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Facts
The assessee, a partnership firm, did not file its return for AY 2017-18. The case was reopened under the old regime by issuing a notice u/s 148 dated 15.04.2021, alleging escaped income from a property transaction. A subsequent notice under the new regime was issued on 31.07.2022.
Held
The Tribunal held that the reassessment notice issued under the new regime on 31.07.2022 was invalid as it was issued beyond the prescribed time limit of three years from the end of the assessment year and lacked proper sanction from the specified authority as per Section 151. Consequently, the reopening proceedings and the assessment order were quashed. The addition made under Section 56(2)(viia) was also deleted on merits.
Key Issues
Whether the reassessment notice issued under the new regime was valid given the time limits and sanctioning authority requirements? Whether the addition made under Section 56(2)(viia) was justified on merits?
Sections Cited
147, 148, 143(3), 151, 149(1)(b), 56(2)(viia), 139(1), 148A, 144B, 149(1)(a)
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Income Tax Appellate Tribunal, “D” BENCH MUMBAI
Before: SHRI AMIT SHUKLA & SHRI GIRISH AGRAWAL
O R D E R
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by assessee is against the order of Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, vide order no. ITBA/NFAC/S/250/2024-25/1070242942(1), dated 11.11.2024 passed against the assessment order by Income Tax Officer, Ward 26(1)(1), Mumbai, u/s. 143(3) r.w.s. 147 of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 30.05.2023 for Assessment Year 2017-18.
2. Grounds taken by the assessee are reproduced as under: “1. Considering facts and circumstances of the case, and in law the learned Income Tax Officer erred in adding 1,10,39,000/- u/s 56(2)(viia) of the Income Tax Act, 1961.
Rising Star Investment AY 2017-18 2. The appellant prays that addition of Rs.1,10,39,000/- u/s 56(2)(via) be deleted.” 2.1. Assessee has also raised additional grounds, vide application dated 11.04.2025, which are reproduced as under. According to the assessee these grounds of appeal are legal in nature. There being no objection from the other side on the admission of these grounds, the same are admitted. “That the proceeding of re-assessment, completed u/s.147 vide order dated 30.05.2023, is being void ab initio for the want of the jurisdiction in view of gross violation of s.147, 148 and 151 of the Act, to be prices; (a) as reopening notice issued, in the 4th year from the end of relevant assessment year u/s 148 respectively vide dated 15.04.2021 and 31.07.2022 being approved by the Range 17(1), Mumbai and PCIT-17, Mumbai which are not the specified authority u/s 151 to give approval to invoke s. 148 of the Act. Besides, the notice issued vide dated 31.07 2022 is without mandatory DIN and DIN is supplemented by the follow up correspondence to make the notice non-est. (b) as this assessment completed u/s. 147 of the Act is without having made the compliance of s.148A of the Act in view of the decision in the case of Ashish Agarwal 444 ITR 1(SC) (c) as the assessment is completed by the JAO, in contrast to s.144B of the Act and not by the FAO, without referring the exceptional circumstances for such need.”
Brief facts of the case are that assessee is a partnership firm and has not filed its return of income u/s 139(1) of the Act for A.Y. 2017- 18. Case of the assessee was reopened by issuing notice u/s.148, dated 15.04.2021 under the old regime of re-assessment proceedings by recording reasons to believe whereby assessee had made payment for transfer of immovable property of Rs.3,65,00,000/-, which needs verification. According to the ld. Assessing Officer, as assessee did not file the return of income, the income chargeable to tax in respect of the said transaction had escaped assessment. This first notice u/s.148 dated 15.04.2021 was issued by ITO, Ward 17(1)(1), Mumbai after obtaining necessary approval from ACIT/DCIT, Range 17(1), Mumbai as evident from the notice placed in the paper book at page No.2.
Rising Star Investment AY 2017-18 Since the new regime of re-assessment proceedings were brought on the statute applicable from 01.04.2021 introduced by Finance Act, 2021, issue relating to notices already issued under old regime during the period from 01.04.2021 to 30.06.2021 were contested before various Hon'ble High Courts which led into culmination of judgement by Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal [2022] 444 ITR 1 (SC). Pursuant to the direction of the Hon'ble Supreme court in the case of Ashish Agarwal (supra), ld. Assessing Officer issued notice u/s.148, dated 31.07.2022 by putting a tick in the check box where it is mentioned “information which requires action in consequence of the judgement of the Hon'ble Supreme Court in the case of Union of India vs. Ashish Agarwal, Civil Appeal No. 3005/2022, dated 04.05.2022, suggesting that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. Order under sub- section (d) of section 148A of the Act has been passed in such case vide DIN ITBA/COM/F/17/2022-23/1044380817(1), dated 31.07.2022”. In the said notice dated 31.07.2022 in para-3, it is noted that is has been issued after taking prior approval of the PCIT-17, Mumbai accorded on 31.07.2022, vide Reference No. Order Sheet dated 31.07.2022.
