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Facts
The assessee's assessment for AY 2013-14 was reopened. A notice under Section 148 was issued on 31.07.2022, which the assessee argued was time-barred under Section 149. The assessee sought rectification of the assessment order under Section 154, which was rejected by the Assessing Officer and subsequently by the CIT(A).
Held
The Tribunal held that the notice issued under Section 148 was indeed barred by limitation. The Tribunal further observed that if the notice initiating reassessment proceedings is void ab initio, all subsequent proceedings are also invalid. Therefore, the order of the CIT(A) was quashed.
Key Issues
Whether the notice issued under Section 148 for reassessment proceedings was barred by limitation as per Section 149 of the Income Tax Act, 1961, and if so, whether the rectification application under Section 154 was wrongly rejected.
Sections Cited
148, 149, 154, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘C’ BENCH: CHENNAI
Before: SHRI ABY T. VARKEY & MS. PADMAVATHY.S
आदेश / O R D E R
PER PADMAVATHY.S, A.M: This appeal by the assessee is against the order of the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, (in short "CIT(A)") passed u/s. 250 of the Income Tax Act, 1961 (in short "the Act") dated 01.10.2025 for Assessment Year (AY) 2013-14. The assessee raised the following ground of appeal:
1. 1. 1. 1. 1. 1. 1. The order of the Ld. CIT(A) confirming the rejection of the rectification petition u/s 154 is contrary to law, facts, and circumstances of the case.
Power Security Corp. Pvt. Ltd. :- 2 -: 2. The Ld. CIT(A) and the Assessing Officer failed to appreciate that the notice issued u/s 148 dated 31.07.2022 was barred by limitation under section 149, since the alleged escaped income was less than 50 lakhs, and therefore the reassessment proceedings were void ab initio.
3. The authorities below erred in ignoring the binding judgment of the Hon'ble Supreme Court in Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70 (SC), which clearly lays down that reopening beyond three years is impermissible where the quantum of escaped income is below 250 lakhs.
4. The Ld. CIT(A) erred in not appreciating that non-consideration of a binding precedent of the Hon'ble Supreme Court (Union of India v. Rajeev Bansal [2024] 167 taxmann.com 70 (SC)), constitutes a "mistake apparent from record," as held in ACIT v. Saurashtra Kutch Stock Exchange Ltd. (2008) 305 ITR 227 (SC). Thus, the rejection of the section 154 application on the ground that it was "debatable" is legally untenable.
5. The appellant craves leave to add, alter, amend, or withdraw any of the above grounds at the time of hearing.
6. In view of the foregoing, it is most respectfully prayed that this Hon'ble Tribunal may be pleased to set aside the orders of the authorities below and direct the Assessing Officer to allow rectification u/s 154 by holding that the notice issued u/s 148 dated 31.07.2022 is barred by limitation under section 149 of the Act.”
The assessee is a private limited company engaged in providing security, surveillance, cleaning and building maintenance services. The assessee did not file the return of income for A.Y 2013-14. The assessment was reopened by issue of notice u/s. 148 of the Act on 30.06.2021. Subsequently as per the directions of Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal (Civil Appeal No. 3005/2022 dated 04.05.2022) the said notice was treated as show-cause notice u/s. 148A of the Act. The A.O issued a notice u/s. 148A(b) of the Act on 25.05.2022 calling on the assessee to file the details pertaining to certain receipts in the hands of the assessee within 14 days. The A.O subsequently passed an order u/s. 148A(d) of the Act on 31.07.2022 and also issued a notice u/s. 148 on the Power Security Corp. Pvt. Ltd. :- 3 -: same day. In response, the assessee filed a return of income declaring total income of Rs.10,47,872/-, the A.O completed the assessment u/s. 147 r.w.s 144 of the Act by making an addition of Rs.35,69,538/- being 7% of the total receipts in the hands of the assessee. The assessee filed an application for rectification u/s. 154 on 21.10.2024 stating that the notice issued u/s. 148 is beyond the time limit u/s. 149 and therefore the assessment is bad in law. The A.O rejected the petition holding that the assessee raised is not a mistake apparent on record and is outside the purview of section 154. The assessee preferred further appeal before the CIT(A) against the order of rejection u/s. 154 and the CIT(A) dismissed the appeal holding that the question of validity of notice u/s. 148 and the limitation u/s. 149 are debatable issues that cannot be rectified u/s. 144 of the Act. The assessee is in appeal before the Tribunal against the order of the CIT(A).
