INCOME TAX OFFICER, WARD-20(3), DELHI, NEW DELHI vs. RMP HOLDINGS PVT LTD, NEW DELHI

Aggrieved by the order of the AO, the assessee filed the appeal before Ld. CIT(A) who vide his order dated 17.12.2024 partly allowed the appeal of the assessee. Aggrieved by the order of the Ld. CIT(A) the revenue is in appeal before us.

The ld. CIT(A) has observed in his order has observed as under :- “6.3 Further, in ground No. 3 of the appeal, the appellant has challenged the validity of notice u/s 148 and contested the validity of reopening of the assessment u/s. 147 of the Act on the ground of lack of requisite prior approval of the appropriate specified authority i. e Pr.CCIT u/s. 151(ii) of the Act. 6.3.1 In the present case, AO initially initialy issued an a notice u/s 148 on 25.06.2021. However, pursuant to the judgement of Hon'ble Supreme Court of India in case of UOI Vs. Ashish Agarwal & Ors in Civil Appeal No. 3005/2022, the aforesaid notice was deemed to have been issued u/s 148A of the Act and the same was construed as a show cause notice issued in terms of section 148A(b). Thereafter, the AO passed order u/s 148A(d) of the Act on 27.07.2022 after obtaining the prior Sanction from the PCIT-7, Delhi. Thereafter, the A.O. issued the notice u/s. 148 of the Act dated 27.07.2022 on the basis of prior approval of the PCIT-7, Delhi. This fact is clearly evident from the order u/s. 148A(d) and notice u/s. 148 of the Act dated 27.07.2022 The appellant has contended that since the period of three years from the end of relevant A.Y. 2017-18 had lapsed on 31.03.2021 and notice u/s 148A(d) and 148 of the Act were issued on 27.07.2022. Therefore, as per section 151 of the Act, the specified authority to grant prior sanction in his case would be Pr.CCIT/CCIT. However, it is clear that the order u/s 148A(d) and notice u/s 148 of the Act dated 27.07.2022 were passed without the prior sanction of the requisite and appropriate specified authority i.e. PCCIT/CCIT as provided in sec 151 of the Act. The appellant contended that the impugned order u/s 148A(d) and notice u/s 148 have been issued by A.O. has obtained the prior sanction u/s. 151 of the Act from the Pr. CIT-7, Delhi who was not the "Specified Authority" as prescribed u/s. 151 (ii) of the Act and therefore the impugned order u/s. 148A(d) as well as notice u/s. 148 of the Act dated 27.07.2022 are non-est and lack valid jurisdiction under the law.

The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime:

After 1 April 2021, the new regime has specified different authorities for granting sanctions under section 151. The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under section 151 of the new regime. The effect of Section 151 of the new regime is thus:

Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction, Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the assessing officer with the strict time limits prescribed under section 151 affects their jurisdiction to issue a notice under section 148.

Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre conditions due to the difficulties that arose during the COVID-19 pandemic. Section 3(1) of TOLA relaxes the time limit for compliance with actions that fall for completion from 20 March 2020 to 31 March 2021. TOLA will accordingly extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether TOLA 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 20 March 2020 and 31 March 2021, then the specified authority under section 151 (i) has an extended time till 30 June 2021 to grant approval. 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 20 March 2020 and 31 March 2021, then the specified authority under section 151(2) has time till 31 March 2021 to grant approval. The time limit for Section 151 of the old regime expires on 31 March 2021 because the new regime comes into effect on 1 April 2021.

For example, the three-year time limit for assessment year 2017-2018 falls for completion on 31 March 2021. It falls during the time period of 20 March 2020 and 31 March 2021, contemplated under section 3(1) of TOLA. Resultantly, the authority specified under section 151 (i) of the new regime can grant sanction till 30 June 2021.

