Invalidation of Delayed Reopening Notices for AY 2017-18

By | February 6, 2026
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Invalidation of Delayed Reopening Notices for AY 2017-18

1. The Core Dispute: Reopening Notices Beyond Limitation

The case involved a challenge to a reassessment notice issued under Section 148 for Assessment Year 2017-18. The notice was issued on May 1, 2024, several years after the original assessment period had concluded.

  • The Issue: Whether the notice was barred by the period of limitation prescribed under Section 149(1) of the Income-tax Act, even after considering the relaxations provided by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).

  • Assessee’s Stand: The notice was issued well beyond the maximum surviving time-limit available to the Revenue under the new reassessment regime introduced by the Finance Act, 2021.

  • Revenue’s Stand: The Revenue attempted to justify the notice based on the “travel back in time” theory and the extensions provided during the pandemic via TOLA.

2. Legal Analysis: The “Surviving Time” Principle

The Supreme Court in the landmark Rajeev Bansal (2024) judgment settled the interaction between the new reassessment regime and TOLA.

I. Impact on AY 2017-18

For AY 2017-18, the standard three-year window for reopening assessment expired on March 31, 2021. Since this date fell within the “TOLA window” (March 20, 2020, to March 31, 2021), the Revenue was granted an extension only until June 30, 2021, to issue the original notice.

II. The “Clock Stops” Rule

The Court introduced the concept of “Surviving Time.” In the earlier Ashish Agarwal case, the Supreme Court deemed old-regime notices as new-regime show-cause notices.

  1. The “clock” stopped when the original notice was issued (e.g., in June 2021).

  2. The clock restarted once the Revenue provided the necessary material to the assessee.

  3. Any notice issued after the “surviving time” (the balance days remaining as of June 30, 2021) is void and time-barred.

3. The Ruling: Dismissal of SLP and Finality

In the present case, the High Court had already set aside the reopening notice for AY 2017-18 by applying the Rajeev Bansal principles. The Revenue challenged this before the Supreme Court via a Special Leave Petition (SLP).

  • Dismissal on Delay: The SLP filed by the Revenue was delayed by 320 days. The Supreme Court found no “sufficient explanation” to condone this massive delay.

  • Dismissal on Merits: Even regardless of the delay, the Court noted that the issue was squarely covered by the Rajeev Bansal judgment.

  • Outcome: The High Court’s order in favor of the assessee stands. Reopening notices for AY 2017-18 issued in 2024 are effectively quashed.

Key Takeaways for Taxpayers

  • Jurisdictional Threshold: Reassessment is not just about the “reason to believe” anymore; it is strictly about the calendar. If the Revenue misses the “surviving time” even by one day, the notice is a nullity.

  • Check the Sanction: For AY 2017-18, if more than three years have passed, the sanction must come from the highest authorities (Principal Chief Commissioner or Director General) as per Section 151(ii).

  • Finality of 2017-18: For cases where the escaped income is less than ₹50 lakhs, the window for AY 2017-18 is now effectively closed for most taxpayers under the surviving time computation.

