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Facts
The assessee earned Long Term Capital Gains (LTCG) on sale of shares claimed as exempt. The AO initiated reassessment proceedings based on information that the assessee was a beneficiary of a bogus transaction, leading to an addition of Rs. 95,83,954/-.
Held
The Tribunal held that the reassessment notice issued under Section 148 was invalid because the prior approval was obtained from the Principal Commissioner of Income-tax instead of the Principal Chief Commissioner, as required for reassessments initiated beyond three years from the end of the assessment year under Section 151(ii) of the Act. Consequently, the assessment order was quashed.
Key Issues
Whether the reassessment notice and consequent assessment are valid when the prior approval for issuance of notice under Section 148 was obtained from an authority not specified under Section 151(ii) of the Act.
Sections Cited
147, 144B, 10(38), 148, 151A, 68, 151, 148A, 143(1)
AI-generated summary — verify with the full judgment below
आदेश / O R D E R PER PRABHASH SHANKAR [A.M.] :- The present appeal arising from the appellate order dated 28.06.2024 is filed by the assessee against the order passed by the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”] pertaining to assessment order passed u/s. 147 r.w.s 144B of the Income-tax Act, 1961 [hereinafter referred to as “Act”] dated 19.05.2023 for the Assessment Year [A.Y.] 2016-17.
The grounds of appeal
are as under:
1. 1. On the facts and in the circumstances of the case, the assessment unit has erred in completing the assessment and the Commissioner of Income-tax (Appeals), hereinafter referred to as the CIT (A), has erred in confirming the assessment made in violation of the provisions of section 151A of the Act and “e-Assessment of Income Escaping Assessment Scheme, 2022” as notified by the Central Government on 29-3-2022. The appellant respectfully submits that the reassessment made in his case is void and hence the same deserves to be quashed.
2. On the facts and in the circumstances of the case, the CIT (A) has erred in confirming the reassessment made by the assessment unit, which is not valid on various grounds including the fact that the reassessment is based only on borrowed satisfaction.
3. Without any prejudice to Ground - 1 and 2 above, the CIT (A) has erred in confirming addition of Rs. 95,83,954/- by invoking the provisions of section 68 of the Act in respect of sale proceeds of shares of Anuh Pharma Ltd. by wrongly treating the sale proceeds as unexplained cash credit.
4. The appellant respectfully submits that both the assessment unit and CIT (A) have erred in not appreciating the correct facts of the case and also the documentary evidences on record while considering the sale proceeds of shares as unexplained cash credit. The appellant respectfully submits that the impugned addition is not justified and prays that the same may please be deleted.
3. The brief facts of the case are that the assesse is an Individual assessee deriving income from derivatives, speculation transactions in shares, Capital Gains and Other Sources.During the relevant year, he earned Long Term capital gains on sale of shares at Rs. 80,23,292/- which was claimed exempt u/s. 10(38). The LTCG earned by the assessee included capital gains on sale of shares of Anuh Pharma Ltd. which was believed to be a Penny Stock by the revenue. The return was A.Y. 2016-17 Cyrus Patel, Mumbai initially processed u/s. 143(1) of the Act. Subsequently, the AO initiated reassessment in the case of the assessee vide notice dated 26-04-2021 issued u/s. 148 of the Act on the basis of an information from the Insight portal that the assessee is a beneficiary of bogus transaction in the above named scrip to the tune of Rs. 95,83,954/-.
4. In the ground no.1 and 2 above, the assessee has contested the validity of the reassessment order claiming that the order has been passed without obtaining approval of appropriate authorities,is also in violation of the provisions of section 151A of the Act and also based on borrowed reasons.As validity of the reassessment order being a legal ground affecting the very basis of the order, being challenged by the assessee, we are of the considered opinion that these grounds need to be adjudicated first.
