REASSESSMENT NOTICE TIME-BARRED: AO MUST ISSUE FINAL NOTICE WITHIN 7 DAYS OF REPLY IF LIMITATION EXPIRED

ISSUE

Whether a reassessment notice issued under Section 148 (New Regime) is time-barred if the Assessing Officer fails to issue it within 7 days of receiving the assessee’s reply to the Section 148A(b) notice, specifically in cases where the original “Old Regime” notice was issued on the last date of limitation.

FACTS

Assessment Year: 2016-17.
Old Regime Notice: The AO originally issued a notice under Section 148 on 30-06-2021. This was the last date of the extended limitation period provided by TOLA (Taxation and Other Laws (Relaxation) Act).
Transition to New Regime: Following the Supreme Court’s Ashish Agarwal judgment, this notice was deemed as a Show Cause Notice under Section 148A(b).
The Procedure:
- Notice u/s 148A(b): Issued on 20-05-2022.
- Assessee’s Reply: Filed on 03-06-2022.
The Delay: The AO passed the order under Section 148A(d) and issued the final Section 148 notice on 28-07-2022.
Limitation Calculation: Since the original notice (30-06-2021) was issued on the very last day of the limitation period, the “surviving period” available to the AO was zero. However, the 4th Proviso to Section 149 provides a statutory grace period of 7 days in such cases.

DECISION

The 7-Day Rule: The Court noted that since no time was left in the original limitation bucket, the AO was entitled only to the mandatory 7-day extension provided by the 4th Proviso to Section 149.
The Deadline: This 7-day period starts from the date the assessee furnishes the reply.
- Reply Date: 03-06-2022.
- Deadline: 03-06-2022 + 7 Days = 10-06-2022.
The Breach: The AO issued the notice on 28-07-2022, which is well beyond the deadline of 10-06-2022.
Verdict: The impugned order and notice were held to be time-barred and were quashed. [In Favour of Assessee]

KEY TAKEAWAYS

The “Surviving Period” Concept: When the Ashish Agarwal judgment revived old notices, the AO was given the same amount of time to finish the proceedings as he had remaining when he issued the first notice. If he issued the first notice on the last day, he has 0 days left.
The Safety Net: To prevent impossibility, the law gives a minimum of 7 days to pass the order if the surviving period is less than 7 days.
Strict Adherence: If you are handling a reassessment case for AY 2013-14 to 2017-18, check the date of your reply to the 148A(b) notice. If the AO passed the final order more than 7-10 days later, the entire proceeding might be time-barred.

HIGH COURT OF MADRAS

Veena Gupta

Deputy Commissioner of Income-tax

C.Saravanan, J.

W.P. No. 23691 of 2022
W.M.P. Nos. 22632, 22634 and 28153 of 2022

NOVEMBER 25, 2025

P. Giridharan for the Petitioner. Mrs. S. Premalatha, Sr. Standing Counsel for the Respondent.

ORDER

1. This case was dismissed vide Order dated 04.11.2025. The operative portion of the order was dictated in open Court. However, while finalizing the detailed order, a doubt was entertained as to whether a correct conclusion was arrived on 04.11.2025 or not.

2. After perusing the documents and the list of dates and events qua Paragraph No.28 from the decision of the Hon’ble Supreme Court in Union of India v. Ashish Agarwal [2022] 444 ITR 1 (SC)/(2023) 1 SCC 617 and Paragraph Nos.112 and 114 from the decision of the Hon’ble Supreme Court in Union of India v. Rajeev Bansal (SC)/2024 SCC Online SC 2993, it has been necessary to recall the order dated 04.11.2025.

3. For a fair disposal of the case, it will be therefore useful to refer to passage from Paragraph No.28 from Ashish Agarwal case (cited supra) and Paragraph Nos.112 and 114 from Rajeev Bansal case (cited supra).

