Income Tax Reassessment Notice Quashed as Time-Barred Under 'Surviving Time' Principle: Gujarat HC strikes down section 148 [Read Order]

In the recent ruling, the Gujarat High Court quashed a reassessment notice issued under Section 148 ofthe Income Tax Act, 1961 for AY 2017-18, holding it to be time-barred by applying the ‘surviving time’ principle from Rajeev Bansal case, noting that the notice was issued beyond the permissible period. Since limitation had expired, the reassessment and related penalty proceedings could not lawfully continue. All consequential actions were struck down.

The Petitioner, Dahyabhai Narayandas Patel, filed the petition Article 226 of the Constitution of India challenging the notice under section 148 of the Income Tax Act, 1961 dated 28.08.2022 on the ground that the notice would be invalid and time barred.

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The Section 148 of Income Tax Act, 1961 explained that: Issue of notice where income has escaped assessment.

“Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:

Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice”

The Assessing Officer had issued a notice on 22.04.2021 under the old Section 148 of the Income Tax Act, 1961 for the Assessment Year 2017-2018, during the extended period provided by the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA).

Following the Supreme Court's decision in Union of India v. Ashish Agarwal (2022) 444 ITR 1 (SC), this notice was to be treated as a notice under the new Section 148A(b) of the Act, effective from 01.04.2021.

The Supreme Court in Union of India v. Rajeev Bansal (2024) 469 ITR 46 (SC) further clarified that the validity of such notices depends on the "surviving time" between the original notice under TOLA (up to 30.06.2021) and this Court, in Dhanraj Govindram Kella v. Income Tax Officer (Judgment dated 08.07.2025), detailed the calculation of this "surviving time."

The Counsel for the Petitioner, S.N. Divatia, challenged the notice whereas the Respondents were represented by Aaditya Bhatt, who waives service of notice of rule.

In the Present case, the Assessing Officer provided information on 27.05.2022, considering 15 days’ time to file reply by the assessee, the due date would be 27.06.2022. The petitioner filed a reply on 14.06.2022 and the order under section 148A(d) of the Act as well as notice under section 148 of the Act was issued on 28.08.2022. Thus, applying the principles from Ashish Agarwal and Rajeev Bansal cases, the calculated "surviving time" for issuing the new Section 148 notice expired on 11.07.2022.

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The Section 148A(d) of Income Tax Act, 1961 explained that: Conducting inquiry, providing opportunity before issue of notice under section 148.

“decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under section 148, by passing an order, with the prior approval of specified authority, within one month from the end of the month in which the reply referred to in clause (c) is received by him, or where no such reply is furnished, within one month from the end of the month in which time or extended time allowed to furnish a reply as per clause (b) expires”

The Two-Member Bench consisted of Justice A.S Supehia and Justice Pranav Trivedi, heard and reviewed the matter.

The High Court relied on the Supreme Court's pronouncement and held it to be invalid, since the notice dated 28.08.2022 was issued beyond this "surviving time". Consequently, the impugned notice dated 28.08.2022, along with all consequential proceedings, including the order passed under Section 147 read with Section 144B dated 29.05.2023 and penalty notices dated 29.05.2023, were quashed and set aside.

Thus, Rule was made absolute to the aforesaid extent.

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