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Facts
The revenue filed an appeal against the CIT(A)'s order, and the assessee filed a cross-objection challenging the validity of the reassessment proceedings. The reassessment was initiated based on information regarding the assessee being a beneficiary of penny stock transactions and bogus accommodation entries.
Held
The Tribunal held that the notice issued under Section 148 was bad in law because the approval for its issuance was not granted by the specified authority as per Section 151(ii) of the Act. Consequently, the reassessment proceedings were quashed.
Key Issues
Whether the reassessment proceedings initiated under Section 147/148 are valid when the approval for issuing the notice was not obtained from the specified authority as per Section 151(ii) of the Income Tax Act.
Sections Cited
147, 148, 148A, 151, 151(ii), 151A, 68, 69, 10(38), 144, 144B, 149, 250
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI. AMARJIT SINGH, AM
(Assessment Year: 2017-18) ACIT, Circle-4(3)(1) JMP Securities Pvt. Ltd. Aayakar Bhavan, M. K. Road, 801/806, 8th Floor, Elite Square, 274, Churchgate, Mumbai – 400020. Vs. Perin Nariman St. Bazar Gate, Fort, Mumbai – 400001. PAN/GIR No. AAACJ8850C (Appellant) : (Respondent) C. O. No. 182/Mum/2024 (Arising out of (Assessment Year: 2017-18) JMP Securities Pvt. Ltd. ACIT, Circle-4(3)(1) 801/806, 8th Floor, Elite Square, 274, Aayakar Bhavan, M. K. Road, Perin Nariman St. Bazar Gate, Fort, Vs. Churchgate, Mumbai – 400020. Mumbai – 400001. PAN/GIR No. AAACJ8850C (Appellant) : (Respondent) : Shri. Omkandalkar Assessee by Respondent by : Shri. Hemankumar Chimanlal Leuva CIT DR. Date of Hearing : 05.02.2025 Date of Pronouncement : 27.03.2025 O R D E R Per Kavitha Rajagopal, J M: This appeal has been filed by the revenue and cross objection filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) Delhi (‘ld. CIT(A)’ for short), National Faceless Appeal Centre (‘NFAC’ for short)
C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd. passed u/s. 250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2017-18.
It is observed that this appeal has been filed belatedly with a delay of 16 days beyond the period of limitation for which the revenue had filed an application for condoning the said delay. After hearing rival contentions and on perusal of the same, we deem it fit to hold that the revenue had ‘sufficient cause’ for the delay. Delay condoned.
The revenue has raised the following grounds of appeal: 1. "Whether on the facts and in circumstances of the case and law, the Ld. CIT(A) was justified in deleting the additions made on account of variation in respect of issue of unexplained credits u/s. 68 of the Act of Rs. 6,18,86,301/- even while there is no application of mind by Ld. CIT(A) considering that the amounts dealt with in the CIT(A) order do not pertain to the assessment order appealed against?
2. "Whether on the facts and in circumstances of the case and law, the Ld. CIT(A) was justified in deleting the additions made on account of variation in respect of issue of unexplained investment u/s. 69 of the Act of Rr 7,90,99,614/- even while there is no application of mind by Ld. CIT(A) considering that the amounts dealt with in the CIT(A) order do not pertain to the assessment order appealed against?”
4. The grounds raised by the assessee in its cross objection are as under:
1. The National Faceless Appeal Centre (hereinafter referred to as 'NFAC') erred in upholding the validity of the notice issued under section 148 of the Act without appreciating that the approval has not been granted by the specified authority as per the provisions of section 151(ii) of the Act. Thus, the approval obtained under section 151 of the Act is invalid and therefore, the reopening under section 147 of the Act is unwarranted, arbitrary and bad in law.
2. The impugned order dated 14.05.2024 passed by the NFAC upholding the validity of the approval under section 151 of the Act is in contravention of the law laid down by the Hon'ble Bombay High Court in Siemens Financial Services (P.) Ltd. v. DCIT [2023] 457 ITR 647 (Bombay) [25-08-2023] and therefore, unsustainable and bad in law.
3. The NFAC is not justified in upholding the validity of the reassessment proceedings without appreciating the fact that the notice dated 30.07.2022 issued under section 148 of the Act has been issued by the Jurisdictional Assessing Officer and hence, the same is in violation of the Faceless Assessment Scheme as provided under section 151A of the Act. Thus, the notice issued under section 148 of the Act is unlawful, invalid and bad in law.