5. In the course of hearing before us, the ld.DR relied on the orders of authorities below.In respect of legal contentions made by the ld.AR,he did not controvert the facts on record relating to the reassessment proceedings including orders u/s 148A(d)as well. On the other hand, the ld.Authorised Representative in support of the legal grounds as also on merits of the case, has submitted Paper Book-I and II containing 57 and 52 pages respectively and has taken us through all the relevant facts of the case relating to action u/s 148 of the Act, present position of the law A.Y. 2016-17 Cyrus Patel, Mumbai in this regard and also the legal implications arising on account of the recent decisions of Hon’ble Supreme Court relating to the instant issue.It is contented that as per the judgment of the Hon'ble Supreme Court in the case of Union of India v. Ashish Agarwal (2022) 444 ITR 1 (SC), the notice dated 26-04-2021 was treated as notice u/s. 148A(b) of the Act. The AO issued a letter dated 01-06-2022 as per the directions of the Hon'ble Supreme Court. He also furnished the copy of the reasons recorded for reassessment and the initial approval obtained u/s. 151 of the Act with this letter. The order u/s. 148A(d) of the Act was passed by him on 29.07.2022. Fresh notice u/s. 148 of the Act was issued by the Jurisdictional Assessing Officer (JAO) on 29.07.2022. It is contented by the ld.AR that while passing the order u/s 148A(d), the AO had obtained the prior approval of the Pr. Commissioner of Income-tax- 19, Mumbai as emanating from the paragraph-12 of the order. Further, the notice u/s. 148 of the Act was also issued with the prior approval of the Pr. Commissioner of Income-tax 19, Mumbai.Further, the notice u/s. 148 of the Act was issued by the Jurisdictional Assessing Officer (JAO) and not by the Faceless assessment unit as required under the provisions of section 151A of the Act and the notification dated 29.03.2022 issued thereunder.
A.Y. 2016-17 Cyrus Patel, Mumbai 5.1 It is further stated by the ld.AR that the reassessment made in this case is not valid and contrary to the provisions of law. In this connection, following submissions were made to demonstrate that the reassessment proceedings were invalid:
“ (a) The reassessment lacks proper approval u/s. 151 of the Act.The case of the appellant was taken up for reassessment by the notice dated 26-4-2021. The assessment year is 2016-17 and accordingly the reassessment was initiated after period of three years from the end of the assessment year.The case of the appellant is covered by section 151(ii) of the Act which provides that where the notices for reassessment are issued beyond the period of three years from the end of the assessment year, the appropriate authority for the purpose of section 148 and section 148A of the Act is the Principle Chief Commissioner or Principle Director General or Chief Commissioner or Director General.As against this specific requirement of section 151(ii), it is clear from the order u/s. 148A(d) and the notice u/s. 148 that the Assessing Officer had obtained prior approval from Pr. Commissioner of Income-tax- 19, Mumbai. As such, the approval obtained by the assessing officer is not in accordance with the provisions of section 151(ii).Therefore, the reassessment is liable to be quashed.Reliance is placed on the decision in the case of Union of India v. Rajeev Bansal (2024) 469 ITR 46 (SC) Attention is drawn to paragraph 81 of the Supreme Court judgment where it held: “Although this court waived off the requirement of obtaining prior approval u/s. 148A(a) and 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...” Further reliance is placed on the decision of the Mumbai Tribunal in the case of ACIT v. Manish Financial - wherein,on the same set of facts,it was held that the notice under section 148 is invalid and the consequent assessment under section 147 is liable to be quashed. The co-ordinate A.Y. 2016-17 Cyrus Patel, Mumbai Bench in the case of ACIT v. Surya Ferrous Alloys Pvt. Ltd. took similar view of the matter. (b) The appellant also submits that the reassessment initiated in his case is in violation of the provisions of section 151A of the Act. Section 151A of the Act empowers the Central Government to make a scheme by notification for the purpose of assessment, reassessment or recomputation u/s. 147 or issuance of notice u/s. 148 or conducting of enquiries or issuance of notice u/s. 148A of the Act in a faceless manner.The Central government has issued a notification under the said section vide Notification S.O. 1466(E) [No. 18/2022/F. No. 370142/16/2022-TPL(Part 1)] on 29-3-2022. As per paragraph 3(b) of the said notification the power to issuance of notice under section 148 of the Act has been given to the faceless assessment unit.The appellant further submits that once the power has been given to the Faceless Assessment Unit, the Jurisdictional Assessing Officer (JAO) does not have power to issue a notice ws. 148 of the Act. In the case of the appellant, the notice has been issued by JAO and accordingly the said notice is not valid.The appellant relies on the judgment of the Hon'ble Bombay High Court in the case of Hexaware Technologies Pvt. Ltd. v. ACIT (2024) 464 TTR 430 (Bom.) in support of this contention. The appellant also submits that in the said judgment the Hon'ble High Court has inter-alia held that there is no question of concurrent jurisdiction of JAO and FAO for issuance of reopening notice under section 148 or even for passing assessment order. It is only FAO which could issue notice under section 148 and not JAO. (c) Reassessment is based only on borrowed satisfaction from the Insight portal and the assessing officer has not applied his mind to the information from the portal before initiating the reassessment proceedings. The fact that there is no independent application of mind is clear from some of the paragraphs of the order u/s. 148A(d) of the Act. The appellant further submits that the contention that there is no independent application of mind gets fortified by the fact that even during the assessment proceedings the assessment unit has mechanically taken the amount of addition at Rs. 95,83,954/- on the basis of the information from the Insight portal.The total consideration of shares of Anuh Pharma Ltd. is Rs. 1,01,43,188/- and the resultant long term capital gains is Rs. 71,03,118/-as A.Y. 2016-17 Cyrus Patel, Mumbai mentioned in paragraph 2 of the Facts of the case. However, the assessment unit has made addition of Rs. 95,83,954/- by simply adopting the figure from the information received from Insight portal. It is not clear as to how the above amount of Rs. 95,83,954/-has been worked out by the assessment unit.The appellant submits that the reassessment cannot be either initiated or completed on the basis of borrowed satisfaction without independent application of mind. The appellant in this connection relies on the judgment of the Hon'ble Bombay High Court in the case of Pr. CIT v. Shodhiman Investments P. Ltd. (2020) 422 ITR 337 (Bombay). In view of all the above alternate contentions, the appellant submits that the reassessment in his case is invalid and the same deserves to be quashed. The appellant prays that the same may please be accordingly quashed.”