Under Finance Act 2021, the assessing officer was required to obtain prior approval or sanction of the specified authorities at four stages: a. Section 148A(a) to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment b. Section 148A(b) to provide an opportunity of hearing to the assessee by serving upon them a show cause notice as to why a notice under section 148 should not be issued based on the information that suggests that income chargeable to tax has escaped assessment. It must be noted that this requirement has been deleted by the Finance Act 2022:33 c Section 148A(d) - to pass an order deciding whether or not it is a fit case for issuing a notice under section 148, and d Section 148 - to issue a reassessment notice.

In Ashish Agarwal (supra), this Court directed that Section 148 notices which were challenged before various High Courts "shall be deemed to have been issued under section 148-A of the Income-tax Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of Section 148-A(b)." Further, this Court dispensed with the requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a). Under Section 148A(b), an assessing officer was required to obtain prior approval from the specified authority before issuing a show cause notice. When this Court deemed the Section 148 notices under the old regine as Section 148A(b) notices under the new regime, it impliedly waived the requirement of obtaining prior approval from the specified authorities under section 151 for Section 148A(b). It is well established that this Court while exercising its jurisdiction under Article 142, is not bound by the procedural requirements of law High Court Bar Association v. State of UP [2024] 160 taxmann.com 32/299 Taxman 21 (SC)/[2024] 6 SCC 267.

This Court in Ashish Agarwal (supra) directed the assessing officers to "pass orders in terms of Section 148-A(d) in respect of each of the assesses concerned." Further, it directed the assessing officers to issue a notice under Section 148 of the new regime "after following the procedure as required under section 148-A." Although this Court waived off the requirement of obtaining prior approval under section 148A(a) and Section 148A(b), it did not waive the requirement for Section 148A(d) and Section 148. Therefore, the assessing officer was required to obtain prior approval of the specified authority according to Section 151 of the new regime before passing an order under section 148A(d) or issuing a notice under section 148. These notices ought to have been issued following the time limits specified under section 151 of the new regime read with TOLA, where applicable."

The ground no 1 & 3 - The Ld. DR submitted that order u/s 148A (d) and the notice u/s 148 of the Act dated 27-07-2022 were passed with the prior approval of the specified authority. We find from the record that notice u/s 148 of the Act was issued by the AO on 25-06-2021 for the A.Y. 2017-18 . The Ld. A.O. in the assessment order mentioned that, the notice u/s 148 of the Act was issued to the assessee on 22-07-2022 with prior approval of the competent authority. As per the provision of section 151 of the Act if the approval is sought for after the expiry of three years the approval shall be obtained from the Pr. Chief Commissioner of Income tax and not from the Pr. Commissioner of Income tax. In the case of Balbir Singh v. NFAC in to 5756 and 5767 & 5768 the Co-ordinate Delhi Bench relied the Hon’ble Jurisdictional High Court decision in the case of Rajesh Gupta (HUF) v. ACIT (supra) quashed the assessment order in which the prior approval was received from the Pr. Commissioner Income Tax. Ld. CIT(A) has rightly decided the issue following the decision of Union of India vs. Rajeev Bansal in favour of the assessee.

In the case of Rajeev Bansal the Hon’ble Supreme Court held as under: "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 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.

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: (1) 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 (ii) issue a notice under Section 148 if it was a fit case for reassessment. Once the clock started ticking, the assessing officer was See State of AP v. AP 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."] PART F required to complete these procedures within the surviving time limit. The surviving time limit, as prescribed 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.

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.”

In the present case the notice was issued on 25-06-2021 for the A.Y. 2017-18 under section 148 of the Act. The surviving time from the period of the limitation was only 5 days. The AO issued the notice u/s 148 A(b) of the Act on 27-05-2022 and the due date to file the reply was 09-06-2022 and reply was submitted on 07-06-2022. The notice should have been issued up to 12-06-2022 but notice was not issued within extended time. The Ld. CIT(A) has rightly held that the assessment made by Assessing officer is invalid. We do not find any reason to interfere with the findings of the Ld. CIT(A). Thus, the appeal of the revenue is liable to be dismissed.

In the result the appeal of the Revenue is dismissed.