JAYESH H. SANGHAVI HUF,MUMBAI vs. ITO WARD 33(1)(1), MUMBAI

The facts germane to the adjudication of the legal issue are not in dispute. The assessee had filed its return of income for the assessment year 2016-17 on 09.11.2017, declaring a total taxable income of ₹2,42,100/- after claiming exemption in respect of long-term capital gains amounting to ₹23,52,914/- under section 10(38) of the Act. The return so filed was processed and attained finality. Subsequently, the assessment was sought to be reopened by issuance of notice under section 148 dated 09.07.2022. It is an admitted position on record that the said notice was issued after the expiry of three years from the end of the relevant assessment year.

In the reassessment proceedings, owing to alleged non- compliance, the Assessing Officer completed the assessment by making an addition of ₹24,32,220/- under section 68 of the Act, treating the long-term capital gains arising from sale Jayesh H Sanghavi HUF

We have carefully considered the rival submissions and perused the material placed on record. At the outset, it is evident that the notice under section 148 has been issued on 09.07.2022 for assessment year 2016-17, clearly beyond the period of three years from the end of the relevant assessment year. The record further reveals that the approval contemplated under section 151 of the Act was accorded by the Principal Commissioner of Income Tax-17, Mumbai, vide order-sheet noting dated 26.05.2022, with approval stated to have been granted on 06.07.2022. 6. The statutory scheme post substitution of sections 147 to 151 by the Finance Act, 2021, read with the saving and transitional provisions, has now been authoritatively explained by the Hon’ble Supreme Court in Union of India v. Rajeev Bansal [(2024) 167 taxmann.com 70 (SC)]. The Hon’ble Supreme Court has clarified that in cases where the original limitation of three years expired between 23.03.2021 and 31.03.2021, the benefit of the extended limitation would be Jayesh H Sanghavi HUF

Section 151(ii) of the Act unambiguously provides that where more than three years have elapsed from the end of the relevant assessment year, the specified authority competent to grant approval is the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax or Principal Director General or Director General, as the case may be. The statute does not vest such power in the Principal Commissioner of Income Tax. The requirement of approval by the higher authority is not a mere procedural formality but a substantive juri ictional safeguard, intended to prevent arbitrary or mechanical reopening of concluded assessments.

This legal position has been consistently reaffirmed by various High Courts, including the juri ictional High Court. The Hon’ble Bombay High Court, in Pradeep Himatlal Shah v. ITO [(2024) 170 taxmann.com 471 (Bom.)] and Ramesh Bachulal Mehta v. ITO [(2024) 177 taxmann.com 606 (Bom.)], has categorically held that where notice under section 148 is issued beyond the period of three years, sanction by the Principal Commissioner of Income Tax is invalid, and such notice is liable to be quashed for want of juri iction. Similar views have been echoed by the Hon’ble Gujarat High Court in Dhanraj Govindram Kella v. ITO [(2024) 177 taxmann.com 194 (Guj.)]. Jayesh H Sanghavi HUF

In Ramesh Bachulal Mehta v. ITO (supra), which also pertained to assessment year 2016-17, the Hon’ble Bombay High Court, after examining the statutory framework and the judgment of the Hon’ble Supreme Court in Rajeev Bansal (supra), held in unequivocal terms that once the notice under section 148 is issued after expiry of three years from the end of the relevant assessment year, approval under section 151(ii) must necessarily be obtained from the higher specified authority, and any sanction accorded by the Principal Commissioner of Income Tax is legally unsustainable, rendering the notice itself void ab initio.

Applying the aforesaid settled legal principles to the facts of the present case, it is evident that the impugned notice under section 148, having been issued on 09.07.2022 for assessment year 2016-17, required prior approval from the higher specified authority under section 151(ii) of the Act. Since the approval has admittedly been granted by the Principal Commissioner of Income Tax, the very assumption of juri iction by the Assessing Officer stands vitiated. Once the juri ictional foundation collapses, the consequential proceedings and the assessment framed pursuant thereto cannot survive.

In view of the foregoing discussion, we hold that the notice issued under section 148 of the Act is invalid in law and liable to be quashed. Consequently, the reassessment Jayesh H Sanghavi HUF

In the result, the appeal of the assessee is allowed on legal grounds.