We have carefully considered the facts of the case and find that on legality of the notice u/s 148 vis-a-vis sanctioning authority,the case of the assessee is squarely covered by the above mentioned decision of hon’ble Apex Court(supra) which has been elaborately considered by the coordinate Bench in the case of Assistant Commissioner Of Income Tax vs Munish Financial, Mumbai dated 02.12.2024 in and on identical facts of the case, it quashed the reassessment order as per the paras extracted below for the sake of brevity:
“ 11. The assessee for the year under consideration filed the return of income declaring a loss of Rs.3,37,77,313/-. The assessment was reopened by issue of notice under section 148 of the Act on 23.04.2021 and notice was deemed to be a notice issued under section 148A(b) as per the directions of the Hon'ble Supreme Court in the case Ashish Agrawal (supra). The AO issued a notice under section 148 dated 30.07.2022 after passing order under section 148A(d) of the Act. In the C.O. of AY 2016-17 one of the legal contentions raised by the assessee is that the AO has not obtained approval of the appropriate authority for the purpose of issuing under section 148 of the Act. The relevant ground in the C.O. reads as under:
A.Y. 2016-17 Cyrus Patel, Mumbai "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) (NFAC) erred in not holding the notice u/s 148 of the Act as invalid and bad in law without appreciating the fact that when the notice issued u/s 148 of the Act was beyond period of three years, approval was required to be taken as per provisions of amended section 151 of the Act from Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General of Income Tax and not from Principal Commissioner of Income Tax and as laid down by the Hon'ble Supreme Court in case of Union of India vs. Rajeev Bansal (Civil Appeal No 8629 of 2024)."
The ld. AR submitted that the Hon'ble Supreme Court in the case of Rajeev Bansal (supra) has considered the issue of getting approval from appropriate authority under section 151 before issue of notice under section 148 of the Act to cases where the revenue has invoked the provisions of section 148A as per the directions of the Hon'ble Supreme Court in the case of Ashish Agrawal (supra). In this regard the ld. AR drew our attention to the relevant observations of the Hon'ble Hon'ble Supreme Court as 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. 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 years Principal Chief the old regime from the end of the Commissioner or Chief 9 and 5050 and C. Nos. 231 & 230 Mum 2024 Manish Financial relevant assessment year Commissioner or Principal Commissioner or Commissioner Section 151(i) of the Three years or less than Principal Commissioner or new regime three years from the end Principal Director or of the relevant Commissioner or Director assessment year Section 151(ii) of more than three years Principal Chief the new regime have elapsed from the Commissioner or Principal end of the relevant Director General or Chief assessment year Commissioner or Director General 74. 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 Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
A.Y. 2016-17 Cyrus Patel, Mumbai 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 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, 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.
A.Y. 2016-17 Cyrus Patel, Mumbai Resultantly, the authority specified under Section 151(i) of the new regime can grant sanction till 30 June 2021.
Under Finance Act 2021, the assessing officer was required to obtain prior approval or sanction of the specified authorities at four stages: a. Section 148A(a) to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment; b. Section 148A(b) - to provide an opportunity of hearing to the assessee by serving upon them a show cause notice as to why a notice under Section 148 should not be issued based on the information that suggests that income chargeable to tax has escaped assessment. It must be noted that this requirement has been deleted by the Finance Act 2022; c. Section 148A(d) - to pass an order deciding whether or not it is a fit case for issuing a notice under Section 148; and d. Section 148-to issue a reassessment notice.
