The Gujarat High Court has quashed a reassessment notice issued under Section 148 of the Income-tax Act, 1961, after holding that the notice was issued beyond the limitation period remaining—or the “surviving time”—under the statutory framework explained by the Supreme Court in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal.
The petition was filed by Wealth First Portfolio Managers Limited under Article 226 of the Constitution, challenging the reassessment notice dated 31 August 2022 for Assessment Year 2016–17. The principal contention was that the notice was invalid and barred by limitation.
Background of the Reassessment Proceedings
The Assessing Officer had initially issued a notice under Section 148 on 29 June 2021 during the extended period made available under the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020, commonly referred to as TOLA.
Following the Supreme Court’s ruling in Ashish Agarwal, the earlier notice was required to be treated as a show-cause notice under Section 148A(b), which had become part of the reassessment regime with effect from 1 April 2021.
The Assessing Officer supplied the relevant information to the assessee on 27 July 2022. Allowing the statutory period of 15 days for filing a response, the Court determined that the due date for the assessee’s reply was 10 August 2022. The assessee submitted its reply on 5 August 2022.
Thereafter, the Assessing Officer passed an order under Section 148A(d) on 30 August 2022 and issued the fresh notice under Section 148 on 31 August 2022.
Issue Before the Gujarat High Court
The central issue was whether the fresh reassessment notice dated 31 August 2022 had been issued within the period of limitation remaining after excluding the time during which the proceedings were treated as stayed in accordance with the Supreme Court’s directions.
The Court applied the principle of “surviving time” explained in Rajeev Bansal. Under that principle, reassessment notices under the new regime had to be issued within the limitation period that remained available under the Income-tax Act read with TOLA.
The Supreme Court had clarified that the period from the issuance of the deemed notice between 1 April 2021 and 30 June 2021 until the supply of relevant information by the Assessing Officer, together with the two-week period allowed to the assessee to respond, was to be excluded while computing limitation.
Notice Issued After Expiry of Surviving Limitation
On applying the above principles, the Gujarat High Court found that the limitation period for issuing the fresh notice under Section 148 expired on 10 August 2022.
Since the impugned notice was issued only on 31 August 2022, it was beyond the permissible surviving period. The Revenue’s counsel verified the relevant dates and was unable to controvert the computation placed before the Court.
The High Court also relied on its earlier judgment in Dhanraj Govindram Kella v. Income Tax Officer, where it had examined the computation of surviving limitation in reassessment proceedings initiated through notices issued under TOLA.
Decision of the Gujarat High Court
The Court held that all reassessment notices issued beyond the surviving limitation period are time-barred and liable to be set aside.
Accordingly, the notice dated 31 August 2022 issued under Section 148 was quashed. All consequential proceedings arising from the invalid notice were also quashed and set aside.
The judgment reiterates that the directions issued in Ashish Agarwal did not grant the Revenue an unrestricted or fresh limitation period. The Assessing Officer was still required to complete the reassessment initiation process within the limitation period that remained available after giving effect to the exclusions recognised by the Supreme Court.
Legal Significance
The ruling is significant for reassessment proceedings arising from the transition between the old and new Section 148 regimes. It confirms that the validity of each reassessment notice must be examined by calculating the precise surviving period available in the individual case.
The mere conversion of an old-regime notice into a deemed notice under Section 148A(b) does not revive an otherwise expired limitation period. Where the subsequent order under Section 148A(d) or notice under Section 148 is issued after the surviving period has expired, the proceedings are without legal validity.
The decision is particularly relevant for taxpayers and professionals dealing with reassessment notices originally issued between 1 April 2021 and 30 June 2021 under the extended TOLA framework.
Key Takeaway
A reassessment notice issued under the new Section 148 regime must fall within the precise limitation period surviving after applying the exclusions recognised in Ashish Agarwal and Rajeev Bansal. A notice issued beyond that period is time-barred, and all consequential reassessment proceedings are liable to be quashed.