4. For the sake of clarity, Paragraph No.28 from Ashish Agarwal case (cited supra) is reproduced below:-

“28. In view of the above and for the reasons stated above, the present Appeals are allowed in part. The impugned common judgments and orders passed by the High Court of Judicature at Allahabad in W.T. No. 524/2021 and other allied tax appeals/petitions, is/are hereby modified and substituted as under:

(i) The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the IT Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the IT Act as substituted by the Finance Act, 2021 and construed or treated to be show cause notices in terms of section 148A(b). The assessing officer shall, within thirty days from today provide to the respective assessees information and material relied upon by the Revenue, so that the assessees can reply to the show cause notices within two weeks thereafter;

(ii) The requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a onetime measure visavis those notices which have been issued under section 148 of the unamended Act from 01.04.2021 till date, including those which have been quashed by the High Courts. Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry, if required;

(iii) The assessing officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; Thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted);

(iv) All defences which may be available to the assesses including those available under section 149 of the IT Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.”

5. In Rajeev Bansal case (cited supra), the above decision of the Hon’ble Supreme Court in Ashish Agarwal case (cited supra) was re-examined. The Hon’ble Supreme Court framed the following questions of law / issues in Paragraph No.18. Paragraph No.18 from Rajeev Bansal case (cited supra) is reproduced below:-

“(a) Whether the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and notifications issued under it will also apply to reassessment notices issued after April 1, 2021; and

(b) Whether the reassessment notices issued under section 148 of the new regime between July and September 2022 are valid.”

6. The above questions of law / issues have been answered in Paragraph No.114 and illustrated in Paragraph No.112 of Rajeev Bansal case (cited supra).

7. For the sake of clarity, Paragraph Nos.112 and 114 from Rajeev Bansal case (cited supra) are extracted hereunder:-

“112. Let us take the instance of a notice issued on May 1, 2021 under the old regime for a relevant assessment year. Because of the legal fiction, the deemed show-cause notices will also come into effect from May 1, 2021. After accounting for all the exclusions, the Assessing Officer will have sixty-one days (days between May 1, 2021 and June 30, 2021) to issue a notice under section 148 of the new regime. This time starts ticking for the Assessing Officer after receiving the response of the assessee. In this instance, if the assessee submits the response on June 18, 2022, the Assessing Officer will have sixty one days from June 18, 2022 to issue a reassessment notice under section 148 of the new regime. Thus, in this illustration, the time limit for issuance of a notice under section 148 of the new regime will end on August 18, 2022.

114. In view of the above discussion, we conclude that:

(a)

After April 1, 2021, the Income Tax Act has to be read along with the substituted provisions;

(b)

Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will continue to apply to the Income-tax Act after April 1, 2021 if any action or proceeding specified under the substituted provisions of the Income Tax Act falls for completion between March 20, 2020 and March 31, 2021;

(c)

Section 3(1) of the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 overrides section 149 of the Income-tax Act only to the extent of relaxing the time limit for issuance of a reassessment notice under section 148;

(d)

Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 will apply to section 151 of the new regime is this : if the time limit of three years from the end of an assessment year falls between March 20, 2020 and March 31, 2021, then the specified authority under section 151(i) has extended time till June 30, 2021 to grant approval;

(e)

In the case of section 151 of the old regime, the test is : if the time limit of four years from the end of an assessment year falls between March 20, 2020 and March 31, 2021, then the specified authority under section 151(2) has extended time till March 31, 2021 to grant approval;

(f)

The directions in Union of India v. Ashish Agarwal [(2022) 444 ITR 1 (SC); Union of India v. Ashish Agarwal [2022] 444 ITR 1 (SC)/(2023) 1 SCC 617] will extend to all the ninety thousand reassessment notices issued under the old regime during the period April 1, 2021 and June 30, 2021;

(g)

The time during which the show- cause notices were deemed to be stayed is from the date of issuance of the deemed notice between April 1, 2021 and June 30, 2021 till the supply of relevant information and material by the Assessing Officers to the assessees in terms of the directions issued by this court in Union of India v. Ashish Agarwal [(2022) 444 ITR 1 (SC); Union of India v. Ashish Agarwal 444 ITR 1 (SC)/(2023) 1 SCC 617], and the period of two weeks allowed to the assessees to respond to the show-cause notices; and

(h)

The Assessing Officers were required to issue the reassessment notice under section 148 of the new regime within the time limit surviving under the Income-tax Act read with the Taxation and other Laws (Relaxation and Amendment of Certain Provisions Act, 2020. All notices issued beyond the surviving period are time barred and liable to be set aside.”