In Ashish Agarwal (supra), this Court directed that Section 148 notices which were challenged before various High Courts "shall be deemed to have been issued under Section 148-A of the Income Tax Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of Section 148-A(b)." Further, this Court dispensed with the requirement of conducting any enquiry with the prior approval of the specified authority under Section 148A(a). Under Section 148A(b), an assessing officer was required to obtain prior approval from the specified authority before issuing a show cause notice. When this Court deemed the Section 148 notices under the old regime as Section 148A(b) notices under the new regime, it impliedly waived the requirement of obtaining prior approval from the specified authorities under Section 151 for Section 148A(b). It is well established that this Court while exercising its jurisdiction under Article 142, is not bound by the procedural requirements of law. 130 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.
The ld. DR on the other hand submitted that the original notice issued by the AO under the old regime was issued correctly with approvals from the appropriate authority under the erstwhile section 151 of the Act and therefore the proceedings cannot be invalidated on the ground that the approval is not obtained from appropriate authorities.
A.Y. 2016-17 Cyrus Patel, Mumbai 14. We heard the parties and perused the material on record. In assessee's case for AY 2016-17 pursuant to the directions of the Hon'ble Supreme Court in the case of Ashish Agrawal, the AO passed an order under section 148(d) of the Act and issued a notice under section 148 on 30.07.2022. From the above observations of the Hon'ble Supreme Court it is clear that the though the prior approval under section 148A(b) and 148(d) were waived in terms of the decision of Ashish Agarwal (supra), for issue of notice under section 148A(a) and under section 148 on or after 1 April 2021, the prior approval should be obtained from the appropriate authorities specified under Section 151 of the new regime. The provisions of section 151 of the Act under the new regime read as under: Sanction for issue of notice.
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 where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year.
In assessee's case from the perusal of para 3 of the notice issued under section 148 for AY 2016-17 we notice that the same is issued with the prior approval of Pr.CIT-19 Mumbai accorded on 29.07.2022 vide reference No.Pr.Cit- 19/148/2022- 23 and this fact is not contravened by the ld DR. For AY 2016-17, the period of three years have elapsed as of 31.03.2020 and the notice is issued beyond three years on 30.07.2022. Therefore as per the decision of the Hon'ble Supreme Court, the approval should have been obtained under the amended provisions of section 151(ii) of the Act i.e. the approval should have been obtained from the Principal Chief Commissioner whereas the approval has been obtained from Pr.CIT as stated in the notice under section 148 itself. Therefore we see merit in the contention of the assessee that the notice under section 148 for AY 2016-17 is issued without obtaining the prior approval from the appropriate authority. Accordingly we hold that the notice under section 148 is invalid and the consequent assessment under section 147 is liable to be quashed.” 6.1 The instant case was taken up for reassessment by the notice dated 26.04.2021.Relevant assessment year in the case is 2016-17. The reassessment was initiated after period of three years from the end of the assessment year. The Assessing Officer issued a letter dated 01.06.2022 as per the directions of the Hon'ble Supreme Court(supa). The order u/s. A.Y. 2016-17 Cyrus Patel, Mumbai 148A(d) of the Act was passed by the AO on 29.07.2022. Fresh notice u/s. 148 of the Act was issued by the Jurisdictional Assessing Officer (JAO) on 29.07.2022. It is evident that while passing the order u/s 148A(d), the AO had obtained the prior approval of the Pr. Commissioner of Income-tax-19, Mumbai. This fact is mentioned at paragraph - 12 of the order. Further, the notice u/s 148 of the Act was also issued with the prior approval of the Pr. Commissioner of Income-tax 19, Mumbai vide reference no.MUM/PrCIT- 19/148/2022-23/701 dated 28.07.2022, a fact on record uncontroverted by the ld.DR. Grant of sanction by the appropriate authority is a precondition for the AO to assume jurisdiction under Section 148 to issue a reassessment notice. Section 151 of the new regime 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 AO with the strict time limits prescribed under Section 151 affects their jurisdiction to issue a notice under Section 148. We find merits in the contention of the ld.AR that case of the appellant is covered by section 151(ii) of the Act which provides that where the notices for reassessment are issued beyond the period of three years from the end of the assessment year, the appropriate authority for the purpose of section 148 and section 148A of the Act is the Principle Chief Commissioner or A.Y. 2016-17 Cyrus Patel, Mumbai Principle Director General or Chief Commissioner or Director General.As against this specific requirement of section 151(ii), it is clear from the order u/s. 148A(d) and the notice u/s. 148 that obtained prior approval from Pr. Commissioner of Income-tax-19, Mumbai. As such, the approval obtained by him is not in accordance with the provisions of section 151(ii). Accordingly, we hold that the notice under section 148 is invalid and the consequent assessment under section 147 is hereby quashed.
Since we have already quashed the order under section 147 based on the above proposition itself, other legal grounds as also the grounds relating to merits of the case have become academic and therefore, do not warrant any adjudication.
In the result, the appeal is allowed.
Order pronounced in the open court on 17/03/2025.