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Facts
The Revenue's appeal arises from an order deleting an addition made by the Assessing Officer (AO). The AO had reopened the assessment based on information regarding suspicious transactions in a penny scrip, M/s. JRI Industries & Infrastructure Ltd., alleging fictitious profits and bogus long-term capital gains (LTCG) and short-term capital gains (STCL). The AO made an addition of Rs. 90,35,000/-.
Held
The Tribunal held that the reopening of the assessment was based on incorrect facts and conclusions. The notice issued under Section 148 was found to be invalid because the approval for reopening was obtained from the Principal Commissioner of Income Tax instead of the Joint Commissioner, as required under Section 151 of the Income Tax Act for notices issued beyond four years from the end of the assessment year. Consequently, the notice and the reassessment order were quashed.
Key Issues
Whether the reassessment proceedings initiated under Section 147/148 are valid when the sanction for reopening was not obtained from the prescribed authority as per Section 151 of the Income Tax Act.
Sections Cited
147, 148, 10(38), 143(1)(a), 151, 144B
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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SMT. BEENA PILLAI
Per: Smt. Beena Pillai, J.M.: The present appeal filed by the revenue arises out of order dated 16/08/2024 passed by an NFAC Delhi, for assessment in 2015-16 on following grounds of appeal:
“1. On the facts and the circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of Rs.90,35,000/-as unexplained cash credit made by the AO without appreciating the facts of the case and modus operandi as a detailed investigation A.Y. 2015-16 Amit Sampathraj Shah has been carried out by the Investigation Wing of Kolkata in the scrip M/s. JRI Industries & Infrastructure Ltd.Ground 2. On the facts and the circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition made by the AO without appreciating the facts that in such penny scrip, trading transactions of purchase and sales are not affected for commercial purpose but to create artificial Gain/loss and complete the cycle of circular trading with a view to evade taxes.
3. On the facts and the circumstance of the case and in law the Ld. CIT(A) erred in not appreciating the fact that transaction of shares of such penny scrip are not governed by market factors prevalent at relevant time rather transactions are product of design and mutual connivance on part of assessee and operators.
4. On the facts and the circumstance of the case and in law the Ld. CIT(A) erred in not appreciating the fact of the case and modus operandi of the scrip is utilized by entry operators for providing accommodation entries under the garb of Long Term Capital Gain/Short Term Capital Gain Loss by manipulating/rigging up the share price.
5. On the facts and circumstance of the case and in law the order of the Ld. CIT(A) suffers from perversity as it ignores the facts brought on record establishing manipulation of share prices of M/s. JRI Industries & Infrastructure Ltd. as part of colourable device to generate fictitious Long Term Capital Gain/ Short Term Capital Loss with the aim to evade taxes due.
6. On the facts and the circumstances of the case and in law the Ld. CIT(A) erred in quashing the notice u/s 148 of the Act without appreciating the fact that there was enough information available with the AO on the basis of which reasons were recorded for reopening the assessment and the Assessing Officer has referred to the statutory provisions which in his view are applicable. 7. "It is prayed that this appeal is filed even if the tax effect is below the monetary limit since the case falls under exception specified in para 3.1 of the CBDT Circular 05/2024 dated 15.03.2024 being covered by the circular of the CBDT issued vide F.No. 225/26/2019-ITA(II) dated 25.02.2019." It is therefore, prayed that the order of the Ld.CIT(A) may be set aside and order of the Assessing Officer may be restored to the above fact.
2. The assessee is an individual and is engaged in the business of trading in shares and securities and derivatives under the trade name of M/s.sunrise investment as proprietor. For the year under consideration assessee filed its return of income on 20/09/2015 declaring total income with the current year loss of Rs.86,36,434/-. Intimation under section 143 (1)(a) was issued accepting the returned income. 2.1 Subsequently the assessment was reopened by issuing notice under section 148 on 31/03/2021. In response to said notice assessee filed it return of income on 06/04/2021 declaring income as per original return of income. Thereafter assessee was issued reasons recorded and the reassessment proceedings were initiated as per the new regime. The Ld.AR passed the reassessment order on 22/03/2022 by making an addition of Rs.90,35,000/-and also disallowing the business loss incurred in equity/derivative trading in the scripts of M/s JRI Industries and Infrastructure Ltd., treating the transaction to be sham on the basis of the information received on the inside portal wherein assessee was identified to be a beneficiary of fictitious transaction in the form of bogus LTC under section 10 (38) and STCL. 2.2 Aggrieved by the order of the Ld.AO, assessee preferred appeal before the Ld.CIT(A).
