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Facts
The assessee did not file a return of income for AY 2016-17. The AO initiated reassessment proceedings based on information about a sale agreement leading to capital gains. The original notice under section 148 was issued on 29.06.2021. Subsequently, reassessment proceedings were conducted under the amended provisions of the Act, including notices under section 148A.
Held
The Tribunal held that the reassessment notice issued under section 148 was time-barred. Relying on Supreme Court judgments in Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal, and a Madras High Court decision in Veena Gupta vs. DCIT, the Tribunal found that the AO had exceeded the permissible surviving period for issuing the notice after adjusting statutory exclusions.
Key Issues
Whether the reassessment proceedings initiated by issuing notice under section 148 of the Act were barred by limitation, considering the transitional period and judicial pronouncements on the computation of time limits for reassessment notices.
Sections Cited
250 of the Income Tax Act, 1963, 148 of the Act, 148A of the Act, 147 r.w.s. 143(3) of the Act, 149
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘B’ BENCH, BANGALORE
Before: SHRI WASEEM AHMED & SHRI SOUNDARARAJAN K
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The present appeal filed by the assessee is directed against the order passed under section 250 of the Income Tax Act, 1963 (hereafter the Act) dated 16-05-2025 by the Learned Commissioner of Income Tax (Appeal) (hereafter the learned CIT(A)) at National Faceless Appeal Centre-NFAC, for the A.Y. 2016-17.
The assessee in the appeal memo has raised several grounds of appeal
which are numbered as Ground Nos. 1 to 8. The assessee vide application dated 16th June 2025 raised various additional grounds challenging the validity of the assessment including the time barring of the notice issued under section 148 of the Act.
3. The assessee, in the application for admission of additional grounds, submitted that the issues raised do not specifically arise from the appellate order of the learned CIT(A) but the same is purely legal in nature and fundamental to the resolution of the case. Consequently, the assessee's learned AR requested that the additional ground be admitted for adjudication.
On the other hand, the learned (DR) opposed the admission of the additional grounds of appeal, arguing that these grounds had not been raised before the lower authorities.
We have heard the rival submissions of both the parties and perused the materials available on record. The Hon’ble Supreme Court in the case of National Thermal Power Co. Limited vs. CIT reported in 229 ITR 383 has held as under: “ Under section 254 of the Income-tax Act, 1961, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, there is no reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of the item. There is no reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. The Tribunal should not be prevented from considering questions of law arising in assessment proceedings, although not raised earlier.
5.1 From the above, it is evident that the view limiting the Tribunal’s jurisdiction to the issues arising solely from the appeal before the Commissioner (Appeals) is too restrictive to define the Tribunal’s powers. The Tribunal undoubtedly has the discretion to permit or decline the raising of a new ground. Since the issue raised on the additional ground of appeal is purely legal in nature and necessary to consider assessing the income of the assessee correctly, and in light of the judgment cited above, we admit the additional ground raised by the assessee. Having admitted the additional grounds of appeal, now we proceed to adjudicate specific issues raised by the assessee through grounds of appeal and additional grounds of appeal.
As the issue raised by the assessee on additional grounds of appeal is legal in nature, we first proceed to adjudicate the additional ground specifically the issue raised through Ground No. 1(e) of the additional ground of appeal that notice issued under section 148 of the Act is time barred.
The facts in brief are that the assessee is an individual who did not file return of income for the year under dispute. The AO received information that a sale agreement dated 04th February 2016 was entered into between Shri B R Shetty and M/s Valmark Realty Holding Pvt Ltd in which the assessee was a confirming party and received an amount of Rs. 22,13,76,000/- which represents capital gain. Accordingly, the AO formed reason to believe for escapement of income and issued notice under section148 of the Act issued as on 29th June 2021.
7.1 As the provision of section 148 of the Act was amended by the Finance Act 2021 w.e.f. from 1st April 2021, laying down certain procedure to be followed, prescribed under section 148A of the Act before issuing notice under section 148 of the Act. The AO in the light of amended provision and in pursuance to the direction of the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal* CIVIL APPEAL Nos. 3005 to 3017, 3019-3020 of 2022 reported in 138 taxmann.com 64 issued show cause notice under section 148A(b) of the Act as on 20-05-2022, providing the assessee opportunity of 15 days to reply that is why notice under section 148 of the Act should not be issued. The assessee filed the reply as on 05-06-2022, and the AO finally disposes of the assessee’s objection vide order under section 148A(d) of the Act as on 22-07-2022 and along with the same issued fresh notice under section 148 of the Act.
7.2 Finally, the AO passed assessment order under section 147 r.w.s. 143(3) of the Act making certain additions to the total income of the assessee which also came to be confirmed by the learned CIT(A).
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR of the assessee before us submitted that for the reassessment proceeding initiated during the period 01-04-2021 to 30- 06-2021 under the old provision of section 148 of the Act, the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal(supra) laid down certain procedure. The learned AR argued that such procedure required to be strictly followed and required to be completed within the stipulated time limit. The limit for the completion of such procedure i.e. passing of order under section 148A(d) of the Act and issue of fresh notice under section 148 of the Act was required to be completed within the number of days allowed to the assessee to file reply under section 148A(b) of the Act plus available time limit when the original notice under section 148 of the Act was issued. In this regard the learned AR placed reliance on the ruling of the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal reported [2024] 167 taxmann.com 70 (SC).
