IT Reassessment Notices Issued After Limitation Period Invalid Despite Ashish Agarwal Ruling: Karnataka High Court

The Karnataka High Court has recently held that reassessment proceedings initiated after the expiry of the statutorily surviving period of limitation under the Income Tax Act are invalid.

This remains so even where the revenue seeks to sustain the reassessment notice on the basis of the Supreme Court's directions in Union of India v. Ashish Agarwal.

In Ashish Agarwal, the Supreme Court protected reassessment notices issued under the old law during the transition to the new reassessment regime that came into force on April 1, 2021, by treating those notices as show cause notices under the amended provisions.

The Court clarified that the legal fiction created by the Supreme Court does not permit the revenue to issue reassessment notices beyond the balance period of limitation available in law.

The ruling was delivered by Justice S. Sunil Dutt Yadav on a writ petition filed by Bhoruka Steel and Services Ltd. The company had challenged a CBDT instruction issued on May 11, 2022, along with the decision to reopen its assessment and the reassessment notice for the 2016–17 assessment year.

For that year, the company had already undergone a detailed scrutiny assessment, after which a final assessment order was passed. Despite this, a reassessment notice was issued in June 2021 under the old law. That notice later came to be governed by the Supreme Court's decision in Ashish Agarwal.

Following that judgment, the tax department issued a communication on May 19, 2022, treating the earlier notice as a show cause notice under the new regime. The company filed its objections on June 3, 2022.

The Assessing Officer thereafter decided to reopen the case and issued the reassessment notice on July 30, 2022.

Thereafter, the Assessing Officer passed an order under Section 148A(d) and issued a notice under Section 148 on 30 July 2022.

Placing reliance on the Supreme Court's decision in Union of India v. Rajeev Bansal, the High Court held that the legal fiction created in Ashish Agarwal merely stopped the limitation clock.

It only permitted the revenue to act within the balance time surviving under the Income Tax Act, read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act.

The Court observed that even after granting the benefit of statutory exclusions and the additional seven days contemplated under the third proviso to Section 149, the outer limit for issuance of notice expired on 10 June 2022.

The Court noted:

“Accordingly, even if the time is extended taking note of pendency of proceedings before the Apex Court, the extension would only be till 04.06.2022. If an addition of 7 days is made in terms of the 3rd proviso to Section 149, the time available would only be upto 10.06.2022.”

It further held:

“As the notice under Section 148 as well as the order under Section 148A(d) has been passed on 30.07.2022, which is beyond the period of time available in law, the petition deserves to be allowed.”

Since both the order under Section 148A(d), recording the decision to reopen the assessment, and the reassessment notice under Section 148 were issued on 30 July 2022, well beyond the permissible period, the Court held the proceedings to be barred by limitation and set aside the impugned order and notice.

For Petitioner: Advocate Tanmayee Rajkumar 

For Respondent: Advocate Dilip M.