DEVALBAI KARSAN PARMAR ,MUMBAI vs. INCOME TAX OFFICER WARD 20(1)(1), MUMBAI

Briefly the facts of the case are that assessment in this case was completed u/s. 147 r.w.s. 144B of the Income Tax Act, 1961 („the Act‟) vide order dt. 18-05-2023; wherein the AO invoked the provisions of section 56(2)(vii)(b) of the Act and brought to tax, the difference between the stamp duty value and the sale consideration amounting to Rs.16,46,373/- in respect of transfer of immoveable property in the hands of the assessee.

Being aggrieved, the assessee carried the matter in appeal before the Ld. CIT(A), who has since sustained the order and the findings of the AO. Being aggrieved, the assessee is in appeal before us.

During the course of hearing, the Ld. AR submitted that in Ground No. 1, the assessee has challenged the action of the Ld. CIT(A) in sustaining the action of the AO in re-opening the assessment u/s. 147 of the Act, without fulfilling the jurisdictional requirements. In this regard, it was submitted that in the notice issued u/s. 148A(b) of the Act, dt. 24-05- 2022, the quantum of alleged escaped income has been stated at Rs.32,92,746/-. Thereafter, in the order passed u/s. 148A(b) of the Act, dt. 25-07-2022, the alleged escaped income has again been quantified at Rs. 32,92,746/- and thereafter, the notice u/s. 148 of the Act was issued on 28-07-2022. It was submitted that the provisions of section 149(1)(b) of the Act permits issuance of notice u/s. 148 of the Act beyond three years from the end of the relevant assessment year only and only if the quantum of income chargeable to tax which has escaped assessment is more than Rs. 50 lakhs. It was submitted that the impugned assessment year under consideration is AY. 2017-18 and it is a case where the order u/s. 148A(d) of the Act and notice u/s. 148 of the Act was issued beyond three years from the end of the relevant assessment year. It was accordingly submitted that the jurisdictional requirement for issuance of notice u/s. 148 has therefore, not been complied in the instant case and, therefore, the consequential proceedings are bad in law and deserve to be set aside.

In Ground No. 2, the assessee has challenged the action of the Ld.CIT(A) in upholding the order so passed by the AO, without obtaining approval from the competent authority u/s. 151(ii) of the Act. During the course of hearing, the Ld.AR submitted that as per the provisions of section 151(ii) of the Act as applicable at the relevant point in time, where more than three years have elapsed from the end of the relevant assessment year, specified authority for obtaining approval before issuance of notice u/s 148 is either Principal Chief Commissioner or Principal Director General and where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General. It was submitted that in the instant case, the AO has obtained approval of Principal Chief Commissioner of Income Tax, who is not the specified authority u/s. 151(ii) of the Act. It was submitted that not obtaining a valid sanction u/s. 151(ii) and obtaining approval from non-specified authority renders the re-assessment proceedings as bad in law. It was further submitted that the proviso to section 151 of the Act also cannot come to the rescue of the Revenue. It was submitted that the said proviso was inserted vide Finance Act, 2023, w.e.f. 01-04-2023, therefore, the proviso was not in existence when the order u/s. 148A(d) of the Act was passed on 25-07-2022 or when the notice u/s. 148 of the Act was issued on 28-07-2022.

It was submitted that the matter is squarely covered by the decisions of the Hon‟ble Bombay High Court in the case of Siemens Financial Services (P.) Ltd., vs. DCIT [2023] 154 taxmann.com 159 and Vodafone Idea Limited vs. DCIT [WP No. 2678/2022, dt. 06-02-2024].

It was submitted that exactly identical matter has come up before the Co-ordinate Bench of the Tribunal in the case of Manish Jagdish Joshi vs. CIT (DRP-3), [2024] 165 taxmann.com 836 (Mumbai-Trib.) pertaining to AY. 2017-18 as well as in the case of ACIT vs. Ms. Asha P. Kedia in r.w. C.O. No. 181/Mum/2024, dt. 28-03-2025 wherein following the decisions of the Hon‟ble Bombay High Court, the matter has been decided and the said decisions equally apply in the instant case.