3. The Ld.CIT(A) after considering the rival submissions of the assessee rejected the legal ground wherein the assessee had A.Y. 2015-16 Amit Sampathraj Shah challenged the validity of the reassessment. However on merits the addition was deleted by observing as under: “5.3 I have carefully considered the facts of the case, the submission of the appellant and evidences on record. The operative part of the reasons recorded for re-opening of the assessment read as under:- "During the year under consideration, it is observed from the ITD, ITBA & Insight portals that the assessee has entered into high value suspicious transactions. The information in this regard has been received on the Insight portal after investigation carried out by the office of the Investigation and the I&CI. It is found from the Verification module on the Insight for F.Y.2014-15 that the assessee has done the high volume/value transactions i.e. Fictitious Profits in Equity/Derivative Trading and bogus LTCG U/S 10(38) /and STCL cases in the scrip of M/s JRI Industries & Infrastructure LimitedAAACJ4152D. The information value amounts to Rs.27104700/- . It is seen from the ITR for A.Y. 2015-16 that the taxpayer has claimed exempt LTCG for Rs. 6,20,219/- However, it has been found and proved by the SEBI and Investigation that the scrip of M/s. JRI Industries & Infrastructure Limited has been used by the broker and the syndicate members for providing bogus LTCG and loss to the beneficiaries by inflating the share price through doctored transactions made between the syndicate members. The taxpayer is one of the beneficiary and has claimed exempt LTCG. It is found from the details provided that the assessee has resorted to suspicious mode of obtaining the gains and not offering the income to tax by not showing the details of income or claiming non allowable deduction. Thus, the income related to the above mentioned transactions remains undisclosed and the same are required to be considered in computing total income of the assessee. On the basis of this tangible information available on record, it is evidently clear that the income has remained undisclosed and not offered for tax. Hence, I have reasons to believe that income chargeable to tax more than Rs. 1,00,000/- has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year i.e. for the subject A.Y. within the meaning of section 147 of the Income-tax Act, 1961." 5.4 In the case of the appellant there was no LTCG nor any exemption u/s. 10(38). The AO has formed a conclusion contrary to the facts of the A.Y. 2015-16 Amit Sampathraj Shah case. The appellant has purchased 90,000 shares of "JRI" during the previous year at an average price of Rs. 151.89 per share and thereafter sold the said shares on 25-3-2015 @of Rs. 51.50 per share and thereby incurred business losses amounting to Rs. 90,35,000 reflected in the financial statements filed with the Income tax department in the return of income. The appellant has neither earned any LTCG to be exempt u/s.10(38) nor claimed any STCL in scrip of "JRI" but it was the loss incurred in trading of shares in normal course of business. The formation of the reason by the AO that the appellant has claimed Long Term Capital Gains or Short Term Capital Loss in shares M/s. JRI Industries & Infrastructure Limited does not exist. The formation of the reason by the AOthat the appellant carried out transactions worth Rs. 2,71,04,700 in shares of M/s. JRI Industries & Infrastructure Limited in the preceding previous year does not exist. The formation of the reason by the AO that income to the extent of Rs.6,20,219 (correct Rs. 6,19,510/-) has escaped assessment does not exist as the same is dividend income allowed to be exempt u/s.10(34). Therefore, it is seen that the so called satisfaction recorded by the AO is based on incorrect set of facts 5.5 In the case of Mumtaz Hazi Mohmad Menon v. ITO (2018) 408 ITR 268 (Guj.), it was held by the Hon'ble Court that the assumption of jurisdiction on the basis of wholly incorrect facts cannot be conferred in law. In this case also, the reasons cited were that the assessee did not file return and the capital gain on sale consideration was not brought to tax which reasons were found to be factually incorrect. The assessee had return of income which was not noticed by the Assessing Officer. Consequently, the notice issued under Section 148 for reopening the assessment was quashed for assumption of jurisdiction on factually incorrect premise. In the similar fact situation, the Hon'ble Gujarat High Court also quashed the re-assessment proceedings in Sagar Enterprises v. ACIT (2001) 257 ITR 335 (Guj.) where reasons were recorded dehors the fact, i.e., return not filed when the return was actually filed. Similarly, Hon'ble Delhi High Court in Dr. Ajit Gupta v. ACIT (2016) 383 ITR 361: (2017) 79 taxmann.com 316 (Del.) has observed that reason for reopening of assessment based on mistaken factual premise is unsustainable in law. 5.6 The Hon'ble ITAT Chandigarh in the case of Evershine Recreation Private Limited Vs DCIT in Date of Judgement/Order: 15/09/2023 Related Assessment Year: 2012-13 held that reopening of assessment under section 147 of the Income Tax Act based on wrong and irrelevant facts recorded under the reasons A.Y. 2015-16 Amit Sampathraj Shah recorded for the formation of belief of escapement of income chargeable to income tax is unsustainable in law and liable to be quashed. 