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Facts
The assessee's return for AY 2016-17 showed a total loss. The AO initiated reassessment proceedings u/s 147 r.w.s 144, alleging non-disclosure of material facts regarding capital reserve arising from a waived bank loan. The AO issued notice u/s 148 after a significant delay.
Held
The Tribunal held that the notice u/s 148 was issued beyond the prescribed time limit under the new regime of reassessment (Finance Act, 2021). The approval for issuing the notice was obtained from an authority not specified for such a delay, making the notice invalid.
Key Issues
Whether the reassessment notice issued beyond the time limit prescribed under section 149 of the Income Tax Act, 1961, with approval from an incorrect authority as per section 151, is valid.
Sections Cited
147, 144, 148, 151, 148A, 149
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Income Tax Appellate Tribunal, “G” BENCH MUMBAI
Before: SMT. BEENA PILLAI & SHRI GIRISH AGRAWAL
Date of Hearing : 02.07.2025 Date of Pronouncement : 28.08.2025 O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by assessee is against the order of CIT (A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1070853886(1), dated 03.12.2024 passed against the assessment order by Assessment Unit, u/s. 147 r.w.s 144 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 29.05.2023 for Assessment Year 2016-17.
“1. That the Ld. CIT(A) erred in upholding the action of the Learned AO of initiating the re-assessment proceedings u/s 147/148 and also erred in dismissing all the contentions raised by the appellant in this regard. That on the facts and in the circumstances of the case, the re-assessment proceedings initiated and the consequential order passed are wrong, without jurisdiction and not in accordance with law and are prayed to be quashed.
The Learned CIT(A) while dismissing the appeal erred in upholding the action of the AO of making addition of Rs. 46,50,05,181/- under section 41(1). That on the facts and in the circumstances of the case and in law the addition made is wrong and is prayed to be deleted.
3. The Learned CIT(A) grossly erred in denying the set off of current year losses and also of brought forward business losses and unabsorbed depreciation against the addition made u/s 41(1). That on the facts and in the circumstances of the case and in law the appellant being entitled to set off of such losses, the same may very kindly be now allowed.”
For the year under consideration, assessee contended on the legal issue that approval obtained by the ld. Assessing Officer for the purpose of issuing notice u/s 148 is not in accordance with the provisions of section 151 under the new regime of reassessment introduced by the Finance Act, 2021.
Brief facts relevant to the issue are that assessee filed its return of income on 30.11.2016, reporting total loss at Rs.57,55,408/- under normal provisions of the Act and book loss at Rs.23,11,48,197/- under the MAT provisions u/s.115JB. Original assessment u/s.143(3) was completed vide order dated 17.12.2018 whereby the returned loss of the assessee was accepted as such and was assessed with no variation to what was reported in the return. Subsequently, from the perusal of the records, ld. Assessing Officer noted that assessee had failed to disclose truly and fully all material facts with respect to capital reserve. It was noted by ld. Assessing Officer that reserves and surplus as on 31.03.2015 was Rs.27.18 crores and as on 31.03.2016, it was Rs.73.68 crores, indicating total increase of Rs.46.50 crores. According to the ld. Global Tradex Ltd. AY 2016-17 Assessing Officer, assessee in its submission had stated that this increase was on account of settlement of bank loan with IDBI Bank and State Bank of Mysore. Principal portion of the loan waived was credited to capital reserve account and interest waived on these loans was credited to profit and loss account.
4.1. Ld. Assessing Officer was of the view that waiver of principal amount of Rs.46,50,05,181/- ought to be taxed u/s.28(iv) since there is cessation of liability to that extent, relating to the business of the assesse. According to the ld. Assessing Officer, assessee ought to have provided complete details in respect of these loan transactions and their waiver including their settlement documents as well as the quantification of the settlement of loan. He thus, concluded that there is an under assessment of income to the extent of Rs.46,50,05,181/- and thus, believed that it has escaped assessment for which assessee has not fully and truly disclosed the material facts necessary for assessment. Reasons to believe were recorded for initiating the reopening of proceedings and issuance of notice u/s.148 which was issued on 19.04.2021, placed in the paper book at page 51. This notice contains the fact about obtaining necessary satisfaction from Range- 7(1), Mumbai. Copy of approval u/s.151 for the issuance of said notice is placed at page-59 of the paper book which has been granted by the office of JCIT, Range-7(1), Mumbai on 19.04.2021.
