ITAT Delhi Sets Aside ₹11.23 Crore Reassessment: Section 148 Notice Falls Beyond Permissible Time Limit

Overview of the Tribunal Decision

In the matter of DCIT Vs Sterling Agro Industries Limited, the Delhi Bench of the Income Tax Appellate Tribunal delivered a significant ruling regarding the validity of reassessment proceedings initiated for Assessment Year 2014-15. The dispute centered on an addition of Rs. 11.23 crore made by the tax authorities, alleging that the assessee had engaged in accommodation entries disguised as fictitious milk sales transactions.

The Commissioner (Appeals) had ruled in favor of the assessee, determining that the notice issued under Section 148 dated 27.07.2022 fell beyond the statutory limitation period prescribed under Section 149 of the Income Tax Act, 1961. This determination took into account the landmark pronouncements by the Supreme Court in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal.

Upon thorough examination of the limitation timeline and applying the statutory exclusions alongside the legal fiction established by the Supreme Court's judgments, the Tribunal concluded that the final deadline for issuing the reassessment notice had lapsed on 17.06.2022. Since the impugned notice was issued subsequent to this deadline, it was declared barred by limitation and consequently void ab initio. The entire reassessment proceedings were thereby quashed. The Revenue's appeal was rejected, while the assessee's cross-objection on the legal ground was accepted.

Factual Matrix and Procedural Timeline

Initial Assessment and Reassessment History

  1. The assessee company submitted its return of income for AY 2014-15 on 30.09.2014, declaring a total income of ₹81.60 crores.
  2. The initial assessment was concluded under Section 143(3) on 13.10.2016.
  3. Subsequently, a reassessment was completed under Section 147/143(3) on 31.12.2019.
  4. Intelligence inputs received from the Investigation Wing alleged that the assessee had obtained accommodation entries amounting to ₹11.23 crores.
  5. A notice under Section 148 (old regime) was issued on 29.06.2021.
  6. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act (TOLA) extended the outer time limit for issuing such notices until 30.06.2021.
  7. The Supreme Court delivered its judgment in Ashish Agarwal on 04.05.2022.
  8. Following this judicial pronouncement, the Assessing Officer issued a communication under Section 148A(b) on 27.05.2022.
  9. The assessee filed its response on 10.06.2022.
  10. The Assessing Officer then passed an order under Section 148A(d) and issued a fresh notice under Section 148 (new regime) on 27.07.2022.
  11. The Commissioner (Appeals) allowed the assessee's appeal, holding that the notice was time-barred.
  12. The Revenue filed an appeal, and the assessee filed a cross-objection before the Tribunal.

Primary Issues for Adjudication

The Tribunal was called upon to examine the following critical questions:

  1. Whether the notice dated 27.07.2022 under Section 148 (new regime) was issued within the permissible limitation period?
  2. Whether the extended time under TOLA permitted issuance beyond the surviving limitation period?
  3. Whether the reassessment proceedings remained valid after the Supreme Court's rulings in Ashish Agarwal and Rajeev Bansal?

Assessee's Contentions in Cross-Objection

Arguments on Limitation Period

The assessee presented the following submissions before the Tribunal:

  • The original notice under the old regime was issued on 29.06.2021.
  • TOLA extended the deadline only until 30.06.2021.
  • Consequently, only one day survived (between 29.06.2021 and 30.06.2021).
  • After the assessee filed its reply dated 10.06.2022, the Assessing Officer had only the surviving period available.
  • As per the principles laid down in Union of India v. Rajeev Bansal, the limitation period restarted after the reply was filed.
  • The surviving limitation period expired on 17.06.2022.
  • Since the notice was issued on 27.07.2022, it was issued beyond the permissible time limit.
  • Therefore, the entire reassessment proceedings should be deemed void ab initio.

Revenue's Position

Defense of the Reassessment Proceedings

The Revenue authorities advanced the following arguments:

  • The notice was protected and saved by the Supreme Court's judgment in Ashish Agarwal.
  • All procedural compliance under Section 148A was duly followed.
  • The issue of limitation was not raised before the Assessing Officer during the reassessment proceedings.
  • The notice was validly issued within the permissible time frame.

Comprehensive Analysis by the Tribunal

Application of TOLA Provisions

For Assessment Year 2014-15, the Tribunal noted:

  • The six-year limitation period would have expired on 31.03.2021.
  • Therefore, the assessment year fell within the coverage of TOLA.
  • The extended deadline was validly available until 30.06.2021.
  • Consequently, the original notice dated 29.06.2021 was issued within valid time.

Impact of Ashish Agarwal Judgment

The Tribunal examined the effect of the Supreme Court's ruling in Ashish Agarwal:

  • Old notices issued during the relevant period were deemed to be notices under Section 148A(b).
  • A legal fiction was created by the Supreme Court's judgment.
  • However, the computation of limitation remained governed by Section 149 of the Income Tax Act, 1961.

Application of Rajeev Bansal Principles

The Tribunal extensively relied upon paragraphs 110 to 112 of the Supreme Court's judgment in Union of India v. Rajeev Bansal:

"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 . As discussed in the preceding segment of the judgment, the period from the date of the issuance of the deemed notices till the supply of relevant information and material by the assessing officer to the assessee in terms of the direction 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 assessee to reply to the cause notices must 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 assessee to the show cause 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."