Reassessment Quashed by ITAT Bangalore on Twin Jurisdictional Grounds: Limitation Lapse and Invalid Approval Under Section 151

Overview

The Income Tax Appellate Tribunal, Bangalore, has quashed a reassessment order in the case of Narayana Srinivasa Vs ITO (ITAT Bangalore), pertaining to Assessment Year 2016-17. The Tribunal's decision rested on two distinct and independent jurisdictional failures — first, that the notice issued under Section 148 of the Income Tax Act, 1961 was beyond the permissible surviving limitation period as determined by the Supreme Court's ruling in Union of India Vs Rajeev Bansal, and second, that the sanction for issuing the notice was obtained from an authority not empowered under the amended Section 151 of the Act. Since both defects independently invalidated the assumption of jurisdiction, the Tribunal quashed the entire reassessment without entering into the merits of the additions made.

Background: The Assessee and the Original Return

The assessee, a contractor operating from Pandavapura Taluk, Mandya, filed his return of income on 29.09.2016 for Assessment Year 2016-17, declaring total income of ₹3,16,600/-. The case was subsequently reopened by the Assessing Officer, who, after considering the assessee's submissions, treated ₹39,11,259/- (computed at 25% of ₹1,56,45,036/-) as taxable business income. The reassessment order was passed on 17.05.2023 under Section 147 read with Section 144 and Section 144B of the Income Tax Act, 1961.

The assessee challenged the reopening before the Commissioner of Income Tax (Appeals)/NFAC. The CIT(A) dismissed the appeal, following which the assessee approached the Tribunal.

Before the Tribunal, the authorised representative specifically requested that the jurisdictional grounds be examined first, since they struck at the very root of the proceedings and, if upheld, would render all other grounds academic.

The Finance Act, 2021 Substitution

The Finance Act, 2021 overhauled the entire reassessment framework under Section 147 through Section 151 of the Income Tax Act, 1961, with effect from 01.04.2021. The old regime of reassessment thus ceased to operate from 31.03.2021, and the new regime, which introduced a preliminary inquiry mechanism under Section 148A, came into force from 01.04.2021.

TOLA Extension and Its Limits

The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) extended the time limits for issuing notices under Section 148 of the old regime — for limitation periods falling between 20.03.2020 and 31.03.2021 — up to 30.06.2021, in view of the COVID-19 pandemic. This extension allowed Revenue to issue notices under the old regime up to 30.06.2021.

The Supreme Court's Transitional Mechanism in Ashish Agarwal

In Union of India Vs Ashish Agarwal (Supreme Court), the Supreme Court exercised its extraordinary powers under Article 142 of the Constitution of India and, in paragraph 10(i) of its judgment, held that notices under Section 148 issued under the old regime between 01.04.2021 and 30.06.2021 shall be treated as deemed show-cause notices under Section 148A(b) of the new regime. The Revenue was directed to supply the information and material relied upon to the assessee within thirty days, and assessees were to be given two weeks to respond. This mechanism enabled the Revenue to regularise old-regime notices under the new framework.

The Surviving Period Principle from Rajeev Bansal

In Union of India Vs Rajeev Bansal (Supreme Court), the Supreme Court further clarified that the fresh notice under Section 148 of the new regime must be issued within the "surviving period" — that is, the balance limitation period remaining after accounting for applicable exclusions. The critical principles from Rajeev Bansal, as extracted and applied by the Tribunal, are:

  1. The surviving period is calculated as the number of days between the date of issuance of the deemed notice and 30th June, 2021 (Para 108).
  2. The surviving period begins running from the date of receipt of the assessee's response by the Assessing Officer (Para 111 & 112).
  3. Within this surviving period, the Assessing Officer must consider the response under Section 148A(c), pass the order under Section 148A(d), and issue the fresh notice under Section 148 of the new regime (Para 111).
  4. Notices issued beyond the surviving period are time-barred and liable to be set aside (Para 113 and 114(g) & 114(h)).