Bhoruka Steel and Services Ltd V. Assistant Commissioner of Income Tax, Circle 1(1)(1) and Principal Commissioner of Income Tax-1 and Central Board of Direct Taxes

WP/17592/2022

AI Insights

The case involves Bhoruka Steel and Services Ltd, which challenged the instructions and subsequent notices issued by the income tax authorities for the assessment year 2016-17. The petitioner contested the validity of these notices, arguing that they were issued beyond the permissible time limits set by the Supreme Court in Ashish Agarwal v. Union of India, which required the authorities to follow a specific procedure and timeline for issuing reassessment notices. The court examined whether the notices were issued within the extended time limits and found them to be issued beyond the allowed period, leading to the setting aside of the notices and orders.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 832594 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 20-01-2026
• Assessment Year: misc
• Other Referred Cases: Union of India v. Ashish Agarwal, Union of India v. Rajeev Bansal
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: DILIP
• Assessee Lawyers: TANMAYEE RAJKUMAR
• Keywords: Extension of time; Income Tax; Legal fiction; Notice under section 148; Reassessment
• Section: 148; 143(3); 149; 148A(d)

Judgement Text

" - 1 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 20TH DAY OF JANUARY, 2026 BEFORE THE HON'BLE MR. JUSTICE S SUNIL DUTT YADAV WRIT PETITION NO. 17592 OF 2022 (T-IT) BETWEEN: BHORUKA STEEL AND SERVICES LTD A COMPANY REGISTERED UNDER THE PROVISIONS OF THE COMPANIES ACT 1956 AND HAVING ITS REGISTERED OFFICE AT 48 HOODI, WHITEFIELD ROAD MAHADEVAPURA - 560 048 REPRESENTED HEREIN BY ITS DIRECTOR MR. S N AGARWAL. …PETITIONER (BY SMT. TANMAYEE RAJKUMAR., ADVOCATE) AND: 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1)(1) BMTC BUILDING, 6TH BLOCK 80 FEET ROAD, KORAMANGALA BANGALORE - 560 095. 2. THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, BMTC BUILDING 6TH BLOCK, 80 FEET ROAD KORAMANGALA BANGALORE - 560 095. 3. CENTRAL BOARD OF DIRECT TAXES NORTH BLOCK, CENTRAL SECRETARIAT NEW DELHI, DELHI-110 001 REPRESENTED BY THE SECRETARY TAX POLICY AND LEGISLATION DIVISION. …RESPONDENTS Printed from counselvise.com Digitally signed by VIDYA G R Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 (BY SRI. DILIP M., ADVOCATE) THIS WP IS FILED UNDER ARTICLE 226 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE INSTRUCTION BEARING NO.1/2022 (F.NO.279/MISC/M- 51/2022-ITJ) DTD 11.05.2022 ISSUED BY THE R-3 VIDE ANNX- G, TO THE EXTENT QUESTIONED HEREIN AND ETC., THIS PETITION, COMING ON FOR PRELIMINARY HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE S SUNIL DUTT YADAV ORAL ORDER Petitioner has assailed the instruction bearing No.1/2022 dated 11.05.2022 at Annexure-G; order at Annexure-K dated 30.07.2022 passed by the 1st respondent under Section 148A(d) of the Income Tax Act and the notice dated 30.07.2022 passed under Section 148 of the Income Tax Act for the assessment year 2016-17. 2. The facts made out are that the assessing officer passed an assessment order under Section 143(3) of the Act for the assessment year 2016-17. The 1st respondent issued notice under Section 148 under the unamended proviso as it was in prevalence on 29.06.2021. The petitioner had furnished returns by way of reply. Subsequently, notice under 143(2) Printed from counselvise.com - 3 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 read with Section 147 of the Act was issued. Petitioner is stated to have challenged the reassessment notice in W.P.No.2849/2022. In the interregnum, it is to be noticed that the Apex Court has passed an order in the case of Union of India v. Ashish Agarwal - (2022) 138 taxmann.com 64 (SC). The 3rd respondent it is stated had issued instruction bearing No.1/2022 pursuant to the directions of the Apex Court. 3. It is an admitted position that in terms of the judgment in the case of Ashish Agarwal (supra), the revenue was required to issue a communication to the petitioner. Such communication was issued on 19.05.2022. The petitioner is stated to have made out reply on 03.06.2022 objecting to the proceedings. It is a matter of record that the order was passed under Section 148A(d) on 30.07.2022 and on the same date, notice under Section 148 has been issued. 4. It is the case of the petitioner that the time available to the respondent - Authorities for issuance of 148 notice, which was 3 years stood extended by virtue of the observations made by the Apex Court in the case of Ashish Printed from counselvise.com - 4 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 Agarwal (supra). It is stated that in terms of the order of the Apex Court, the revenue was required to issue an intimation which though has been done, the time period that remained for issuance of 148 notice was only one day i.e., notice under Section 148 ought to have been issued by 30.06.2021. However, noticing the extension of time by virtue of the order of the Apex Court, such time would be deemed to have been extended till 04.06.2022. In terms of Section 149 of the Act there could be an extension of the time available by an addition of 7 days, that is to say the time of 04.06.2022 would be extended till 10.06.2022. Admittedly, in the present case the notice is issued only on 30.07.2022 and accordingly the notice requires to be set aside. 5. It would be necessary to notice the period of time extended for completion of the proceedings as made out by the Apex Court in the case of Union of India v. Rajeev Bansal - (2024) 167 taxmann.com 70 (SC). Paragraphs 107 to 112 of the said judgment are extracted for the purpose of convenience: Printed from counselvise.com - 5 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 \"107. The third proviso to Section 149 allows the exclusion of time allowed for the assesses to respond to the show cause notice under Section 149A(b) to compute the period of limitation. The third proviso excludes “the time or extended time allowed to the assessee.” Resultantly, the entire time allowed to the assessee to respond to the show cause notice has to be excluded for computing the period of limitation. In Ashish Agarwal (supra), this Court provided two weeks to the assesses to reply to the show cause notices. This period of two weeks is also liable to be excluded from the computation of limitation given in the third proviso to Section 149. Hence, the total time that is excluded for computation of limitation for the deemed notices is: (i) the time during which the show cause notices were effectively stayed, that is, from the date of issuance of the deemed notice between 1 April 2021 and 30 June 2021 till the supply of relevant information or material by the assessing officers to the assesses in terms of the directions in Ashish Agarwal (supra); and (ii) two weeks allowed to the assesses to respond to the show cause notices. 