect of the judgment in Ashish Agarwal (supra) was that whilst upholding the contention of the assesses that from 01/04/2021, the new regime applied and the issuance of notices under the old regime were contrary to law, the Hon'ble Supreme Court in exercise of powers under Article 142 of the Constitution of India directed that notices issued under Section 148 of the old regime be construed as notices under Section 148A(b) of the new regime and the enquiry contemplated under Section 148A(a) was done away with as a one-time measure. The Assessing Officers were directed to provide the information and material relied upon by the Revenue to the assesses within a period of thirty days to enable the assesses to respond to the notice within a period of two weeks after which Assessing Officer had to pass an order under Section 148A (d) of the IT Act. The Hon'ble Supreme Court expressly observed that all defences available under Section & 5653/Mum/2024 Shri Shivram S. Shetty 149(a) of the IT Act would continue to be available to all the assessees. However, in the said judgment, the Hon'ble Supreme Court did not delve into the aspect whether reassessment notices were within the time stipulated under the IT Act read with TOLA and the Notifications issued thereunder.

The decision in Ashish Agarwal (supra) was extensively considered by the Supreme Court in Rajeev Bansal (supra). The ratio laid down in the said judgment is pivotal to the issues involved in the present case and both parties have been extensively heard on the implications of the said judgment on the case in hand. In fact, the Petitioner has conceded his case stands or falls on the basis of the interpretation on the issue whether the reassessment notices issued are time barred under the applicable provisions of the IT Act.

The Hon'ble Supreme Court in the case of Rajeev Bansal (supra) concluded as under : a. After 01/04/2021, the IT Act has to be read along with substituted provisions, b. TOLA would continue to apply to the IT Act after 01/04/2021 if any action or proceeding specified under the substituted provisions of the IT Act falls for completion between 20/03/2020 and 31/03/2021;

By considering all the exclusions, the remainder days for conclusion of the procedure for passing of an order in terms of Section 148A(d) and issuance of notice under Section 148 would be two days from 21/07/2022 and the same would expire of 23/07/2022. Applying the ratio of the decisions in Ashish Agarwal and Rajeev Bansal (supra) in the context of the 1st proviso to Section 149 we are therefore of the opinion that the notice under Section 148 dated 29/07/2022 is time barred. The order under Section 148A(d) as well as the notice issued under Section 148 are dated 29/07/2022 which is much after the surviving period which expired on 21/07/2022.

In light of the above, the contentions raised by the Revenue lack foundation in terms of law. Although the Revenue has contended that the order dated 29/07/2022 passed under Section 148A(d) and the notice issued under Section 148 were within the timelines contemplated by the decisions in Ashish Agarwal and Rajeev Bansal (supra), the same lacks substance. In the written synopsis, an attempt was made to justify the timelines by contending that in terms of Section 148A(d), the period mandated for passing of the order was within one month from the end of the month in which the reply referred to is received or where no such reply is furnished within one month from the end of the time by which the extended time allowed to furnish reply as per clause (b) expired. Relying on the said provision it was contended that the replies are dated 03/06/2022 and 28/06/2022 and going by the same, the end of the month would be 30/06/2022. Hence the expiry of time would be on 31/07/2022. It is therefore contended that the order is passed within the one month time contemplated under Section 148A(d).

The said contention is fundamentally misconceived. A notice under Section 148 of the IT Act accompanied by an order under Section 148A(d) is required to be issued within the time stipulated under Section 149 of the IT Act. Section 148A(d) does not govern the computation of time as contemplated in terms of Section 149 of the IT Act. The entire process under Section 148A(a) to (d) and the issuance of notice under Section 148 has to be completed within the total time available in terms of Section 149(1) of the IT Act for issuance of notice under Section 148. A notice issued under Section 148 of the IT Act which is beyond the time line stipulated under Section 149(1) is non-complaint and invalid. The timeline under Section 148A(d) is for the Assessing Officer to comply with the stipulations and the streamlining contemplated under Section 148A. This is primarily to bring in transparency and accountability into the system and is intended for the benefit of & 5653/Mum/2024 Shri Shivram S. Shetty the assessees. However to suggest that Section 148A(d) extends the time limit under Section 149(1) and/or has a bearing on the time under Section 149(1) is a submission which is misconceived and lacks legal sanctity.

It was urged by the Revenue that the decision of this Court in Hexaware Technologies Limited (supra) was under challenge before the Hon'ble Supreme Court and hence the Court could consider awaiting its outcome. The decision in Hexaware Technologies Limited has not been stayed. Since we have proceeded on the basis of the law laid down in Ashish Agarwal and Rejeev Bansal (supra), this contention cannot be accepted. Reference to various decisions has been made. In fact, the decisions referred to are inconsistent with the case set up by the Respondents. Except for the decision in Ashish Acharatlal Varaiya (supra), other judgments are rendered prior to the decision in Rajeev Bansal (supra) and /or do not consider the said decision. Hence the said judgments do not in any manner assist us in deciding the controversy in issue especially in the context to the limited issue that is raised by the Petitioner herein.

At this point we deem it appropriate to note that the Delhi High Court in the case of Ram Balram Buildhome (P.) Ltd. v. ITO [2025] 171 taxmann.com 99 (Delhi)/2025 SCC OnLine Del 481 dealt with an identical issue. It considered the principles laid down in Ashish Agarwal and Rajeev Bansal (supra) and concluded that the notice issued under Section 148 under the IT Act was time barred. In the facts of that case as well, the AY was 2013-2014 and the notice under Section 148 issued to the assessee was dated 01/06/2021. The date of furnishing material to the Petitioner in that case was 30/05/2022. The said Petitioner furnished its response to the notice under Section 148A(b) of the IT Act on 13/06/2022. In this factual backdrop, the Delhi High Court applying the ratio of the decisions in Ashish Agarwal and Rajeev Bansal (supra) came to the conclusion that the remainder period with the Assessment Officer was twenty-nine days from 01/06/2021 when the reassessment proceedings commenced for issuing notice under Section 148 of the IT Act. The limitation for passing of the order under Section 148A(d) expired on 12/07/2022. Accordingly, the notice under Section 148A of the IT Act issued on 30/07/2022 was held to be beyond limitation and the same was quashed. The Delhi High Court also relied on the observations made in the case of Raminder Singh v. Asstt. CIT [2023] 156 taxmann.com 148/[2024] 461 ITR 368 (Delhi)/2023 DHC 6672-DB wherein it was held that one month from the end of the month in which the time available to the assessee to respond to the notice under clause (b) of Section 148A expires is available to the Assessment Officer to pass an order under Section 148A(d) of the IT Act. It was further held that notice under Section 148 of the IT Act that is not accompanied by an order under Section 148A(d) of the Act would be non- compliant with the IT Act and no such notice could be issued beyond the period as specified under Section 149(1) of the IT Act. This decision of the Delhi High Court is consistent with our view based on the interpretation of the decisions in Ashish Agarwal and Rajeev Bansal (supra).

For all these reasons, we hold that the notice dated 29/07/2022, issued by Respondent no.1 under Section 148 of the IT Act is beyond the time period specified under Section 149(1) of the IT Act. It is therefore quashed. Consequently, the impugned assessment order dated 29/05/2023 passed on the basis of the impugned notice also stands quashed and set aside. Rule is made absolute in aforesaid terms with no order as to costs.”

In the result, the appeals filed by the assessee are hereby allowed.