8. Applying the above ratio, particularly, in the light of the limitation for issuance of Notice under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) prescribed under Section 149 of the Act read with Section 151 of the Act, it is clear that the Notice that was issued after 1^st April, 2021 under the old regime as it stood till 31.03.2021 has to be treated as a Notice under Section 148A(b) of the Act under the new regime in terms of Paragraph No.28.1 of Ashish Agarwal case (cited supra) and in terms of Paragraph No.114(g) of Rajeev Bansal case (cited supra).

9. The time during which the aforesaid Notice issued under Section 148 of the Act under the old regime as it stood till 31.03.2021 were deemed to be stayed from the date of issuance between April 1, 2021 and June 30, 2021 till the supply of relevant information and material by the Assessing Officers to the assessees in terms of the directions issued by this Court in Ashish Agarwal case (cited supra), and for a further period of two weeks for the assessees to respond to the Show Cause Notices as confirmed by Rajeev Bansal case (cited supra).

10. Relevant dates from the facts of the present case are as follows:-

Assessment Year 2016-2017
Notice / Event	Date
Notice under Section 148 of the Act (old regime)	30.06.2021
Ashish Agarwal Case	04.05.2022
Notice under Section 148A(b) of the Act	20.05.2022
Time granted to issue Notice under Section 148A(b) of the Act as per Ashish Agarwal Case (30 days)	02.06.2022
Reply given by the Petitioner	03.06.2022
Order under Section 148A(d) of the Act (new regime)	28.07.2022
Notice under Section 148 of the Act (new regime)	28.07.2022

11. Applying the above ratio to the facts of the case it is clear that the Notice that was issued on 30.06.2021 under Section 148 of the Act under the old regime as it stood till 31.03.2021 has to be treated as a Notice issued under Section 148A(b) of the Act in terms of Ashish Agarwal case (cited supra) and Rajeev Bansal case (cited supra).

12. A Notice under Section 148 of the Act was required to be issued for reassessment within the time limit surviving under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) [TOLA] Act, 2020. For the Assessment Year 2016-2017, since the income escaping assessment is less than Rs.50,00,000/-, the Notice under Section 148 of the Act ought to have been issued on 31.03.2020. However, by virtue of TOLA extensions, the said date has been extended up to 30.06.2021.

13. In the light of the ratio in Ashish Agarwal case (cited supra) and Rajeev Bansal case (cited supra), the Notice issued under Section 148 of the Act under the old regime on 30.06.2021 is deemed to have been stayed for thirty days for the Income Tax Department to provide to the respective assessees information and material relied upon and two weeks thereafter for the assessees to reply to the Show Cause Notices.

14. In the present case, Notice under Section 148 of the Act under the old regime itself was issued on the last date of limitation viz., 30.06.2021, after the exclusions i.e., excluding the thirty days and fourteen days time period granted by the Hon’ble Supreme Court in Ashish Agarwal case (cited supra) there is no further time available for the Assessing Officer to issue Notice under Section 148 of the Act under the new regime barring the seven days as provided under the fourth Proviso to Section 149 of the Act as amended with effect from 01.04.2021. This is evident from the illustration in Paragraph No.112 of Rajeev Bansal case (cited supra).

15. Therefore, after accounting for all the exclusions, the Assessing Officer in the present case had no time left for issuance of Notice under Section 148 of the Act under the new regime. However, applying the fourth Proviso to Section 149 of the Act as amended with effect from 01.04.2021, the Assessing Officer had seven days to issue a Notice under Section 148 of the Act under the new regime.

16. Thus, the Notice under Section 148 of the Act ought to have been issued within seven days from the date of reply given by the Petitioner on 03.06.2022. In other words, the Notice ought to have been issued on or before 10.06.2022.

17. However, in the present case, the Notice under Section 148 of the Act under the new regime was issued only on 28.07.2022.

18. Thus, the proceedings initiated on 30.06.2021 which were later substituted by a Notice under Section 148A(b) dated 20.05.2022 which culminated in the impugned Order passed under Section 148A(d) dated 28.07.2022 and Notice issued under Section 148 dated 28.07.2022 are to be held to be beyond time.

19. In view thereof, this Writ Petition challenging these two proceedings deserve to be allowed and is accordingly allowed. No costs. Connected Writ Miscellaneous Petitions are closed.