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Judgment
PER MANISH AGARWAL, AM :
The present appeal is filed by assessee against the order dated 24.09.2025 passed by Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld.CIT(A)”] in Appeal No. NFAC/2013-14/10278460 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 30.05.2023 passed u/s 14 r.w.s. 144 of the Act pertaining to Assessment Year 2014-15.
Brief facts of the case are that the assessee has filed his return of income, declaring total income of INR 6,27,410/- on 17.11.2014. The return was processed u/s 143(1) and no scrutiny has been done as per system data. The assessee had shown sale of goods of INR 12,50,47,837/- and purchases of INR 12,03,38,147/- in the Income Tax Return filed u/s 139 of the Act. Thereafter, notice u/s 148 dated 28.07.2022 was issued, requiring the assessee to furnish return of income against the notice u/s 148 of the Act but there was no response on behalf of the assessee. Thereafter various notices were issued to assessee from time to time and subsequently, show cause notices were issued to the assessee. A survey action as conducted u/s 133A of the Act in the case of Shri Ashok Kumar Gupta on 30.11.2018. During the course of survey, it was found that Shri Ashok Kumar Gupta was engaged in the business of providing accommodation entries. The statement of Shri Ashok Kumar Gutpa was recorded u/s 131(1A) of the Act and in his statement, he admitted that he had given both purchase and sale related accommodation entries through his various entities. It is found from the record that the assessee failed to file return of income in response to notices issued u/s 148 as well as failed to prove the genuineness of purchases/sale of INR 9,36,07,149/- with M/s. Ridhi Sidhi Impex Proprietor, Shri Ashok Kumar Gupta and INR 6,15,008/- with M/s. Gayatri maa Proprietor Shri Ashok Kumar Gupta during FY 2013-14 relevant to AY 2014-15. Thereafter, the AO passed the assessment order u/s 147 r.w.s. 144 of the Act on 30.05.2023 and assessed the total income of the assessee at INR 9,67,34,010/-.
Against the said order, the assessee filed appeal before Ld.CIT(A) who vide impugned order dated 24.09.2025, partly allowed the appeal of the assessee.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by taking various Grounds of appeal mentioned in the appeal memo.
Heard the contentions of both the parties at length and perused the material available on record. In grounds of appeal Nos. 1 to 1.7, the assessee has challenged the reassessment order on the ground of limitations. It is observed that first notice u/s 148 was issued on 28.06.2021 leaving only 2 days as surviving period with the Assessing Officer till the period of limitation i.e. 30.6.2021 however, as per the order of hon'ble Supreme court in the case of Union of India Vs. Rajeev Bansal reported in (2024) 469 ITR 46 (SC), the revenue has minimum 7 days left as surviving period. Thereafter, in terms of the order of Hon'ble Supreme Court in the case of Union of India and Anors. Vs. Ashish Agarwal dated 04.05.2022 in Civil Appeal No.3005/2020, notice issued u/s 148 dated 28.06.2021 was deemed to have been issued u/s 148A(b) of the Act wherein the assessee was asked to file the reply within a period of Two weeks. After considering the submission filed by the assessee on 10.06.2022 in response to the notice u/s 148A(b) of the Act, order u/s 148A(d) was passed on 28.7.2022 followed by the notice u/s 148 issued on the same day.
Since the surviving period available with the AO was 07 days however, in terms of the order of hon'ble Supreme court in the case of Rajeev Bansal (supra) the time available with the AO to pass the order u/s 148A(d) and to issue notice u/s 148 of the Act was upto 17.06.2022 but, the order u/s 148A(d) was passed on 28.07.2022 and the notice u/s 148 were also issued on 28.07.2022. The hon'ble Supreme court in the case of Rajeev Bansal (supra) has held as under for the cases where the earlier notice issued u/s 148 is treated as notice u/s 148A(b) of the Act. The relevant observations are as under:
105.“A direction issued by this Court in the exercise of its jurisdiction under Article 142 is an order of a court. The third proviso to Section 149 of the new regime provides that the period during which the proceedings under Section 148A are stayed by an order or injunction of any court shall be excluded for computation of limitation. During the period from the date of issuance of the deemed notice under Section 148A(b) and the date of the decision of this Court in Ashish Agarwal (supra), the assessing officers were deemed to have been prohibited from passing a reassessment order. Resultantly, the show cause notices were deemed to have been stayed by order of this Court from the date of their issuance (somewhere from 1 April 2021 till 30 June 2021) till the date of decision in Ashish Agarwal (supra), that is, 4 May 2022.
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.
107.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
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. 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.
109.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.
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.
111.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.
112.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.
113.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
114.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;
In the case of Communist Party of India (Marxist) vs. CIT Exmpt. reported in [2025] 174 taxmann.com 925 (Delhi), the Hon'ble Delhi High court has held as under:
"8.The AO issued a notice dated 29.07.2022 under Section 148 of the Act accompanied with the order dated 29.07.2022 passed under Section 148A(d) of the Act. It is the petitioner's case that the said notice is barred by limitation.
9.It is material to note that the original notice under Section148 of the Act deemed to be a show cause notice under Section 148A(b) of the Act in terms of the decision in the case of Union of India & Ors. V. Ashish Agarwal (supra)) was issued on 28.06.2021, that is, two days prior to the expiry of the limitation period as extended by virtue of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [TOLA). Thus, the AO had two days to issue the notice under Section 148 of the Act after receiving the reply dated 08.06.2022 filed by the petitioner. Since the said period was less than seven days, the AO had, by virtue of the fourth proviso to Section 149(1) of the Act, seven days to pass an order under Section 148A(d) of the Act (which was necessarily required to accompany a notice under Section 148 of the Act).The said period expired on 16.06.2022. Therefore, the order passed under Section 148A(d) of the Act was beyond the period of limitation.
10.The impugned notice is also liable to be set aside on the ground that it was issued without the approval of the authority specified under Section 151 of the Act. Since the impugned notice was issued beyond the period of three years from the end of the relevant assessment year, thus, in terms of Section 151 (ii) of the Act, the same was required to be approved by the Principal Chief Commissioner or Principal Director General or where there is no such authority, by Chief Commissioner or Director General. The determination of the specified authority for grant of approval under Section 151 of the Act depends on whether the notice under Section 148 of the Act has been issued after the expiry of three years from the end of the relevant assessment year or within the said period."
In the instant case notice u/s 148 of the Act has been issued beyond the period of limitation i.e. after the expiry of surviving period as prescribed by the Hon'ble Supreme Court in the case of Rajeev Bansal (supra). As observed above, in the present case, the notice u/s 148 of the Act was issued on 28.07.2022 though the reply in response to notice u/s 148A(b) was filed by the assessee on 10.06.2022 thus the surviving period of 07 days expired on 17.06.2022 therefore the notice issued u/s 148 on 28.07.2022 is barred by limitations.
In view of these facts and by respectfully following the judgement of hon'ble Supreme court in the case of Rajeev Bansal (supra) and of hon'ble Deli high as referred above, we hold that the notice issued u/s 148 on 29.07.2022 is barred by limitations and thus quashed and consequent reassessment order passed u/s 147 r.w.s.144 r.w.s. 144B is also quashed. Accordingly, grounds of appeal Nos. 1 to 1.7 taken by the assessee are allowed.
Since we have allowed the legal grounds of appeal taken by the assessee, the other grounds of appeal become academic and thus, not adjudicated.
In the result, the appeal of the assessee is allowed.