Income Tax | Reassessment Notices Must Pass Surviving Time Test—Delhi High Court Directs AOs to Comply with Supreme Court's Rajeev Bansal Ruling

"A Notice Issued Beyond the Surviving Time Limit is Time-Barred—Jurisdictional AOs Cannot Ignore Mandated Exclusions": Delhi High Court. In a significant ruling Delhi High Court upheld the validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961, but imposed a crucial condition—Assessing Officers (AOs) must verify whether these notices were issued within the legally permissible “surviving time,” as mandated by the Supreme Court in Rajeev Bansal v. Union of India, 2024 SCC OnLine SC 2693. The Court made it clear that any notice issued beyond the surviving time limit was time-barred and must be quashed.

A Division Bench comprising Justice Yashwant Varma and Justice Harish Vaidyanathan Shankar emphasized that AOs cannot ignore the clear mandate of the Supreme Court. The Court observed, “A reassessment notice issued beyond the surviving time limit prescribed under the Income Tax Act, read with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), is legally unsustainable and must be struck down.”

Referring to the Supreme Court’s ruling in Rajeev Bansal, the Bench explained that while reassessment notices issued under the old regime were salvaged by Union of India v. Ashish Agarwal, their validity remains subject to the correct computation of time limits. The Court clarified that certain periods must be excluded when determining the limitation period for issuing reassessment notices, including:

•    The exclusion of the period from March 20, 2020, to June 30, 2021, as mandated by TOLA due to the COVID-19 pandemic.
•    The exclusion of time from the issuance of old Section 148 notices (deemed as show-cause notices) until the assessee was provided with the relevant materials.
•    The exclusion of the two-week period granted to assessees to respond to notices under Section 148A(b).
The High Court directed AOs to individually verify whether reassessment notices had been issued within the surviving time limit after considering these exclusions. If any reassessment notice was found to have been issued beyond the permissible time, it must be quashed.

Until this verification process is completed, all interim relief granted in these writ petitions will continue to operate. The Court granted petitioners three weeks to submit written arguments before the AOs, stating, “It shall be open to the petitioners to challenge any adverse findings, but the determination of whether the reassessment notices survive must first be conducted by the concerned AOs in accordance with Rajeev Bansal.”

"Faceless Assessment Does Not Oust the Jurisdictional Assessing Officer—Both Have Concurrent Powers": Delhi High Court
The Court also dismissed the argument that reassessment notices issued by jurisdictional AOs were invalid due to the introduction of faceless assessment under Section 151A of the Income Tax Act. Petitioners had argued that only the National Faceless Assessment Centre (NFAC) was empowered to issue reassessment notices, rendering all notices issued by jurisdictional AOs illegal.

Rejecting this contention, the Court relied on its earlier judgment in T.K.S. Builders (P) Ltd. v. Income Tax Officer and held, “Faceless assessment was introduced to streamline tax administration, not to eliminate the jurisdiction of the Assessing Officer. Section 151A does not oust the power of jurisdictional AOs to initiate reassessment under Section 148.”

Emphasizing that faceless reassessment and jurisdictional assessment co-exist, the Court stated, “Jurisdictional AOs continue to have the authority to issue reassessment notices, as they are the ones who first receive and analyze information leading to a reassessment. The role of the NFAC does not eliminate this authority.”

The Court firmly disagreed with the Bombay High Court’s ruling in Hexaware Technologies Ltd. v. Assistant CIT, (2024) 464 ITR 430 (Bom), which held that only NFAC could issue reassessment notices. Instead, it followed its own ruling in Sanjay Gandhi Memorial Trust v. CIT (Exemptions), (2023) 455 ITR 164 (Del), reaffirming that jurisdictional AOs and faceless assessment units exercise concurrent jurisdiction.

"Reassessment Approvals Granted by Joint Commissioners After April 1, 2021, Are Invalid": Delhi High Court
The Court also addressed the validity of approvals granted under Section 151 and ruled that any approval for reassessment granted by a Joint Commissioner after April 1, 2021, was invalid. Petitioners had argued that after amendments introduced by the Finance Act, 2021, only the Principal Commissioner or Commissioner of Income Tax could grant approval for reassessment notices issued after April 1, 2021.

Agreeing with this argument, the Court relied on its judgment in Abhinav Jindal HUF v. Commissioner of Income Tax, 2024 SCC OnLine Del 6585 and held, “An approval granted by a Joint Commissioner after April 1, 2021, does not meet the statutory requirement. Any reassessment notice issued based on such an approval must be quashed.”

This ruling means that AOs must now review all reassessment approvals and quash notices where the approval was obtained from an unauthorized officer.

"Reassessment Based on Search Material is Valid Even If Section 153C Proceedings Were Not Initiated"
Another critical issue was whether reassessment proceedings under Section 148 were valid if they were based on material found during a search. Petitioners argued that in such cases, the Income Tax Department must proceed under Sections 153A or 153C, and not under Section 148.

Rejecting this argument, the Court relied on Pr. Commissioner of Income Tax-7 v. Naveen Kumar Gupta, 2024 SCC OnLine Del 8140 and ruled, “If the conditions for Section 153C are not met, the Assessing Officer can still proceed under Section 147/148. The law does not prohibit reassessment under Section 148 merely because search materials are involved.”

Thus, the Court upheld the validity of reassessment proceedings initiated under Section 148, even if they were based on search-related materials.

"The Issue of Notices Without a Digital Identification Number (DIN) Remains Unresolved Pending Supreme Court Decision"
Petitioners also challenged reassessment notices that did not have a Digital Identification Number (DIN), citing CBDT Circular No. 19/2019. However, the High Court declined to rule on this issue, noting that its earlier decision in Commissioner of Income Tax v. Brandix Mauritius Holdings Ltd., 2023 SCC OnLine Del 6481 had already held such notices invalid.

However, since this issue is now under appeal before the Supreme Court, the Court left it open for adjudication in pending cases.

Final Ruling and Directions - The Court ultimately directed AOs to:

•    Verify whether reassessment notices were issued within the surviving time limit, considering Rajeev Bansal and Ram Balram Buildhome Pvt. Ltd..
•    Quash reassessment notices if they were issued beyond the permitted time period.
•    Review approvals granted under Section 151 and invalidate reassessment notices where Joint Commissioners granted approval post-April 1, 2021.
•    Allow petitioners to submit written submissions within three weeks.
•    Maintain interim relief until AOs complete their verification process.
With this ruling, the Delhi High Court has reinforced strict compliance with statutory reassessment timelines, ensuring that AOs cannot bypass limitations imposed by the Supreme Court’s judgment in Rajeev Bansal and other key precedents.
 

Date of Decision: 04 February 2025