5.7 The jurisdictional Hon'ble Bombay in the case of High Court Arvind Sahdeo Gupta Vs ITO in Writ Petition No. 4793 of 2021 Date of Judgement/Order: 08/08/2023 Related Assessment Year: 2013- 14held that if the reasons for re-opening the assessment are based on incorrect facts or conclusions, the notice issued under section 148 of the income Tax Act for re-opening cannot be sustained. The jurisdictional Hon'ble Bombay High Court quashedreassessment proceedings for being initiated on allegation of escapement of income arising from sale of shares which was actually loss incurred in commodity trading in preceding. 5.8 In view of the above facts and discussion and respectfully following the decisions of the jurisdictional Bombay High Court and other judicial decisions, I am of the considered view that the reopening of the assessment was based on incorrect facts or conclusions and thus the notice issued and the reassessmentu/s 148 of the Act cannot be sustainedand liable to be quashed. The appeal on this ground is thus allowed.” 3.1 Aggrieved by the order of the Ld. CIT(A), revenues and appeal before the tribunal.
4. At the outset the Ld.AR filed application under Rule 27 of IT rules 1963 by raising following legal issue: On the facts and circumstances of the case and in law, the sanction of team by you before issuing the notice under section 148 dated 31/03/2021 is invalid and bad in law as the same was not in accordance with the mandate of section 151 of the act and as such the notice under section 148 is invalid and bad in law and therefore deserves to be cost. 4.1 Rule 27 of ITAT Rules is one of such Rules which provide additional right to the respondent to defend the order of Ld.CIT(A) decided in his favour by raising the issues in respect of those grounds which were decided against him by the Ld.CIT(A). In the present facts the assessee has not filed any cross objection in respect of the issue dismissed by the Ld.CIT(A). As the issue 4.2 The Ld.AR submitted as under:
“1. The present note sets out the contention of the Respondent assessee in respect of one of the defences available to him with regard to validity of the impugned reopening notice dated 31 March 2021 issued under section 148 of the Income-tax Act, 1961 ('Act) for AY 2015-16. There are several other defences available to the assessee, however, they are not discussed hereunder. The assessee reserves his right to raise and urge such other contentions independently.
Insofar the challenge to the reopening notice dated 31 March 2021 issued under section 148, it is submitted that though a defence as to the validity can be raised on several grounds, however, the present appeal can be decided on a limited point pertaining to legality and lawfulness of the sanction obtained under section 151 of the Act before issuing the said notice.
At the outset, in order to comprehend better the contention of the Respondent assessee in the above regard, it is prudent to recapitulate certain well settled principles of law governing the reopening of assessments: - In CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561, the Hon'ble Supreme Court held that the power of assessing officers to reassess is limited and based on the fulfilment of certain pre-conditions. - In Chhugamal Rajpal v. SP Chaliha, [1971] 79 ITR 603 (SC), a three-Judge Bench of the Supreme Court held that section 151 must be strictly adhered to because it contains "important safeguards". - In Dr Premachandran Keezhoth v. Chancellor, Kannur University, 2023 SCC OnLine SC 1592 and CIT v. Anjum M.H. Ghaswala [2001] 252 ITR 1, the Supreme Court held that if a statute expressly confers a power or imposes a duty on a particular authority, then such power or duty must be exercised or performed by that authority itself.
Having said that, it is stated that, in the present case, the approval obtained for issuing the impugned notice under section 148 of the Act is not in accordance with the mandate of section 151 (prevailing at the relevant point in time) as the said approval is undisputedly of the 'Principal Commissioner of Income Tax' and not of the 'Joint Commissioner of Income Tax', thereby vitiating the entire reassessment. As per section 151(2) (prevailing then), in case of less than four years from the end of relevant assessment year, sanction to reopen an A.Y. 2015-16 Amit Sampathraj Shah assessee ought to have been taken of the Joint Commissioner of Income Tax".