108. The Income Tax Act read with TOLA extended the time limit for issuing reassessment notices under Section 148, which fell for completion from Printed from counselvise.com - 6 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 20 March 2020 to 31 March 2021, till 30 June 2021. All the reassessment notices under challenge in the present appeals were issued from 1 April 2021 to 30 June 2021 under the old regime. Ashish Agarwal (supra) deemed these reassessment notices under the old regime as show cause notices under the new regime with effect from the date of issuance of the reassessment notices. The effect of creating the legal fiction is that this Court has to imagine as real all the consequences and incidents that will inevitably flow from the fiction. East End Dwellings Co. Ltd. v. Finsbury Borough Council, [1952] AC 109. [Lord Asquith, in his concurring opinion, observed: “If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.” Therefore, the logical effect of the creation of the legal fiction by Ashish Agarwal (supra) is that the time surviving under the Income Tax Act read with TOLA will be available to the Revenue to complete the remaining proceedings in furtherance of the deemed notices, including issuance of reassessment notices under Section 148 of the new regime. The surviving or balance time limit Printed from counselvise.com - 7 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 can be calculated by computing the number of days between the date of issuance of the deemed notice and 30 June 2021. 109. If this Court had not created the legal fiction and the original reassessment notices were validly issued according to the provisions of the new regime, the notices under Section 148 of the new regime would have to be issued within the time limits extended by TOLA. As a corollary, the reassessment notices to be issued in pursuance of the deemed notices must also be within the time PART F limit surviving under the Income Tax Act read with TOLA. This construction gives full effect to the legal fiction created in Ashish Agarwal (supra) and enables both the assesses and the Revenue to obtain the benefit of all consequences flowing from the fiction. See State of A P v. A P Pensioners Association, (2005) 13 SCC 161 [28]. [This Court observed that the “legal fiction undoubtedly is to be construed in such a manner so as to enable a person, for whose benefit such legal fiction has been created, to obtain all consequences flowing therefrom. 110. The effect of the creation of the legal fiction in Ashish Agarwal (supra) was that it stopped the clock of limitation with effect from the date of Printed from counselvise.com - 8 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 issuance of Section 148 notices under the old regime [which is also the date of issuance of the deemed notices]. As discussed in the preceding segments of this judgment, the period from the date of the issuance of the deemed notices till the supply of relevant information and material by the assessing officers to the assesses in terms of the directions issued by this Court in Ashish Agarwal (supra) has to be excluded from the computation of the period of limitation. Moreover, the period of two weeks granted to the assesses to reply to the show cause notices must also be excluded in terms of the third proviso to Section 149. 111. The clock started ticking for the Revenue only after it received the response of the assesses to the show causes notices. After the receipt of the reply, the assessing officer had to perform the following responsibilities: (i) consider the reply of the assessee under Section 149A(c); (ii) take a decision under Section 149A(d) based on the available material and the reply of the assessee; and (iii) issue a notice under Section 148 if it was a fit case for reassessment. Once the clock started ticking, the assessing officer was required to complete these procedures within the surviving time limit. The surviving time limit, as prescribed Printed from counselvise.com - 9 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 under the Income Tax Act read with TOLA, was available to the assessing officers to issue the reassessment notices under Section 148 of the new regime. 112. Let us take the instance of a notice issued on 1 May 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 1 May 2021. After accounting for all the exclusions, the assessing officer will have sixty-one days [days between 1 May 2021 and 30 June 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 18 June 2022, the assessing officer will have sixty-one days from 18 June 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 18 August 2022.\" 6. Accordingly, even if the time is extended taking note of pendency of proceedings before the Apex Court, the extension would only be till 04.06.2022. If an addition of 7 days Printed from counselvise.com - 10 - HC-KAR NC: 2026:KHC:2907 WP No. 17592 of 2022 is made in terms of the 3rd proviso to Section 149, the time available would only be upto 10.06.2022. As the notice at Annexure - L is under Section 148 as well as the order under Section 148A(d) has been passed on 30.07.2022 which is beyond the period of time available in law, the petition deserves to be allowed. 7. Learned counsel for the revenue is unable to controvert to the contentions of the petitioner on the position of law. 8. Accordingly, the order at Annexure - K and the notice at Annexure-L are set aside. The writ petition is allowed. Sd/- (S SUNIL DUTT YADAV) JUDGE VP Printed from counselvise.com "