2.1. Assessee filed the return of income on 22.04.2023 in response to notice u/s 148 of the Act declaring loss of Rs.3,29,080/- under the head income from business and profession. Ld. Assessing Officer issued a show cause notice to the assessee on 19.05.2023, enquiring about the difference between the consideration paid by the assessee in respect of purchase of immovable property of Rs.3,65,00,000/- for which the market value for the purpose of stamp duty was recorded at Rs.4,79,39,000/- so as to make an addition u/s. 56(2)(viia) for the difference of Rs.1,10,30,000/-. Assessee replied vide its submission dated 23.05.2023. Ld. Assessing Officer subsequently completed the Rising Star Investment AY 2017-18 assessment vide order dated 30.05.2023 making the addition of the said amount of difference. It is important to note that in the course of assessment, assessee had made a categorical request for making a reference to the Department Valuation Officer (DVO) in terms of provisions contained in section 56(2)(viia). Ld. Assessing Officer has taken cognizance of the submissions made by the assessee for the request for reference to DVO. In this respect, he noted that since the assessee has made such a request at the fag end of the assessment proceedings, owing to the limited time available for completing the assessment proceedings, he proceeded to complete the assessment but as and when the report of DVO is received, requisite rectification of the order so passed will be carried out in view of the DVO report.
The issue raised before us is on the jurisdiction of the proceedings initiated by the ld. Assessing Officer. The jurisdictional issues relate to the approval which ought to have been taken u/s.151 for the purpose of initiating the reopening of proceedings and due compliance of the procedure enunciated under the new regime of re- assessment u/s.147 to 151 effective from 01.04.2021. On the approval aspect, the approval for issuing the notice u/s.148, i.e., the first notice, dated 15.04.2021 was obtained from the Range head, i.e., Range 17(1), Mumbai. When the second notice u/s.148, dated 31.07.2022 is considered, it is beyond a period of three years from the end of the year under consideration, i.e. Assessment Year 2017-18. The income alleged is Rs.1,10,39,000/- which has been added by ld. Assessing Officer while completing the assessment. Thus, there is violation of section 149(1)(b) as well as section 151(1)(ii) of the Act.
Hon'ble Supreme Court in the case of Rajeev Agarwal [2024] 469 ITR 46 (SC), held that new reassessment proceeding pursuant to Rising Star Investment AY 2017-18 Ashish Agarwal (supra) decision have to meet the test of new regime. The applicability of the first proviso to Section 149(1)(b) of the new regime has to be tested on the date of issuance of notice under Section 148 of the new regime. Even if TOLA is read into the Act, the time limits for completion or compliance of actions can be extended till 30th June 2021. However, notice under Section 148 of the new regime was issued by the Revenue on 31.07.2022. The period is beyond the extended time limits stipulated under the Act read with TOLA. Therefore, the case is beyond the period of 3 years. TOLA is only applicable to the provisions that specify time limits. Section 151 does not prescribe any time limit for the issuance of sanctions by the specified authorities. Therefore, precondition for issuance of notice u/s. 148 of the Act are required to be satisfied before issuance of notice.
4.1. Hon'ble Supreme Court in the case Rajeev Bansal (supra) had elaborately dealt with this issue: "52. In Ashish Agarwal (supra), this Court held that the benefit of the new regime must be provided for the reassessment conducted for the past periods. The increase of the monetary threshold from Rupees one lakh to Rupees fifty lakh is beneficial for the assesses. Mr Venkataraman has also conceded on behalf of the Revenue that all notices issued under the new regime by invoking the six year time limit prescribed under Section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs." "53. The position of law which can be derived based on the above discussion may be summarized thus: (i) Section 149(1) of the new regime is not prospective. It also applies to past assessment years; (ii) The time limit of four years is now reduced to three years for all situations. The Revenue can issue notices under Section 148 of the new regime only if three years or less have elapsed from the end of the relevant assessment year; (iii) the proviso to Section 149(1)(b) of the new regime stipulates that the Revenue can issue reassessment notices for past assessment years only if the time limit survives according to Section 149(1)(b) of the old regime, that is, six years from the end of the relevant assessment year; and (iv) all notices issued invoking the time limit under Section 149(1)(b) of the old regime will have to be dropped if the income chargeable to tax which has escaped assessment is less than Rupees fifty lakhs."