9.1 The learned AR submitted that in the present case original notice was issued as on 29th June 2021 and time limit was expiring as on 30 June 2021, hence available time limit was of 1 day. Further notice under section 148A(b) of the Act was issued as on 20-05-2022 to which assessee made reply as on 05th June 2022. Hence the opportunity of 16 days was allowed to the assessee. Therefore, the time limit to pass an order under section 148A(d) of the Act and issue of notice under section 148 of the Act in the present case expired as 22nd June 2022 whereas the notice was issued as on 22nd July 2022. Hence, the notice issued is time barred and assessment/reassessment proceeding based on time barred notice under section 148 of the Act is invalid and void ab initio.
On the contrary, the learned DR strongly supported the validity of the reassessment proceedings. The learned DR submitted that the notice issued under section 148 of the Act was in accordance with the directions laid down by the Hon’ble Supreme Court in the case of Union of India v. Ashish Agarwal. It was contended that the procedure prescribed under the new reassessment regime was duly followed by the Assessing Officer and the notice issued under section 148 of the Act cannot be treated as time barred. The learned DR therefore submitted that the reassessment proceedings initiated by the Assessing Officer are legally valid and the contention of the assessee regarding limitation is liable to be rejected.
We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the original notice under section 148 of the Act was issued on 29.06.2021 under the old regime. Subsequently, in view of the judgment of the Hon’ble Supreme Court in Union of India vs. Ashish Agarwal (supra), such notices were required to be treated as show cause notice issued under section 148A(b) of the Act. Thereafter, the AO issued a notice under section 148A(b) of the Act on 20.05.2022 and the assessee filed reply on 05.06.2022. The AO ultimately passed an order under section 148A(d) of the Act and issued a fresh notice under section 148 of the Act only on 22.07.2022. The assessee has contended that the notice issued on the said date is beyond the time permissible under the concept of surviving period as explained by the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal (supra). The relevant extract of the judgment is reproduced as under: b. Interplay of Ashish Agarwal with TOLA 108. 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."] 110. 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.
11.1 We find that the Hon’ble Supreme Court in Union of India vs. Rajeev Bansal (supra) has clarified the manner in which the time limit for issuance of reassessment notice is to be computed in cases where notices were issued during the transitional period between 01.04.2021 and 30.06.2021. The Hon’ble Supreme Court held that after adjusting the exclusions of time provided in the decision in Ashish Agarwal (surpa), the AO can issue notice under section 148 of the Act of the new regime within the time surviving under the statute and any notice issued beyond such surviving period would be invalid.
11.2 The learned DR has not considered the subsequent authoritative ruling of the Hon’ble Supreme Court in Union of India vs. Rajeev Bansal (supra) wherein the concept of surviving period has been clearly explained. Therefore, reliance placed by the learned DR on the case of merely Ashish Agarwal (Supra) does not advance the case of the Revenue.
11.3 Further, we find that the issue involved in the present appeal stands squarely covered by the decision of the Hon’ble Madras High Court in Veena Gupta vs. DCIT [2025] 181 taxmann.com 166 (Madras). In that case also the notice under section 148 of the Act under the old regime was issued on 30.06.2021, i.e., on the last date of limitation. Thereafter notice under section 148A(b) was issued on 20.05.2022 and the assessee filed reply on 03.06.2022. However, the Assessing Officer passed order under section 148A(d) and issued notice under section 148 only on 28.07.2022. The Hon’ble High Court, after considering the decisions of the Hon’ble Supreme Court in Ashish Agarwal and Rajeev Bansal (supra), held that after adjusting statutory exclusions and the fourth proviso to section 149, only a limited “surviving period” remained for issuance of notice under section 148 of the Act. The Hon’ble Court observed that in that case the Assessing Officer had only seven days from the date of reply of the assessee to issue notice under section 148 of the Act and since the notice was issued much later, the reassessment proceedings were held to be barred and invalid.
11.4 The ratio laid down by the Hon’ble Madras High Court clearly supports the contention of the assessee that where the original notice under section 148 of the Act was issued on the last date of limitation, the AO can issue a fresh notice under section 148 of the Act under the new regime only within the limited surviving period available after adjusting the exclusions of the time recognised by the Hon’ble Supreme Court.
11.5 Applying the above legal position to the facts of the present case, we find that the AO issued notice under section 148A(b) of the Act on 20.05.2022 and the assessee filed reply on 05.06.2022. Even assuming that the AO had only the surviving period available under the statute to complete the process contemplated under section 148A of the Act and issue of notice under section 148 of the Act, the action ought to have been completed within such permissible period. However, the AO passed the order under section 148A(d) and issued notice under section 148 of the Act only on 22.07.2022, which is clearly beyond the surviving period available under law.
11.6 In view of the above discussion, and respectfully following the ratio laid down by the Hon’ble Supreme Court in Union of India vs. Rajeev Bansal (supra) as well as the judgment of the Hon’ble Madras High Court in Veena Gupta vs. DCIT (supra), we hold that the notice issued under section 148 of the Act and the consequent reassessment proceedings are barred by limitation. Accordingly, the reassessment proceedings initiated in the present case are liable to be quashed. Therefore, the reassessment order passed under section 147 read with section 143(3) of the Act cannot be sustained and the same is hereby set aside and quashed. Consequently, the grounds raised by the assessee on the issue of validity of reassessment are allowed.
11.7 As we have quashed the assessment order being in valid on account of notice issued under section 148 of the Act being time barred. The other grounds raised on merits as well as on law are rendered academic and therefore do not require any separate adjudication. Hence, we dismiss the same as infructuous.
In the result, the appeal of the assessee is hereby partly allowed.
Order pronounced in court on 5th day of March, 2026