The Ld. Authorized Representative (AR) of the assessee submitted that the Hon'ble Supreme Court in the case of Union of India v. Rajiv Bansal [2024] 167 taxmann.com 70 (SC) for AY 2013-14 the notice issued on 31.07.2022 . The Ld. AR further submitted that as per Circular No.68 dated 17.11.1971, the CBDT has clarified that the subsequent interpretation of law by the Supreme Court would constitute a mistake apparent from record and therefore the lower authorities are not correct in dismissing the rectification filed by the assessee u/s. 154 of the Act. The Ld. AR even otherwise submitted that for A.Y 2013-14 the A.O has issued a notice u/s. 148 on 31.07.2022 which is way beyond the time limit as provided u/s. 149 of the Act. Accordingly, the Ld. AR prayed that the order of assessment be quashed.
The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.
We have heard the parties, and perused the material available on record. In assessee's case the original notice u/s.148 was issued on 30.06.2021 under the old regime. The said notice was deemed a notice u/s.148A as per the decision of the Hon'ble Supreme Court in the case of Ashish Agrawal (supra). Subsequently the AO issued notice u/s.148 under the new regime on 31.07.2022. The argument of the assessee is that the notice issued u/s.148 is barred by limitation as per the decision of Hon'ble Supreme Court in the case of Rajeev Bansal (supra). Before proceeding further we will first understand legal position in this regard. Under the new regime of reassessment, the sequence of initiation of the proceedings is as under – (i) First the notice under section 148A(b) as why the notice under section 148 should not be issued based on the information that income has escaped assessment. The AO is required to give a period of not less than 7 days and not more than 30 days to the assessee to file the response; (ii) Assessee files the response within the time specified or the time expired where the assessee has not filed any reply; (iii) The AO passes an order under section 148A(d) within 30 days from the end of the month in which the reply is received by the AO or the time given in the notice under section 148A(b) expires; (iv) The AO issues notice under section 148 initiating the reassessment proceedings.
In the cases where section 148 notices issued under the old regime between 01.04.2021 to 30.06.2021, by virtue of the decision of the Hon'ble Supreme Court in the case of Ashish Agarwal (supra) were deemed to be issued under section 148A of the Act. For such notices deemed as issued under 148A for AY 2013-14 and 2014-15, (where TOLA is applicable) the Hon'ble Supreme Court in the case Rajeev Bansal (supra), provided clarity as Power Security Corp. Pvt. Ltd. :- 5 -: to the time limit available to the AO for completing the procedure under section 148A and for issuing of notice under 148. The relevant observations of the Hon'ble Supreme Court is extracted below –
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.
To understand the ratio laid down by above observations of the Hon'ble Supreme Court it is important to look into the relevant provisions of section 149 which reads as under – Time limit for notice. 149. (1) No notice under section 148 shall be issued for the relevant assessment year,— (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year: Provided that no notice under section 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 such notice 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, as they stood immediately before the commencement of the Finance Act, 2021:
Power Security Corp. Pvt. Ltd. :- 7 -: Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021: Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded: Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly.
A combined reading of the observations of the Hon'ble Supreme Court and the provisions of section 149, it is clear that the surviving time limit available to the AO for issue of notice under section 148 is number of days from the date of the issuance of the deemed notices 148A(a) till 30.06.2021 besides the period granted to the assesses to reply to the show cause notices in terms of the third proviso to Section 149. Further as per the fourth proviso if the surviving time limit is less that 7 days then, such remaining period shall be extended to seven days for the purpose of period limitation.
In the background of the above legal position we will now examine the facts in assessee's case. In assessee's case the original notice under section 148 was issued on 30.06.2021 and said notice was deemed to be issued under section 148A by virtue of the decision of the Hon'ble Supreme Court in the case of Ashish Agarwal (supra). Accordingly, the surviving time limit as laid down by the Hon'ble Supreme Court in the case Rajeev Bansal r.w. fourth proviso to section 149 is 7 days. Further the AO in the notice under section Power Security Corp. Pvt. Ltd. :- 8 -: 148A(b) dated 25.05.2022 has given 14 days time to respond i.e. by 08.06.2022. Therefore the time limit by when the AO ought to have issued the notice is 15.06.2022. In the present case the AO has issued the notice under section 148 on 31.07.2022 and therefore in the light of the above discussion, we are of the considered view that the notice under section 148 is barred by limitation and invalid. When the notice u/s.148 is held to be void ab initio all the consequent proceedings are also to be considered as invalid in law and therefore in our view, the decision of CIT(A) dismissing the appeal stating that the issue is beyond the scope of section 154 is not correct. Accordingly we have no hesitation to quash the order of the AO which is arising out a notice u/s.148 which is held as bad in the eyes of law.
In result the appeal of the assessee is allowed.
Order pronounced on 13th day of February, 2026 at Chennai.