Per contra, the Ld.DR has relied on the order of the lower authorities.

We have heard the rival contentions and perused the material available on record. We find that the matter has been extensively discussed by the Co-ordinate Bench of the Tribunal in the case of Manish Jagdish Joshi vs. CIT (DRP-3) (supra) and the relevant findings read as under:

Further, section 151 of the Act deals with the Specified Authority for section 148 and section 148A of the Act, and the same reads as follows: - "151. Specified authority for the purposes of section 148 and section 148A shall be,- (i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year, (ii) Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year."

Therefore, in a case where three years have elapsed no notice under section 148 of the Act can be issued unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 50 lakh or more.

In light of the aforenoted relevant provisions of the Act, the actual delineation of the pertinent facts in the present case are as follows: - (i) On 15/06/2021, notice under section 148 of the Act was issued to the assessee as per the old provisions of the Act, after the expiry of three years from the end of the relevant assessment year, i.e. 2017-18. (ii) The Hon'ble Supreme Court in Ashish Agarwal (supra) held that notices issued under section 148 of the Act after 01/04/2021 as per the erstwhile provisions shall be deemed to be show cause notice issued under section 148A(b) of the Act. (iii) On 23/05/2022, the AO granted the opportunity to the assessee to show cause in light of the information received, as required under section 148A(b) of the Act. (iv) On 15/07/2022, prior approval of Principal CIT-1, Mumbai was granted to pass the order under 148A(d) of the Act. (v) On 18/07/2022, the AO passed the order under 148A(d) of the Act after considering the assessee's objections. (vi) On 24/07/2022, the AO issued a notice under section 148 of the Act. 16.

We find that while considering the similar issue and similar submissions the Hon'ble Jurisdictional High Court in Siemens Financial Services (P.) Lid. v. Dy. CIT [2023] 154 taxmann.com 159/457 ITR 647 (Bombay), held that TOLA would not affect the scope of section 151 and sanction of Specified Authority was to be obtained in accordance with the law existing when the sanction was obtained. It was further held that where the Assessing Officer issued a reopening notice beyond the period of three years, approval was required to be taken as per provisions of amended section 151 from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. The relevant observations of the Hon'ble High Court, in the aforesaid decision, are reproduced as follows: - "20. Under Section 151 "specified authority" for the purposes of section 148 and section 148A shall be, if three years or less than three years have elapsed from the end of the relevant assessment year, Principal Commissioner or Principal Director or Commissioner or Director. If more than three years have elapsed from the end of the relevant assessment year, then Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

Admittedly, in this case, the approval/sanction for order under section 148A(d) of the Act has been granted by the Principal Commissioner of Income Tax-8. The entire controversy is, therefore, (a) whether the Principal Commissioner was the specified authority, who could have granted the approval/sanction?, (b) if not, the effect thereof? 22. In our view, the approval is not valid. Hence, the impugned order passed under section 148A(d) read with notice issued under section 148 of the Act dated 31st July 2022 is not valid and has to be quashed and set aside.

The first proviso to section 148 of the Act refers to the approval of the specified authority being obtained before a notice under section 148 of the Act can be issued. Explanation 3 to section 148 of the Act specifies that the meaning of the term 'specified authority' as provided for in section 151 of the Act is to apply for the purpose of section 148. Section 148A(d) of the Act also requires the Assessing Officer to pass an order after considering the reply of the assessee as to whether or not it is a fit case to issue a notice under section 148 of the Act and such an order under section 148A(d) of the Act has to be passed with the prior approval of the specified authority. The Explanation to section 148A of the Act also incorporates the meaning of 'specified authority' as provided for in section 151 of the Act.

