Invalidation of Time-Barred Reassessment Notices: ITAT Mumbai Applies Supreme Court’s 'Surviving Time' Formula

The intersection of pandemic-era legislative extensions and sweeping judicial precedents has created a complex landscape for tax reassessments in India. In a landmark adjudication, the Income Tax Appellate Tribunal (ITAT) Mumbai delivered a decisive ruling in the case of ACIT Vs Vihar Infrastructure Private Limited, reaffirming that statutory limitation periods cannot be bypassed by administrative delays.

The Tribunal dismissed the Revenue’s appeal, categorically stating that a reassessment notice issued under Section 148 of the Income Tax Act 1961 was void ab initio because it breached the limitation period. This conclusion was drawn by meticulously applying the legal fictions and computational formulas established by the Hon'ble Supreme Court in the landmark judgments of Union of India vs. Ashish Agarwal and Union of India & Ors. vs. Rajeev Bansal & Ors..

The Genesis of the Dispute: Old Regime vs. New Regime

To fully comprehend the magnitude of the ITAT's decision, one must examine the transitional friction between the old reassessment framework and the revamped procedures introduced by the Finance Act 2021.

Historically, tax authorities possessed wider latitude to reopen concluded assessments. However, the new regime introduced Section 148A, which mandated a preliminary procedure—requiring the Assessing Officer (AO) to conduct inquiries, share information with the assessee, and consider their objections before issuing a formal reassessment notice.

Amidst this legislative overhaul, the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act 2020 (TOLA) was enacted to extend various statutory deadlines disrupted by the COVID-19 pandemic. Consequently, a massive wave of reassessment notices was issued by the Revenue between April 1, 2021, and June 30, 2021, utilizing the old procedural rules, under the assumption that TOLA had preserved their validity.

The Supreme Court's Intervention

The issuance of these old-regime notices triggered widespread litigation, culminating in the Supreme Court's intervention.