4.2. Reasons to believe recorded by the ld. Assessing Officer were supplied to the assessee against which objections were filed on 10.06.2021. Since this notice was issued under the erstwhile regime of re-assessment as provided u/s.148 r.w.s. 147 which has undergone total revamp by the Finance Act, 2021, the amendments brought in by Global Tradex Ltd. AY 2016-17 the Finance Act 2021 led to several jurisdictional issues in respect of reassessment proceeding for which the matter travelled up to the Hon'ble Supreme Court with the lead case of Union of India vs. Ashish Agarwal [2022] 130 taxmann.com 64 (SC) followed by the decision in the case of Union of India vs. Rajeev Bansal [2024] 167 taxmann.com 70 (SC). As a fall out of the directions given in the case of Ashish Agarwal (supra), ld. Assessing Officer in the present case issued a letter dated 25.05.2022 with the subject heading “subsequent proceeding with reference to section 148A(b) in consequence to Hon'ble Supreme Order dated 04.05.2022 – letter”.
4.3. Assessee furnished its reply to this letter filed on 06.06.2022 after which an order u/s.148A(d) was passed by DCIT-7(1)(1), Mumbai dated 31.07.2022 recommending the reopening of the case u/s.148. In para- 9 of this order, approval is taken from ld. PCIT-8, Mumbai. Subsequent to this, notice u/s.148 was issued dated 31.07.2022 wherein also, in para-3, it is noted that prior approval of PCIT-8, Mumbai vide letter No.Pr.CIT-8/148-approval/2022-23, dated 30.07.2022 was obtained.
On these set of facts, submission of the ld. Counsel is that in the provisions for re-opening of assessment upon amendment by Finance Act, 2021, the first proviso to section 148 refers to approval by specified authority which is to be obtained before issuing notice u/s. 148. Section 151 describes specified authority for the purpose of section 148 and 148A, based upon the time limits within which the reopening proceedings are to be initiated i.e., i. By Principal Commissioner of Income Tax or Principal Director or Commissioner or Director, if three years or less than three years have lapsed from the end of the Assessment Year.
Global Tradex Ltd. AY 2016-17 ii. By Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have been lapsed from the end of the relevant Assessment Year.
Admitted position of fact in this case is that income chargeable to tax which escaped assessment is more than Rs.50,00,000/-, since ld. Assessing Officer has alleged that the income chargeable to tax of Rs.46,50,05,181/- has escaped assessment. Also, it is undisputed that notice u/s.148 has been issued after the expiry of three years from the end of the relevant Assessment Year. Three years from the end of the Assessment Year 2016-17 lapsed on 31.03.2020. As per section 149(1)(b) of the Act (new regime), re-assessment proceedings could have been initiated after the expiry of three years from the end of the relevant Assessment Year only if the income chargeable to tax which escaped assessment is more than Rs.50,00,000/-. These admitted facts are relevant on the legal aspect relating to obtaining prior approval from the specified authority which are undisputed and nothing has been brought on record by the Revenue to controvert the same.
6.1. We find that in the decision by the Hon'ble Supreme Court in the case of Union of India v. Rajeev Bansal (supra), Hon'ble Court after the fall out of its own decision in the case of Ashish Agarwal (supra) had dealt with the issue in respect of sanction of the specified authority and concluded that TOLA will extend the time limit for the grant of sanction by the authority specified u/s.151. According to the Hon'ble Court, the test to determine whether TOLA will apply to section 151 of the new regime is that if the time limit of three years from the end of the Assessment Year falls between 20.03.2020 and 31.03.2021 then, the specified authority u/s.151(i) has extended time till 30.06.2021 to grant Global Tradex Ltd. AY 2016-17 the approval. According to the Hon'ble Court, Assessing Officers were required to issue the re-assessment notice u/s.148 of the new regime within the time limit surviving under the Act read with TOLA. All notices issued beyond the surviving period are time barred and liable to be set aside. Hon'ble Court had elaborately dealt with this issue in Part E of its decision in para 73 to 78 which are extracted below: 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. 128 A table representing the prescription under the old and new regime is set out below:
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) 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
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 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, Global Tradex Ltd. AY 2016-17 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 years 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…..
This quote in Ashish Agrawal (supra) directed the Assessing Officers to “pass orders in terms of Section 148-A(d) in respect of each of the assessee concerned.” Further, it directed the Assessing Officers to issue a notice u/s.148 of the new regime “after following the procedure as required u/s.148-A.” Although this quote waived off the requirement of obtaining prior approval u/s.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 u/s. 148A(d) or issuing a notice u/s.148. These notices ought to have been issued following the time limits specified u/s.151 of the new regime r.w. TOLA, where applicable….