4. The actions of the NFAC in upholding the validity of the notice issued under section 148 of the Act is in contravention of the Faceless Assessment Scheme as well as the law laid down by the Hon'ble Bombay High Court in Hexaware Technologies Ltd. v. ACIT [2024] 464 ITR 430 (Bombay) [03-05-2024]. Hence, the impugned order passed by the NFAC is bad in law.
5. The Assistant Commissioner of Income Tax, Circle 4(3)(1), Mumbai issued the notice dated 30.07.2022 under section 148 of the Act without assigning any Document Identification Number (DIN) to the same and the same is in contravention of the Circular No. 19/2019 dated 14.08.2019 issued by the CBDT. Hence, the impugned notice dated 30.07.2022 issued under section 148 of the Act is invalid and bad in law.”
As the assessee has raised various legal grounds challenging the validity of the assessment order, we deem it fit to decide the grounds of the assessee in the cross objection before getting into the merits of the case as per the grounds of the revenue.
Brief facts of the case are that the assessee is a SEBI Registered Stock Broker and a member of National Stock Exchange (NSE) & Bombay Stock Exchange (BSE). The assessee had filed its return of income dated 22.10.2017, declaring total income at Rs. 2,88,35,630/-. Based on the information in the ‘Insight Portal’ by DIT (Investment) Mumbai, during the search/survey operations on share brokers and other related entities alleged to be involved in manipulative trades in derivative segment by providing bogus loss and profit in penny stock by way of long-term capital gain (‘LTCG’ for short) u/s. 10(38) of the Act, the assessee’s case was reopened vide notice u/s. 148, dated 30.07.2022, pursuant to an order under clause (d) of section 148A of the Act, was issued to the assessee for the reason that the assessee was one of the beneficiaries of the following penny stock transaction which is tabulated herein under: Name of the penny Scrip Information Type Amount (Rs.) Goenka Business and Purchase of shares 5,39,957 Finance Limited C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd. Goenka Business and Sale of shares 4,13,497 Finance Limited 7. The learned Assessing Officer ('ld. A.O.' for short) received information pursuant to the search and seizure action u/s. 132 of the Act, carried out in the case of Kushal Group of Ahmedabad dated 05.02.2019, where incriminating material was found pertaining to the price rigging and providing bogus accommodation entries in the form of bogus Long Term Capital Gain/Loss and Short-Term Capital Gain/Loss. The assessee is alleged to be one of the beneficiaries for the bogus transactions specified herein under: Name of the client Buy Value Sell value Profit (Rs) Mahes P Vora 4,55,27,066 4,58,44,200 1,48,709
8. Further, there was also information that in the case of Jignesh Shah and Sanjay Shah (JSSS) of Ahmedabad, dated 11.09.2018, where unaccounted cash of Rs. 19.37 crores were seized which related to accommodation entries and commission earned along with incriminating materials seized during search pertaining to scrips in which the assessee was one of the beneficiaries of accommodation entries to the tune of Rs. 58,79,251/- as bogus loan. Also, there was information based on search action conducted u/s. 132 in the case of Nagpal Group dated 10.1.2018, who had claimed bogus LTCG through investment in Solis Marketing Limited amounting to Rs. 6,53,431/- was unearthed. The assessee was also found to be one of the beneficiaries of the transaction pertaining to Scrip viz. Fibreweb India Ltd. amounting to Rs. 19,68,315/- alleged to be a penny stock. The ld. AO also observed that in the search and survey action carried out in the case of Shri Naresh Jain, dated 19.03.2019, the assessee was one of the beneficiaries of bogus transaction amounting to Rs. 1,02,09,896/-. The ld. AO determined the total income of C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd. the assessee at Rs. 16,98,21,545/-, after making addition u/s. 68 and 69 of the Act amounting to Rs. 6,18,86,301/- and Rs. 7,90,99,614/- respectively, vide an ex parte order dated 26.05.2023, u/s. 147 r.w.s. 144 r.w.s. 144B of the Act, being the best judgment assessment, for the reason that the assessee was non-compliant throughout the assessment proceeding.
9. Aggrieved the assessee was in appeal before the first appellate authority, who vide order dated 14.05.2024, partly allowed the appeal filed by the assessee, after considering the additional evidence filed by the assessee and duly sought for remand report from the ld. AO.
10. Aggrieved the revenue is in appeal before us, challenging the impugned order of the ld. CIT(A) and the assessee has filed cross objection challenging the validity of the assessment order on the legal grounds.
