Court’s decision
The Madras High Court quashed multiple reassessment and penalty proceedings initiated under Sections 147, 148, 271(1)(c), and 271AAC(1) of the Income Tax Act, 1961, holding that notices issued beyond the limitation period prescribed under the amended law were invalid and without jurisdiction. Justice C. Saravanan, applying the ratio laid down by the Supreme Court in Union of India v. Rajeev Bansal (2024 SCC OnLine SC 2693), ruled that all reassessment notices issued beyond the surviving period, as determined under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), are time-barred and liable to be set aside.
Facts
The petitioners had challenged reassessment and penalty orders issued between 2022 and 2024 for various assessment years from 2016–2017 to 2018–2019. These orders were based on notices issued under Section 148 of the old regime of the Income Tax Act, which was substituted with new provisions effective from 1 April 2021. The issue arose after the introduction of the Finance Act, 2021, which significantly altered the reassessment framework, leading to widespread confusion across jurisdictions. The petitioners contended that the impugned notices were issued after the expiry of the limitation period and thus lacked jurisdiction.
Issues
The primary issue before the Court was:
- Whether reassessment notices issued after 1 April 2021 under the old provisions could be sustained in view of the Supreme Court’s rulings in Union of India v. Ashish Agarwal (2023) 1 SCC 617 and Union of India v. Rajeev Bansal (2024 SCC OnLine SC 2693).
- Whether such notices were barred by limitation under Section 149 of the Income Tax Act as amended by the Finance Act, 2021.
Petitioner’s arguments
The petitioners argued that the Income Tax Department had acted without jurisdiction by issuing reassessment notices under the old Section 148 after the amendment came into effect on 1 April 2021. They relied on the Supreme Court’s rulings in Ashish Agarwal and Rajeev Bansal, which clarified that notices issued under the old law after this date must be treated as deemed notices under Section 148A(b) of the new regime and that limitation periods must be computed accordingly. It was contended that the Assessing Officer had not complied with the statutory requirements of furnishing relevant materials or obtaining prior approval from the specified authority under Section 151, rendering the entire proceedings void ab initio.
Respondent’s arguments
The Revenue contended that the notices were validly issued as per the directions of the Central Board of Direct Taxes (CBDT) Instruction No.1/2022 dated 11 May 2022, which implemented the Supreme Court’s decision in Ashish Agarwal. It argued that the reassessment notices could “travel back in time” to the original date of issuance, and that the extended limitation under TOLA permitted such reassessments to proceed. The Revenue further asserted that all procedural requirements under the new regime were substantially met.
Analysis of the law
The Court conducted a detailed examination of Sections 147 to 151 of the Income Tax Act, as amended by the Finance Act, 2021. It observed that the Ashish Agarwal judgment introduced a legal fiction deeming old Section 148 notices as show-cause notices under Section 148A(b). However, this fiction was limited to preserving procedural continuity and did not extend or revive expired limitation periods. The Court also referred to the third proviso to Section 149, which mandates exclusion of the period allowed for replies and any court stay while computing limitation.
The Court emphasized that limitation is jurisdictional, and failure to issue a notice within the statutory period renders the entire proceedings void. Referring to Rajeev Bansal, it reiterated that after 1 April 2021, the Income Tax Act must be read with the substituted provisions, and notices beyond the surviving time under the new law are time-barred.
Precedent analysis
- Union of India v. Ashish Agarwal (2023) 1 SCC 617 – The Supreme Court held that reassessment notices issued under the old law between April and June 2021 would be deemed to have been issued under the new Section 148A(b) but directed assessing officers to provide material and follow the amended procedure.
- Union of India v. Rajeev Bansal (2024 SCC OnLine SC 2693) – The Court clarified that such deemed notices could only be sustained if issued within the surviving limitation period prescribed under Section 149 read with TOLA. It further held that all notices beyond this period are invalid.
- Mrs. Thulasidass Prabavathi v. Income Tax Officer (Madras HC, 2025) – The Madras High Court earlier held that reassessment notices issued after 30 June 2021 are barred by limitation under Section 149.
By applying these precedents, the Madras High Court reaffirmed that procedural compliance cannot cure a substantive limitation defect.
Court’s reasoning
Justice C. Saravanan reasoned that once the Supreme Court had settled the interpretation of Sections 148 and 149, any reassessment initiated beyond the extended period violates jurisdictional limits. The CBDT’s instructions could not override the statutory time bar or confer jurisdiction where none existed. The Court held that limitation had expired for the relevant assessment years, and therefore, the impugned notices and consequential penalty proceedings must be quashed. The reasoning was anchored in the principle that “jurisdiction cannot be conferred by executive instructions.”
Conclusion
The Madras High Court allowed the writ petitions and quashed the reassessment orders and penalty proceedings for all six petitions, declaring them time-barred under Section 149 of the Income Tax Act. The Court underscored that notices issued under the old regime after the introduction of the new framework and beyond the permissible time limit were without jurisdiction. It reiterated that “a reassessment notice issued beyond the surviving time limit is time-barred” and that the Revenue must act strictly within statutory boundaries.
Implications
This judgment reinforces the supremacy of statutory limitation in reassessment proceedings and underscores that the Revenue cannot resurrect expired proceedings through administrative circulars or legal fictions. It will likely impact numerous pending reassessment cases across India, especially where notices were issued under the old regime after 1 April 2021. The ruling strengthens taxpayer protection by ensuring that procedural amendments under the Finance Act, 2021, are applied prospectively and strictly within time limits.
