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Judgment
PER MANISH AGARWAL, AM:
The captioned appeals are filed by the Assessee against the two separate orders of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [Ld. CIT(A)] dated 09.04.2025 and dt. 11.04.2025 passed u/s 250 of the Income Tax Act, 1961 (“the Act” in short) arising out of the assessment orders passed u/s 147/144B of the Act dated 10.05.2023 and penalty order u/s 272A(1)(d) of the Act for Assessment Year 2017-18.
First we take the assessee’s appeal in ITA No.7846/Del/2025.
ITA No.7846/Del/2025
Brief facts of the case information was available in the Insight Portal under High Risk Parameter in the case of the assessee that he had obtained accommodation entries in the form of fictitious Long Term Capital Gain (LTCG) through one Mr. Alok Aggarwal in the trade of scrip of Alankit Ltd., which was a penny stock, for an amount of Rs.30,10,275/-. Accordingly, proceedings u/s. 147 of the Act were initiated in his case by issue of notice u/s. 148 of the Act on 26.07.2022. In response, the assessee filed his ITR on 20.08.2022 declaring total income of Rs. 2,40,500/-. Thereafter, statutory notice u/s. 143(2) was issued followed by the notices u/s 142(1) alongwith questionnaire and notice u/s 144 of the Act were issued from time to time. In response, the assessee filed his reply which was considered by the AO and passed the reassessment order u/s. 147 r.w.s 144B of the Act dated 10.05.2023, wherein addition of Rs. 30,10,275/- was made in the hands of the appellant as unexplained cash credit u/s. 68 of the Act.
Against the said order, the assessee filed appeal before Ld. CIT(A) who vide impugned order dated 09.04.2025, has dismissed the appeal of the assessee.
Aggrieved by the said order, the assessee is in appeal before the Tribunal by, wherein the assessee has raised following grounds of appeal:
“1.That the Ld. CIT(A) has erred in law and on facts in upholding the notion of the Ld. AO in assessing the income of the Assessee for an amount of Rs. 32, 50,775/-as against the declared income of Rs. 2,40,500/- under the assessment framed u/s 147 r.w.s 144 of the Act.
2.That the Ld. CIT(A) has erred in law and on facts in upholding the reassessment order passed by Ld. AO u/s 147 r.w.s 144B of the Act despite no proper jurisdiction and non-compliance with the mandatory provisions of the sections 148A, 147 to 151 of the Act.
2.1That the Ld. CIT(A) has erred in law and on facts in upholding the reassessment order passed by Ld. AO despite non-complying with the mandatory provision qua approval by appropriate authority u/s 151 of the Act for issuing notice u/s 148 of the Act. Therefore, the whole proceeding is invalid and as such liable to be quashed.
2.2That the Ld. CIT(A) has erred in confirming the initiation of reassessment proceedings despite the fact that the notice issued u/s 148 of the Act by the Ld. AO is beyond the surviving period, in view of the judgment rendered by the Hon'ble Supreme Court in the case of Rajeev Bansal.
2.3That the Ld. CIT(A) has erred in law and on facts in upholding the validity of show cause notice issued u/s 148A(b) and order passed u/s 148A(d), despite the facts that, same suffered from jurisdiction defect, violate the principles of natural justice and were issued without providing tangible material or specific information to the Appellant, thereby rendering them legally untenable.
2.4That the Ld. CIT(A) has failed to appreciate the fact that the order passed w/s 148A(d) of the Act is based on mere presumption, guess work, and these are not more than suspicion, making it invalid in eyes of law..
2.3That the Id. CTT(A) has erred in conforming the initiation of reassessment proceedings despite the fact that the Ld. AO failed to apply his independent mind while passing the order u's 148A(d) of the Act to show that there is an income which has escaped assessment, as such the same is not valid in the eyes of law.
2.6That the Ld. CIT(A) has wrongly upheld the reassessment order u/s 147 of the Act, passed by the Ld. AO as there is the absence of any fresh tangible material which has come to the knowledge of Ld. AO. The reassessment proceedings were thus initiated based on mere change of the opinion which is impermissible in law.
2.7That the Ld. CIT(A) has erred in law and facts in upholding the order of L.d. AO as notice issued u/s 148 is without complying with statutory provisions provided u/s 151A of the Act.
3.That the Ld. CIT(A) has erred in upholding the action of Ld.AO in passing the assessment order as the same has been passed without disclosing the adverse material/information/basis of passing the impugned assessment order against the Assessee and also without providing sufficient and proper opportunity of hearing. This has amounted to violation of principle of natural justice.
4.That having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts in upholding action of Ld. AO in making an addition of Rs. 30,10,275/-u/s 68 of the Act on account of bogus LTCG in the scrip of Alankit Ltd., is bad in law and against the facts and circumstances of the case.
4.1That having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in law and facts in upholding action of the Ld. AO in making an addition of Rs.30,10,275/- u/s 68 of the Act on account of bogus LTCG in the scrip of Alankit Ltd., that too recording incorrect facts and findings and without observing the principles of natural justice.
5.That the assessment so framed and upheld and addition made suffers from perverse findings, contrary to the facts on record and without providing material against the Appellant, which has amounted to violation of principle of natural justice and is also barred by limitation.