IN THE ITAT MUMBAI BENCH
Deloitte Employees Welfare Trust
v.
ITO, Ward-22(1)(6)*
Amit Shukla, Judicial Member
and ARUN KHODPIA, Accountant Member
I.T.A. No. 6691 (Mum) of 2025
[Assessment year 2022-23]
JANUARY  5, 2026
Ketan Ved and Niraj Sheth, ARs for the Appellant. Ajit Kumar, Sr. DR for the Respondent.
ORDER
Arun Khodpia, Accountant Member.- This appeal is filed by the assessee challenging the order of Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [for short “ld. CIT(A)”] dated 25.06.2025 for the AY 2022-23, arises from the intimation passed under section 143(1) of the Income Tax Act, 1961 (the Act) dated 16.03.2023 by the Assessment Unit, Income Tax Department. The grounds of appeal raised by the assessee are as under:
“1. Levy of Surcharge of Rs.1,90,286:
1. Learned CIT(A) erred in confirming the action of AO of levying surcharge at 37 percent of Rs. 1,90,286.
2. Learned CIT(A) erred in observing that the assessee has calculated tax payable by applying MMR (Maximum marginal rate).
3. Learned CIT(A) ought to have appreciated the fact that levy of surcharge at the rate of 37 percent at Rs. 1,90,286 on the tax liability was made by Learned AO without specifying the basis/reason for the said levy.
4. Learned CIT(A) ought to have appreciated the fact that the income of the appellant is below the threshold limit for applying surcharge as per Part III of first schedule of the Finance Act, 2021.
5. Learned CIT(A) erred in holding that assesse’s case falls under section 167B of the Act.
6. Learned CIT(A) ought to have appreciated the fact that assessee trust is formed for the benefit of employees of Deloitte Touche Tohmatsu India Private Limited (now converted to Deloitte Touche Tohmatsu India LLP) and hence, the appellant is covered under section 164(1)(iv) of the Act.
7. Learned CIT(A) ought to have appreciated the fact that without prejudice to the above, the appellant is constituted by trustees and beneficiaries who are individuals. Therefore, the status of the appellant trust ought to be considered as that of the individual.
8. Learned CIT(A) is not appreciating the principals led down by Mumbai Tribunal in case of Araadhya Jain Trust v. ITO to justify the levy of surcharge at 37 percent under MMR.
In fact the decision in case of Araadhya Jain Trust v. ITO [TS- 366-ITAT-2025], held that unless the threshold limit of Rs.5 crores is reached, surcharge at the highest rate of 37 percent cannot be levied.
9. Learned CIT(A) erred in relying on the decision by in case of Clestra Foundation v. ITOL to justify the levy of surcharge at 37 percent under MMR.
10. The appellant prays to delete the wrongful levy of surcharge of Rs.1,90,286.
2. Refund
Learned CIT(A) erred in confirming the demand.”
2. Brief Facts: Assessee is a private trust created for welfare of the employees of Deloitte Touche Tohmatsu India Private Limited (now known as Deloitte Touche Tohmatsu India LLP), the employees do not have any right to share in the income of the said of the trust.
3. The assessee filed its return of income under the status of “AOP”, for AY 2022-23 on 29th July 2022. The total income of assessee consists of interest from fixed deposits. Assessee computed tax at normal rates, whereas the learned AO, CPC had completed the case of assessee @42.74% on maximum marginal rate (30% + 4% cess) including surcharge @37%, vide intimation u/s 143(1) dated 16th March 2023. Accordingly, a demand of Rs. 1,89,880/- has been raised, as against the refund of Rs. 60,580/-.
4. Being aggrieved with the aforesaid demand, assessee preferred an appeal before the first appellate authority, stating that the provisions of clause (iv) of the 1st proviso to section 164 (1) would apply in the assessee’s case instead of provisions of section 167B of the act. However, Ld. CIT(A) decided the matter by affirming the levy of additional tax under intimation by the CPC.
5. Before us Ld AR representing the assessee submitted that the case of assessee falls under the exception carved out in cause (iv) of the proviso to section 164(1) of the Act, according to which the income received by the trustees on behalf of the provident fund, superannuation fund, pension fund or any other fund created bona fide by a person carrying on a business or profession exclusively for the benefit of persons employed in such business or profession, tax shall be charged [on the relevant income or part of relevant income as if it] were the total income of an association of person (AOP). It is submitted, that the assessee trust is created for the benefit of its employees, the trustees receive income on behalf of the trust in the capacity of representative assessee and as such income to be utilized for the benefit of its employees. Accordingly, the assessee trust is covered by the provisions of clause (iv) of the 1st proviso to section 164(1) of the Act and its income is subject to tax at normal rates applicable to AOP and not at maximum marginal rates.
6. Ld. AR placed his reliance on CBDT’s circular number 577 dated 04.09.1990, clarifying that the cases covered by the first proviso to section164(1) shall not attract the provisions of section 167B. The relevant portion of the said circular furnished before us is extracted as under:
“912. Whether section 167B would also apply to income under a trust declared by any person at will, where such trust is only trust so declared by him