5. The impugned reopening notice was issued on 31 March 2021. In view of the provisions of section 3(1) of the Taxation and other Laws (Relaxation of Certain Provisions) Act, 2020 ("TOLA'), if the time limit of four years from the end of an assessment year fell between 20th March 2020 and 31 March 2021, then the specified authority under section 151(2) had time till 31 March 2021 to grant approval. Accordingly, on a combined reading, ostensibly the approval under section 151 in the Respondent's case ought not to have been of the 'Principal Commissioner of Income Tax', but of the 'Joint Commissioner of Income Tax'. Failure to comply with the mandate of law, vitiates the entire reassessment proceedings.” 4.3 On the contrary the Ld.DR relied on the orders passed by the authorities below.
I have perused the submissions advanced by both sides in the light of the records placed before this Tribunal.
The Ld.AR submitted that the notice was issued under the old regime on 31/03/2021 with prior approval of PCIT Mumbai 20 and the assessment was completed by passing the assessment order of 22/03/2022. He submitted that mandatory requirement under 151(2) of the Act has not been fulfilled. He submitted that as the notice under section 148 was issued under the old regime, beyond 4 years then the sanctioning authority should have been Joint Commissioner. He placed reliance on following decisions in support: “1. Hon’ble Bombay High Court in Prabhakar Nerulkar v. PCIT, Panaji, Goa (WP No. 443 of 2024-Goa Bench) decided on 21st July 2025 2. Hon'ble Bombay High Court in JM Financial and Investment Consultancy Services (P.) Ltd. v. ACIT (2023) 451 ITR 205 (Bom).” 5.1 The Ld.AR submitted that, Hon’ble Supreme Court in case of Rajeeve Bansal (supra) considered the issue of obtaining approval A.Y. 2015-16 Amit Sampathraj Shah from the appropriate authority under section 151 before issuance of notice under section 148 of the act. He submitted that notices have to be judged according to the law existing on the date the notice is issued. He placed reliance on the following observation of Hon'ble Supreme Court in the case of UOI vs. Rajeev Bansal reported in (2024) 167 taxmann.com 70: 73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments Sri krishna (P.) Ltd. v. ITO [1996] 87 Taxman 315/221 ITR 538 (SC)/[1996] 9 SCC 534. A table representing the prescription under the old and new regime is set out below:
Regime Time limits Specified authority Section 151(2) of Before expiry of four Joint Commissioner the old regime years from the end of the relevant assessment year Section 151(1) of After expiry of four Principal Chief Commissioner the old regime years from the end of or Chief Commissioner or the relevant assessment Principal Commissioner or year Commissioner Section 151(i) of Three years or less than Principal Commissioner or the new regime three years from the Principal Director or end of the relevant Commissioner or Director assessment year
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: (i) If income escaping assessment was less than Rupees one lakh: (a) a reassessment notice could be issued under section 148 within four years after obtaining the approval of the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and (ii) If income escaping was more than Rupees one lakh:
A.Y. 2015-16 Amit Sampathraj Shah (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
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: (i) If income escaping assessment is less than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and (ii) If income escaping assessment is more than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
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 A.Y. 2015-16 Amit Sampathraj Shah 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. 5.2 The Ld.AR the submitted that as prior approval was not obtained from the prescribed authority under section 151(2),as the impugned notice was issued beyond 4 years and thus the assessment proceedings and the consequential assessment order passed this bad in law.
5.3 On the contrary, the Ld.DR relied on the orders passed by the authorities below.
I have perused submissions advanced by both sides in the light of the records placed before the Tribunal.
I have carefully perused the observations of the Hon’ble Supreme Court increase of Rajiv Bansal (supra) as well as the decision of Hon’ble Supreme Court in case of Ashish Agarwal(supra). 6.1 The impugned notice dated 31/03/2021 filed before this Tribunal was issued beyond 4 years of the old regime. As per the decisions of Hon’ble Supreme Court, if the time limit of four years from the end of an assessment year falls between 20/03/2020 and 31/03/2021, then the specified authority as per section A.Y. 2015-16 Amit Sampathraj Shah 151(2) being Joint Commissioner, has time till 31/03/2021 to grant approval. However it is noted that the approval is obtained from the Principal Commissioner of Income tax as stated in the notice, as well as the order passed under section 148A (d) of the act. I therefore uphold the argument advanced by the Ld.AR. Accordingly the notice issued under section 148 is held to be invalid and the consequent assessment order passed under section 147 read with section 144B of the is liable to be quashed.