11. Ground no. 1 and 2 of the cross objection of the assessee is taken up first for the adjudication. The assessee has challenged the validity of notice u/s. 148 of the Act on the ground that the approval u/s. 151 of the Act, is not granted by the specified authority as per the provision of Section 151(ii) of the Act, thereby holding the same to be invalid and bad in law, by placing reliance on the decision of the Hon'ble Jurisdictional Bombay High Court in the case of Siemens Financial Services (P.) Ltd. vs. Deputy Commissioner of Income-tax [2023] 154 taxmann.com 159 (Bombay)/[2023] 457 ITR 647 (Bombay)[25.08.2023].
The learned Authorised Representative ('ld. AR' for short) for the assessee brought our attention to the notice u/s. 148, dated 30.07.2022, which is placed at page 26 of paper C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd. book, where it is observed that the said notice has been issued after obtaining the prior approval of Pr. Commissioner of Income Tax, Mumbai, approved on 27.07.2022. The ld. AR contended that prior approval obtained for issuance of notice u/s. 148 of the Act, was not by the ‘specified authority’ as per the Section 151 of the Act, for the purpose of Section 148 and 148A, which is to be 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 ld. AR further stated that for A.Y. 2017-18, three years would elapse on 31st March, 2021, for which Section 151(i) and 151(ii) of the Act, ought to have been complied with. The ld. AR prayed that the impugned notice dated 30.07.2022 and thereafter reassessment order dated 26.05.2023, are to be held as invalid and bad in law. The ld. AR relied on the catena of decisions including the decision of the Hon'ble Jurisdictional Bombay High Court in the case of Siemens Financial Services (P.) Ltd. (supra) in support of the assessee’s contentions.
The learned Departmental Representative (‘ld. DR’ for short) for the revenue on the other hand controverted the said fact and stated that in light of the decision of the Hon'ble Apex Court in the case of Ashish Agarwal (Civil Appeal No.3005/2022 dated 04.05.2022), where the provisions of TOLA1 were applicable, the sanctioned authority was the Principal Commissioner and stated that there was no violation of the provisions to that extent. The ld. DR relied on the orders of the lower authorities.
1 The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd.
We have heard the rival submissions and perused the materials available on record. The moot issue to be adjudicated in this appeal is whether the impugned notice dated 30.07.2022 is held to be bad in law in terms of the sanction to issue the impugned notice was contrary to the provisions of Section 151(ii), where it is a case of reopening beyond 3 years from the relevant assessment year. It is a mandatory condition that the ld. AO shall issue notice u/s. 148 of the Act, where the ld. AO had reasonable belief that income chargeable to tax has escaped assessment in the case of the assessee, after duly obtaining prior approval of the specified authority before issuing the said notice. The time limit for issuance of the said notice u/s. 148 of the Act is prescribed u/s. 149(1) of the Act, where Section 149(1)(a) says that the notice u/s. 148 cannot be issued, if three years have lapsed from the end of the relevant assessment year, unless the case falls under clause (b) and in clause (b), its states that three years but not more than ten years have lapsed from the end of the relevant assessment year, unless the ld. AO has in possession books of accounts or other documents or evidence which reveal that income chargeable to tax has escaped assessment along with other conditions. When the ld. AO is satisfied that the time limit for issuance of the notice u/s. 148 and 148A of the Act is in accordance with Section 149 of the Act, then the ld. AO u/s. 151 of the Act shall obtain prior approval of the specified authority for issuance of such notice as per the first proviso to Section 148 of the Act. The provision for sanction for issuance of notice u/s. 151 of the Act states that the specified authority for the purpose of Section 148 and 148A shall be :
C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd. i. Principal Commissioner or Principal Director or Commissioner or Director, if 3 years or less than 3 years have lapsed from the relevant assessment year. ii. Principal Chief Commissioner or Principal Director General or Chief Commissioner of Director General, if more than 3 years have lapsed from the end of the relevant assessment year.
