Section 148 Reassessment Notices Quashed for Exceeding Surviving Limitation Period — ITAT Surat Rules in Favour of Assessee

Background and Overview

The Income Tax Appellate Tribunal, Surat Bench, delivered a significant ruling in the matter of Kanchan Devi Agarwal Vs ITO (ITAT Surat), allowing both appeals filed by the assessee for Assessment Years 2016-17 and 2017-18. The core question before the Tribunal was whether the reassessment notice issued on 25.07.2022 under Section 148 of the Income Tax Act, 1961 was legally sustainable, given the constraints imposed by the surviving limitation period as interpreted by the Hon'ble Supreme Court.

The appeals originated from separate appellate orders passed by the National Faceless Appeal Centre (NFAC), Delhi, both dated 03.03.2025. Since the underlying facts and the legal controversy were substantially identical in both years, the Tribunal heard them together and disposed of them through a common order pronounced on 23rd December, 2025.

Facts of the Case

Assessment Year 2016-17 — ITA No. 479/SRT/2025

The assessee had originally filed her return of income for AY 2016-17 on 03.08.2016, declaring a total income of Rs. 4,99,060/-. Subsequently, the Assessing Officer reopened the assessment by issuing a notice under Section 148 of the Income Tax Act, 1961, seeking to examine what was alleged to be an accommodation entry of Rs. 25,00,031/- received from M/s. ECLAT Construction Pvt. Ltd. — described as a paper or shell company associated with the Banka Group of companies.

The assessee's position was that the said sum represented an advance received from M/s. ECLAT Construction Pvt. Ltd. for the purpose of acquiring equity shares of M/s. Dhanurdhar Processer Pvt. Ltd. This explanation was corroborated by the confirmation provided by M/s. ECLAT Construction Pvt. Ltd. itself in response to a notice issued under Section 133(6) of the Act.

The Assessing Officer, however, remained unsatisfied with this explanation and proceeded to complete the assessment by making an addition of Rs. 25,00,000/- under Section 68 of the Income Tax Act, 1961. The assessee challenged the said assessment before the CIT(A)/NFAC on two distinct grounds:

1. The validity of reopening through the notice under Section 148, in light of the Supreme Court's ruling in Union of India v. Ashish Agarwal.
2. The correctness of the addition made on merits.

The CIT(A)/NFAC upheld the Assessing Officer's findings on both counts, prompting the assessee to pursue the matter before the Tribunal.

Chronology of Key Events — AY 2016-17

A clear timeline of the relevant procedural steps is critical to appreciating the Tribunal's reasoning:

As is evident from the above table, the fresh notice under Section 148 was issued on 25.07.2022, a date well beyond the outer limit of 14.06.2022 computed on the basis of the surviving time principle.

Arguments Advanced Before the Tribunal

Assessee's Submissions

The learned Authorised Representative submitted that the initial notice under Section 148 was issued on 28.06.2021, falling within the extended time frame permitted under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). Relying on the Supreme Court's direction in Union of India v. Ashish Agarwal (2023) 1 SCC 617, it was argued that all Section 148 notices issued under the old regime between 01.04.2021 and 30.06.2021 were deemed to be show-cause notices under Section 148A(b) as amended by the Finance Act, 2021.