As per section 151 of the Act, the 'specified authority' who has to grant his sanction for the purposes of section 148 and section 148A is the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, the Chief Commissioner or Director General if more than three years have elapsed from the end of the relevant assessment year. The present petition relates to the AY 2016-17, and as the impugned order and impugned notice are issued beyond the period of three years which elapsed on 31st March, 2020 the approval as contemplated in section 151(if) of the Act would have to be obtained which has not been done by the Assessing Officer. The impugned notice mentions that the prior approval has been taken of the 'Principal Commissioner of Income-tax-8 ('PCIT-8') which is bad in law as the approval should have been obtained in terms of section 151(1) and not section 151(1) of the Act and the PCIT-8 cannot be the specified authority as per section 151 of the Act. Further, even in the affidavitin-reply, the department has accepted that the approval obtained is of the Principal Commissioner of Income-tax-8' and, hence, such an approval would be bad in law.

TOLA, enacted on 29th September 2020 and came into force on 31st March 2020. It inter alia, provided for a relaxation of certain provisions of the Incometax Act, 1961. Where any time limit for completion or compliance of an action such as completion of any proceedings or passing of any order or issuance of any notice fell between the period 20th March 2020 to 31st December 2020, the time limit for completion of such action stood extended to 31st March 2021. Thus, TOLA only seeks to extend the period of limitation and does not affect the scope of section 151.

The Assessing Officer cannot rely on the provisions of TOLA and the notifications issued thereunder as section 151 has been amended by Finance Act, 2021 and the provisions of the amended section would have to be complied with by the Assessing Officer, w.e.f., Ist April 2021. Hence, the Assessing Officer cannot seek to take the shelter of TOLA as a subordinate legislation cannot override any statute enacted by the Parliament. Further, the notification extending the dates from 31st March 2021 till 30th June 2021 cannot apply once the Finance Act, 2021 is in existence. The sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained and, therefore, the sanction is required to be obtained by applying the amended section 151(ii) of the Act and since the sanction has been obtained in terms of section 151(f) of the Act, the impugned order and impugned notice are bad in law and should be quashed and set aside." 17. Therefore, respectfully following the aforesaid decision of the Hon'ble Jurisdictional High Court we find no merits in the reliance placed by the Revenue on the provisions of TOLA. As, in the present case, the period of three years has elapsed from the end of the relevant assessment year and the order dated 23/05/2022 was passed under section 148A(d) of the Act after obtaining the approval of the Principal CIT-1, Mumbai vide letter dated 15/07/2022, we are of the considered view that the Revenue has not followed the mandatory provisions of the Act while initiating the reassessment proceedings and sanction of the Specified Authority is not in conformity with the law prevalent at the time of grant of sanction. 18. From the perusal of the order dated 23/05/2022 passed under section 148A(d) of the Act, it is further evident that based on the information in possession of the AO, it was concluded that there is an escapement of income to the tune of Rs.43,32,000 under section 56(2)(vii)(b) of the Act. The aforesaid order further mentions that the conditions of section 149(1) are satisfied in this case for the assessment year 2017-18. However, undisputedly three years from the end of the relevant assessment year elapsed in the present case even at the time of issuance of the first notice under section 148 of the Act. Subsequently, after completion of the process, as per the existing provisions dealing with reassessment, the Jurisdictional AO issued notice under section 148 of the Act on 24/07/2022. As noted in the foregoing paragraph, as per the provisions of section 149, as amended by Finance Act 2021, no notice under section 148 of the Act shall be issued after the expiry of three years but not more than ten years, unless the AO is in the position of documents or evidence which reveal that income amounting to Rs.50 lakh or more chargeable to tax has escaped assessment. As noted above in the present case, the income which is alleged to have escaped assessment is less than Rs.50 lakh. We find that the Hon'ble Jurisdictional High Court in Bhavesh Maganlal Dharod v. ITO [2023] 155 taxmann.com 335 (Bombay) held as follows:-

Thus, in the present case, it is discernible that the notice under section 148 of the Act was issued not only in contravention of the provisions of section 151 as the sanction of the concerned Specified Authority was not obtained, but the same is also time-barred as per the provisions of section 149 of the Act as the same was issued after three years and the amount alleged to have escaped assessment is only Rs.43,32,000, i.e. less than Rs.50 lakh. Accordingly, we are of the considered view that the notice issued under section 148 of the Act is void ab initio and bad in law and therefore is quashed. Consequently, the entire reopening proceedings and impugned final assessment order passed under section 147 r/w section 144C(13) of the Act is also quashed.”