In the present case in hand, which would fall u/s. 151(ii) of the Act, the approval for issuance of notice u/s. 148 has been granted by the Principal Commissioner of Income Tax-4, which as per the provision ought to have been approved by the Principal Chief Commissioner, Principal Director General or Chief Commissioner or Director General. Though, the revenue’s contention that TOLA which came into effect from 31.03.2020 with retrospective effect from its enactment dated 29.09.2020, that the same would override the provisions of Section 151, was negated by the Hon’ble Jurisdictional High Court in the case of Cipla Pharma and Life Sciences Ltd. v(2024) 164 taxmann.com 663 (Bombay), which had relied on the decision of the Hon'ble Jurisdictional Bombay High Court in the case of Siemens Financial Services (P.) Ltd. (supra), which held that the notification issued under TOLA cannot override the statute enacted by the Parliament. The Hon’ble Jurisdictional High Court in Siemens Financial Services Pvt. Ltd. (supra) has dealt with this issue extensively and held that the approval of the specified authority should be in accordance with Section 151(ii) of the Act. The relevant extract of the decision of the Hon'ble Jurisdictional Bombay High Court in the case of Siemens Financial Services (P.) Ltd. (supra) is cited herein under for ease of reference:
C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd. “31. Notwithstanding this, the CBDT has issued instruction No. 1 of 2022 contrary to what the courts have held. Even by the finding of the Apex Court in Ashish Agarwal (supra), only the original notice issued under section 148 of the Act was converted into a notice deemed to have been issued under section 148A(b) of the Act. The Apex Court held that the Assessing Officer shall thereafter pass orders in terms of Section 148A(b) in respect of each of the assessee and after following the procedure as required under section 148 of the Act. Even judgment in Ashish Agarwal (supra) does not anywhere indicate the notices that could be issued for eternity like in this case, on 31st July 2022, would be sanctioned by the authority other than sanctioning authority defined under the Act.
We have to also note that the instructions dated 11th May 2022, on which respondents have relied upon, has no applicability to the facts of this case. These instructions expressly provides that it applies only to the issue of reassessment notice issued by the Assessing Officer during the period beginning 1st April 2020 and ending with 30th June 2021 within the time extended under TOLA and various notifications issued thereunder. Since the impugned notice in this case is dated 31st July 2022, certainly the instructions no. 1 of 2022 dated 11th May 2022 shall have no applicability at all. Even for a moment, if we accept Mr. Suresh Kumar's arguments that Apex Court's findings in Ashish Agarwal (supra) read with time extension provided by TOLA will allow extended reassessment notices to travel back to their original date when such notices were issued and then new section 149 of the Act is to be applied at that time, the extended reassessment notices are defined under the instructions to be notice issued between 1st April 2021 and ending with 30th June 2021. Therefore, the instructions would not help respondents' case at all.
As held by this court in J. M. Financials & Investment Consultancy Services (P.) Ltd.'s case (supra), Sidhmicro Equities (P.) Ltd. (supra) and confirmed by the Apex Court that any notice issued without the sanction of the correct sanctioning authority will be invalid. This court in Godrej Industries Ltd. v. B.S. Singh, Dy. CIT [2015] 62 taxmann.com 354/235 Taxman 25/377 ITR 1 (Bom.) has held that an assessment can be reopened under section 147 and 148 of the Act only on the jurisdictional preconditions being satisfied strictly. This Court held that sanction of a superior officer to the reasons recorded in terms of section 151 should be obtained before issuing the notice under section 148 of the Act and all jurisdictional requirements are required to be satisfied cumulatively and even if one of the numerous jurisdictional requirements necessary for issuing the notice under section 148 of the Act are not satisfied, the reopening of an assessment would fail. Hence, in the present facts also since the approval of the specified authority in terms of section 151(ii) of the Act is a jurisdictional requirement and in the absence of complying with this requirement, the reopening of assessment would fail. The Calcutta High Court in K K Agarwal & Sons HUF v. ITO [WPA No. 25770 of 2022, dated 14-12-2022] while dealing with the reopening of the assessment for AY 2016-17 held that the approval granted by the PCIT is not in accordance with section 151(ii) of the Act and such approval is not sustainable in law. Hence, the Court held that the show cause notice under section 148A(b) and all subsequent proceedings were not sustainable in law and were quashed.”
C.O. No. 182/Mum/2024(A.Y. 2017-18) JMP Securities Pvt. Ltd.
As this issue has been squarely covered by the various decisions of the Hon'ble Apex Court, Hon'ble High Courts and the Tribunal, we hereby decide this issues in favour of the assessee and hold that the impugned notice which was sanctioned in violation to the provisions of Section 151(ii) is bad in law and hereby quash the reassessment proceeding as invalid. Therefore, ground no. 1 and 2 raised by the assessee in its cross objection is hereby allowed. As we have held the reassessment order to be null and void, the other grounds of appeal
raised by the assessee requires no further adjudication and are rendered academic in nature. The grounds of appeal of the revenue does not hold merits and therefore, the appeal filed by the revenue is hereby dismissed.
17. In the result, the appeal filed by the revenue is dismissed and the cross objection filed by the assessee is allowed. Order pronounced in the open court on 27.03.2025 Sd/- Sd/- (AMARJIT SINGH) (KAVITHA RAJAGOPAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 27.03.2025 Karishma J. Pawar (Stenographer) Copy of the Order forwarded to: 1. The Appellant 2. The Respondent 3. CIT- concerned 4. DR, ITAT, Mumbai 5. Guard File BY ORDER,