……d. TOLA will extend the time limit for the grant of sanction by the authority specified u/s.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 u/s.151(i) has extended time till 30 June 2021 to grant approval; …”
6.2. From the above, we note that in para 73, in the table last two rows relate to provisions of Section 151(i) and (ii) of the new regime prescribing the time limit as well as the specified authority. In para 75, it is very categorically mentioned by the Hon’ble Court that after 01.04.2021, in terms of Ashish Agrawal (supra) the prior approval must be obtained from the appropriate authorities specified u/s.151 of the new regime. This abundantly brings clarity on the aspect of obtaining approval for issue of notice u/s.148 which are fall out of the decision in Ashish Agrawal (supra). In para 77, objective of section 3(1) of TOLA is Global Tradex Ltd. AY 2016-17 mentioned which is to relax the time limit for compliance with actions that fall for completion from 20.03.2020 to 31.03.2021. Thus, the objective is specific for providing temporal flexibility. In para 78, the same has been explained by an example taking Assessment Year 2017- 18 which also in specific terms mentions that the authority specified u/s.151(i) of the new regime can grant sanction till 30.06.2021. Thus, while concluding in para 81 on the issue obtaining approval, Hon’ble Court has specifically stated that the Assessing Officer is required to obtain prior approval of the specified authority according to section 151 of the new regime before passing an order u/s.148A(d) or issuing a notice u/s.148. According to the Hon’ble Court, though it had waived off the requirement obtaining prior approval u/s.148A(a) and Section 148Ab, it did not waive the requirement for section 148A(d) and Section 148.
6.3. Taking into consideration the submissions made by both the sides and findings of the Hon’ble Court, we note that the issue we are presently addressing raised before us is not on the aspect of “when” for the procedural compliance for issuance of notice u/s.148 but on the aspect of “by whom” it ought to have been issued. Ld. DR has contended that there is hierarchical escalation vis-à-vis obtaining approval for issuing notice u/s.148. In this respect, Hon’ble Court has very categorically held in para 75 that the prior approval must be obtained from the appropriate authorities specified u/s.151 of the new regime for the notices issued in terms of Ashish Agrawal (supra) after 01.04.2021. Reference by ld. DR to Section 149(1)(a) deals with time limit for issuing notice u/s.148. Contention of the ld. Sr. DR that there is no hierarchical escalation for obtaining prior approval for issuing notice u/s.148 is not in coherence with the guidelines mandated by the Hon’ble Apex Court Global Tradex Ltd. AY 2016-17 as enunciated above. Repeatedly, Hon’ble Court has stated including by way of illustration that TOLA extends time line from the old regime which survives making the notice validly issued subject to the approval requirements of Section 151 under the new regime. Accordingly, the prior approval requirement is mandated under the section 151 of new regime.
6.4. Thus, on the above stated facts and law, in the present case, three years had lapsed from the end of the Assessment Year when the order u/s.148A(d) and notice u/s.148 were issued on 31.07.2022. In the present case, since the notice u/s. 148 and order u/s. 148A(d) have been issued beyond the period of three years from the end of the relevant Assessment Year, case of the assessee falls within the provisions of section 151(ii) of the amended law whereby the specified authority for grant of approval is specified as Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Contrary to this requirement, the approval obtained is by Principal Commissioner of Income Tax-8, Mumbai. Accordingly, since a proper sanction by the specified authority had not been obtained for issue of notice u/s.148 under the applicable provisions of law, said notice is invalid and bad in law.
6.5. Keeping in juxtaposition the undisputed and the uncontroverted facts as stated above and the judicial precedent of the Hon'ble Supreme Court in the case of Ashish Agarwal and Rajiv Bansal (supra), we hold that sanction by specified authority has not been obtained by the ld. Assessing Officer in accordance with the provisions contained in section 151 of the Act under the new regime, since notice u/s.148 has been issued beyond three years from the end of the relevant Assessment Year.
Global Tradex Ltd. AY 2016-17 Accordingly, the said notice issued is invalid and thus quashed. Resultantly, the impugned re-opening proceedings so initiated and the impugned re-assessment order passed thereafter are also quashed.
6.6. Since legal issue raised by the assessee is held in favour of the assessee, grounds raised on the merits of the case needs no separate adjudication.
In the result, appeal filed by the assessee is allowed.
Order is pronounced in the open court on 28 August, 2025