6.That the levy of interest under the Act is disputed and as such unsustainable in law besides being excessive.
7.The appellant craves leave for adducing necessary evidence, amendments and explanation including written one to the aforesaid grounds and also raised additional grounds in the course of hearing of the appellate proceedings.
It is therefore, humbly prayed that it be held that, addition so made and upheld are not in accordance with law and therefore alongwith with interest levied be deleted and appeal on the Appellant be allowed.
It is observed that the appeal was filed delayed by 151 days. Before us, an application for condonation of delay was filed. In the said petition, it is stated that the appellate order was passed online and no intimation was sent to the assessee. When the counsel of the assessee visited the e-filing portal, the said order was come to his notice, and thereafter appeal was filed. Due to this reason the appeal was filed delayed by 151 days. It is thus submitted that the delay was neither intentional nor willful and occurred due to bonafide reason thus it is requested to condone the delay.
Per contra, Ld. Sr. DR opposed the request of the assessee for condonation of delay in filing the appeal by the assessee.
Having considered the arguments of both the parties. We find that there is a reasonable and sufficient cause with the assessee in filing the appeal delayed by 151 days. It must be remembered that in every case of delay, there can be some lapses on the part of the litigant concerned however, that alone is not enough to turn down the plea of assessee and to shut the doors against it. When the explanation does not smack of mala fide or it is not putforth as a part of dilatory strategy, the Courts must give utmost consideration to such litigant and its right of hearing of appeal on merit ought not to be rejected. Considering the overall facts and circumstances of the case and in the larger interest of justice, delay in filling the appeal is hereby condoned and appeal of the assessee is taken for adjudication on merits.
Heard the contentions of both the parties at length and perused the material available on record. In grounds of appeal Nos. 2 to 2.7, the assessee has challenged the reassessment order on the ground of limitations. It is observed that first notice u/s 148 was issued on 29.06.2021 leaving only 1 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. Thereafter information was supplied to the assessee vide notice u/s 148A(b) of the Act on 20.05.2022, wherein the assessee was asked to file the reply upto 03.06.2022. The assessee sought adjournment vide letter dt. 02.07.2022 which was allowed upto 06.7.2022. Thereafter, order u/s 148A(d) was passed on 26.7.2022 followed by the notice u/s 148 issued on the same day.
It is further observed that the said order is passed after obtaining approval from the Principal Commissioner of Income Tax, Delhi and thereafter, notice u/s 148 was issued on 26.07.2022 based on the approval of PCIT on 25.07.2022. As per the amended provisions as contained in section 151 of the Act, where the case of the assessee is reopened after the expiry of three years from the end of the relevant Assessment Year, in accordance with provisions of sub-section 2 of section 151 of the Act, approval from Principal Chief Commissioner of Income-tax or Principal Director General or Chief Commissioner or Director General is mandatory before the issue of notice u/s 148 of the Act.
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 149AI; (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:
7.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 Section 148 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.”
As observed above, 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). The notice u/s 148 of the Act was issued on 26.07.2022 though the time limit for filing the reply in response to notice u/s 148A(b) was upto 06.07.2022 and thus the surviving period of 07 days expired on 13.06.2022 therefore the notice issued u/s 148 on 26.07.2022 is barred by limitations.
Even otherwise, the notice u/s 148 and the order u/s 148A(d) of the Act were issued after obtaining the approval of PCIT, Delhi, which both are placed at PB pages 8to 15 of PB, therefore, such approval is not in accordance with the amended provisions of section 151(2) of the Act and, therefore is not a valid approval and, accordingly, the notice issued u/s 148 based on such invalid approval is bad in law and consequent order passed u/s 147 is bad in law on this score also. Accordingly, the grounds of appeal Nos. 2 to 2.7 taken by the assessee are allowed.
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 26.07.2022 is barred by limitations and further the approval taken from PCIT as against the PCCIT or the DGCIT or CCIT or DGIT is invalid and the consequent reassessment order passed u/s 147 r.w.s.144 r.w.s.144B is quashed. Accordingly, grounds of appeal Nos. 2 to 2.7 taken by the assessee are allowed.
Since, we have allowed the assessee’s legal grounds of appeal No. 2 to 2.7 and, therefore, the other grounds of appeal are not adjudicated.
In the result appeal of the assessee is allowed.
ITA N0. 7847/Del/2025
Now coming to the assessee’s appeal in ITA NO. 7847/Del/2025 wherein the assessee has challenged the levy of penalty u/s 272A(1)(d) of the Act for non-compliance of the notices issued us 142(1) of the Act. Since we have already quashed the reassessment order passed u/s 147 r.w.s. 144B of the Act while deciding the appeal of the assessee in ITA No. 7846/Del/2025 herein above, therefore, the penalty proceeding initiated u/s 272A(1)9d) of the Act during the pendency of such proceedings has no legs to stand and therefore, the same is hereby deleted. Accordingly, all the grounds of appeal of the assessee are allowed.
In the result appeal of the assessee is allowed.
In the final result, both the appeals filed by the Assessee are allowed.