1. A question has been raised whether the provisions of section 167B of the Incometax Act, 1961, which generally provide for charging of tax at the maximum marginal rate on the total income of an association of persons where the individual shares of members in the income of such association are indeterminate or unknown, would also apply to income under a trust declared by any person by will where such trust is the only trust declared by him. Such trusts, it would be noticed, are referred to at item No. (ii) in the first proviso to section 164(1) of the Act.
2. This matter has been examined in the Board. There was never an intention to subject the income of the aforesaid trusts to income-tax at the maximum marginal rate. It is also well-settled that where a specific provision has been made in the law in relation to any matter and where that provision is beneficial to the taxpayer, that matter is to be governed by that special provision and not by any other general provision relating to that subject. Therefore, the income of a trust declared by any person by will, where such trust is the only trust so declared by him, will continue to be charged to tax in the manner prescribed in the first proviso to section 164(1), as hitherto.
3. Similarly, other cases covered by the first proviso to section 164(1) and the first proviso to section 164(3) would also not attract the provisions of section 167B. Accordingly, tax will be payable in such cases at the rate ordinarily applicable to the total income of an association of persons and not at the maximum marginal rate. Circular : No. 577, dated 4-9-1990.”
7. Reliance was place on the decision of ITAT Ahmedabad in the case of ITO v. Shakuntala Balvantray Trust , where in the Tribunal had accept the claim of assessee, in terms of clarification issued by CBDT qua provisions clause (ii) of the proviso to section 164(1).
8. Further regarding applicability of surcharge irrespective of the quantum of income while application of MMR is attracted, Ld. AR submitted that the issued is decided by Hon’ble Special bench of ITAT, Mumbai in the case of Araadhya Jain trust v. Income Tax Officer 212 ITD 1, wherein the relevant finding of the Tribunal are as under:
32. However, upon carefully going through these decisions, we are of the considered view that the issue arising in the present case never fell for consideration before the Hon’ble Courts. The issue in dispute in those cases was primarily concerning what should be the maximum marginal rate and its applicability. The issue ‘whether the rate of surcharge would also be at the highest rate while computing tax at maximum marginal rate’ was never the issue before the Hon’ble Courts. Thus, in our view, the view expressed by the coordinate benches in decisions referred to in Paragraph 10(supra) lay down the correct proposition of law. Thus, in the ultimate analysis, we hold, in case of Private Discretionary Trusts, whose income is chargeable to tax at maximum marginal rate, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the heading ‘surcharge on income tax’ appearing in Paragraph A, Part 1, First Schedule, applicable to the relevant assessment year. Hence, reference is decided in favour of the assessee. The records may be returned back to the respective benches for deciding the appeals accordingly.
9. Similar findings are accorded by ITAT Mumbai in the case of Lintas Employees Recreation Trust v.ITO , following the decision in the case of Araadhya Jain trust (supra), which reads as under:
5. Thus, the Hon’ble Special Bench has clearly clarified that in case of Private Discretionary Trust’ whose income is chargeable to tax at marginal rate, surcharge has to be computed on the income tax having reference to the slab rates prescribed in the Finance Act under the “surcharge of Income Tax”, accordingly, we hold that even if rate tax is applicable at maximum marginal rate however, if the slab rates are below Rs. 50,00,000/- for levy of surcharge, no surcharge can be levied. Here in this case, it is not in dispute that slab rate of income of the assessee trust is much below of Rs.50,00,000/-and therefore, surcharge cannot be levied.
10. Based on aforesaid submissions, Ld AR prayed that direct for computing the tax liability at rate of tax applicable to an AOP and delete the surcharge.
11. Per contra Ld. Sr. DR, the respondent supported the orders of revenue authorities.
12. Having given a thoughtful consideration to the facts of present case, after hearing the parties and on consideration of decisions sited, we do not find any substance in the decision or Ld. AO and findings of the Ld. CIT(A) in rejecting the contentions of the assessee. On the contrary, as per the clarification by CBDT vide circular No 577 (supra), decision by ITAT Ahmedabad, the assessee trust, being a trust created for the benefit of its employees, wherein the trustees receive income on behalf of the trust in the capacity of representative assessee and as such income would utilized for the benefit of its employees, falls within the scope of exception carved out in clause (iv) of 1st proviso to sub-section (1) of section 164, thus would be out of ambit of section 167B of the Act, consequently, its income is subject to tax at normal rates applicable to AOP and not at maximum marginal rates. Further, since the taxable income of the assessee trust is below Rs. 50 lakhs, no surcharge would be levied, following the ration of decisions referred to supra.
13. in view of aforesaid facts, circumstances, observations and judicial pronouncements, The Ld. AO is directed to re-compute the tax liability of the assessee, in accordance with our observations herein above, after factual verification.
14. In result the appeal of assessee stands allowed, in terms of our aforesaid observations.