Rising Star Investment AY 2017-18 "68. After 1 April 2021, the Income Tax Act has to be read along with the substituted provisions. The substituted provisions apply retrospectively for past assessment years as well. On 1 April 2021, TOLA was still in existence, and the Revenue could not have ignored the application of TOLA and its notifications. Therefore, for issuing a reassessment notice under Section 148 after 1 April 2021, the Revenue would still have to look at: (i) the time limit specified under Section 149 of the new regime; and (ii) the time limit for issuance of notice as extended by TOLA and its notifications. The Revenue cannot extend the operation of the old law under TOLA, but it can certainl benefit from the extended time limit for completion of actions falling for completion between 20 March 2020 and 31 March 2021." "69. For instance, Section 149(1)(a) of the new regime specified the time limit of three years from the end of the relevant assessment year for reopening of the assessment. For assessment year 2017-2018, the three year period expired on 31 March 2021. The expiry of time fell within the time period contemplated by Section 3 of TOLA read with its notifications. Resultantly, the Revenue had time until 30 June 2021 to issue a reassessment notice for assessment year 2017- 2018 under Section 149(1)(a). This harmonious reading gives effect to the legislative intention of both the Income Tax Act and TOLA. Moreover, Sections 147 to 151 are machinery provisions. Therefore, they must be given an interpretation that is consistent with the object and purpose of the Income Tax Act."
"75. After 1 April 2021, the new regime has specified different authorities for granting sanctions under Section 151. The new regime is beneficial to the assesse 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 me prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General,"
"76. 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."
"81. 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." "89. In Ashish Agarwal (supra), this Court: (1) upheld the judgments of the High Courts; and (ii) deemed the notices issued under Section 148 of the old regime as show cause notices issued under Section 1484(b) of the new regime. By agreeing with the judgments of the High Courts, this Court laid down the law that the provisions of the new regime will be applicable for all the reassessment notices issued under Section 148 after 1 April 2021. As a result of this holding, all the reassessment notices issued in terms of Section 148 of the old regime would have been declared invalid. Therefore, this Court deemed the reassessment notices issued under the old regime after 1 April 2021 as show cause notices issued under Section 148A(b) of the new regime."
4.2. Hon'ble Supreme Court in the case of Rajeev Bansal (supra), in para 75, has very categorically mentioned 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). Similarly in para 77, objective of section 3(1) of TOLA is 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 Rising Star Investment AY 2017-18 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 148A(b), it did not waive the requirement for section 148A(d) and Section 148.
4.3. Thus, on the stated facts and law, in the present case, three years had lapsed from the end of the Assessment Year on 31.03.2021 when the notice u/s.148 was issued on 31.07.2022. In the present case, since the notice u/s. 148 has 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-17, 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.
4.4. Thus, the sanction by specified authority has not been obtained by the Id. 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 in violation of sec 149(1) and 151 of the Act. Accordingly, the said notice issued is invalid liable to be quashed.
Keeping in the juxtaposition, the undisputed and uncontroverted facts as stated above and the judicial precedents of Hon'ble Supreme Rising Star Investment AY 2017-18 Court in the case of Ashish Agrawal and Rajeev Bansal (supra) the notice issued dated 31.07.2022 for Assessment Year 2017-18 under the new regime is invalid and thus quashed. Resultantly, the impugned reopening proceeding so initiated and the impugned re- assessment order passed thereafter are also quashed.
On the grounds relating to addition of Rs.1,10,39,000/- u/s 56(2)(viia), we note that assessee had purchased an immovable property for which ld. Assessing Officer took note of difference in the actual consideration and stamp duty valuation, with difference being Rs.1,10,39,000/-. In this regard, ld. Assessing Officer has taken cognizance on the request made by assessee for referring the matter to DVO to obtain a valuation report. Ld. Assessing Officer in the impugned order has very categorically noted that assessment is completed owing to case getting time barred. However, on receipt of report of DVO, requisite rectification in the order, if required based on the report of the DVO, will be duly carried out. It is noted that the valuation report from ld. DVO, dated 30.01.2024 is placed on record whereby the fair market value is arrived at Rs.3,95,19,000/- as against the stamp duty value initially arrived at Rs.4,79,39,000/-. Ld. CIT(A) took cognizance of this valuation report and gave a direction to the ld. Assessing Officer to restrict the addition to the difference between the value determined by ld. DVO and the consideration paid by the assessee as recorded in the registered deed. He thus, directed the ld. Assessing Officer to give relief accordingly. We note that as against the stated consideration of Rs.3,65,00,000/-, the valuation of the property arrived at by ld. DVO is Rs.3,95,19,000/-, resulting into difference of Rs.30,19,000/- which come to about 8.27% of the stated purchase consideration. The difference between the stated consideration vis-à-vis the stamp duty valuation arrived at by ld. DVO Rising Star Investment AY 2017-18 is admittedly less than 10% in the present case, we find that provisions of section 56(2)(viia) will have no application in the matter. Accordingly, the addition so as made by the ld. Assessing Officer stands deleted considering the merits of the case. Thus, assessee succeeds both on the legal as well as merits of the case.
In the result, appeal of the assessee is allowed.