In the instant case, admittedly the notice u/s 148 of the Act was issued for reopening of the case on dated 27.07.2022 i.e. after elapsing of three years from the end of the relevant assessment year and therefore as per sub clause (ii) of section 151 of the Act, the specified authority for granting the approval for issuing the notice u/s 148 of the Act, would have been, either Principal Chief Commissioner or Principal Director or where there is no such post then the Chief Commissioner or Director General, for granting the sanction for issuing of notice u/s 148 of the Act, but not the Ld.. PCIT-2, Mumbai who has granted the approval in this case and/or authority specified under sub clause (i) of section 151 of the Act. Relevant provisions of law, which are very much clear and the Hon'ble Jurisdictional High Court in the case of Vodafone India Idea Ltd. has also clearly held that proviso to section 151 of the Act has been inserted w.e.f. 01.4.2023 and therefore shall not be applicable to the A.Y. 2018-19. In effect, the Hon'ble High Court has clarified that provisos to section 151 of the Act would be effective from 01.04.2023 onwards and would not be applicable to the prior period. Thus, the impugned notice dated 27.07.2022 u/s 148 of the Act, as issued by the AO in the instant case by taking approval from the Ld. Pr. CIT-2, Mumbai but not from the Ld. Pr. CCIT and in pursuance to that the assessment order dated 23.01.2023 u/s 147 r.w.s. 144 & 144B of the Act, is liable to be quashed being void, ab-initio and thus, the same is quashed accordingly. Thus, the CO is allowed.”

In the instant case, it is not in dispute that firstly, notice u/s. 148 of the Act has been issued on 25/07/2022, beyond three years from the end of the relevant assessment year i.e., A.Y. 2017-18 and secondly, the approval has been obtained from the Pr. Commissioner of Income Tax – 20, Mumbai vide approval dated 22-07-2022 as so stated in the notice so issued u/s 148 of the Act. In terms of section 149(1)(b) of the Act, no notice u/s. 148 of the Act shall be issued for the relevant assessment year, if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) and as per clause (b), no notice u/s. 148 of the Act shall be issued for the relevant assessment year if three years, but not ten years have elapsed from the end of the relevant assessment year, unless the income chargeable to tax has escaped assessment amount, or likely to escape assessment amounting to Rs. 50 lakhs or more. In other words, where three years have elapsed, no notice u/s. 148 of the Act can be issued unless the income chargeable to tax has escaped assessment or likely to escape assessment amounting to Rs. 50 lakhs or more. In the instant case, it is also an admitted fact that the quantum of escaped income as per the AO is Rs. 32,92,746/-, which is clearly below the threshold of Rs. 50 lakhs and, therefore, in such a scenario, the AO could have issued the notice only within the stipulated period of three years from the end of the relevant assessment year, which has not happened in the instant case. Therefore, we find merit in the contentions advanced by the Ld. AR that the jurisdictional requirement in terms of time limit for issuance of notice u/s. 148 of the Act as so prescribed u/s. 149 of the Act has not been satisfied in the instant case and, therefore, the notice so issued deserves to be set aside.

Further, from the reading of section 151(ii) of the Act, it is evident that in a case where more than three years have elapsed from the end of the relevant assessment year, the specified authority for the purposes of grant of prior approval is Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General. As against that in the instant case, the approval has been sought and granted by the Principal Commissioner of Income Tax, who is not the specified authority as so provided in section 151(ii) of the Act.