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Facts
The assessee challenged the reassessment proceedings and the order passed by the CIT(A) which dismissed their appeal against the assessment order. The primary issue revolved around the validity of the approval obtained for reassessment under Section 148A(d) of the Income Tax Act.
Held
The Tribunal held that the approval for the reassessment order under Section 148A(d) was obtained from an authority not specified under Section 151(ii) of the new regime. This non-compliance affected the Assessing Officer's jurisdiction to issue a notice under Section 148, rendering the order and subsequent reassessment proceedings invalid.
Key Issues
Whether the approval for reassessment proceedings was obtained from the specified authority as per the provisions of Section 151 of the Income Tax Act, 1961, especially in light of the new regime introduced by the Finance Act, 2021.
Sections Cited
250, 147, 144B, 148, 148A, 151, 148A(a), 148A(b), 148A(d), 3(1)
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Income Tax Appellate Tribunal, D BENCH, MUMBAI
IN THE INCOME TAX APPELLATE TRIBUNAL "D" BENCH, MUMBAI SHRI RAHUL CHAUDHARY, JUDICIAL MEMBER SMT RENU JAUHRI, ACCOUNTANT MEMBER RA Fashions Pvt. Ltd. Unit No. 902, 9th Floor, C Wing, Kamala City, Kamala Mill Compound, S B Marg, Lower Parel, (W), Mumbai – 400013. [PAN: AAFCR1110C] …………. Appellant Assessment Unit, Income Tax Vs Department Aaykar Bhavan, M. K. Road, Mumbai – …………. 400020. Respondent Appearance For the Appellant/Assessee : Ms. Mitali Parekh For the Respondent/Department : Shri R. R. Makwana, Addl. CIT Date Conclusion of hearing : 13.02.2025 Pronouncement of order : 27.02.2025
O R D E R
Per Rahul Chaudhary, Judicial Member:
The present appeal has been preferred by the Assessee against the order, dated 15/03/2024, passed by the Commissioner of Income Tax, Appeal, Delhi [hereinafter referred to as the ‘CIT(A)’], under Section 250 of the Income Tax Act, 1961[hereinafter referred to as ‘the Act’], whereby the Ld. CIT(A) had Dismissed the appeal of the Assessee against the Assessment Order, dated 02/05/2023, passed under Section 147 r.w.s. 144B of the Act, for the Assessment Year 2016-2017.
The assessee has, inter alia, challenged the validity of reassessment proceedings in Ground No. 2 and 3 which read as under: Assessment Year 2016-17 “2. The Ld. CIT(A) has erred in law and in facts in not appreciating that the reopening of the assessment u/s. 147 of the Act and issue of notice u/s. 148 of the Act was contrary to the provision of the Act and therefore invalid and bad in law. 3. The Ld. CIT(A) ought to have appreciated that the order passed by the Ld. A.O. was without jurisdiction and hence bad in law. 4. The Ld. CIT(A) has erred in law and in facts confirming the assessment order passed by Ld. A.O. in gross violation of principles of natural justice.” 3. The relevant facts in brief are that notice under Section 148 of the Act was issued to the Assessee for the Assessment Year 2016-2017 on 23/04/2021. It is admitted position that the aforesaid notice was issued after the expiry of 3 years but before the expiry of 4 years from the end of the relevant assessment year. Subsequently, in compliance with the judgment of the Hon’ble Supreme Court in the case of Union of India vs. Ashish Agarwal 444 ITR 1 (SC) [04/05/2022] communication dated 24/05/2022, was sent to the Assessee intimating the Assessee that the aforesaid notice issued section 148 of the Act (under old regime) would be treated as the show cause notice issued in terms of Section 148A(b) of the Act (under new regime introduced by the Finance Act, 2021 wef 01/04/2021). The Assessing Officer also shared with the Assessee material/information (embedded in the reasons recorded) on the basis of which the Assessing Officer had formed a belief that income had escaped assessment. Thereafter, order under Section 148A(d) of the Act was passed on 29/07/2022 which was followed by issuance of notice under section 148 of the Act on 30/07/2022. The reassessment proceedings culminated into passing of the assessment order, dated 02/05/2023 passed under section 147 read with Section 144B of the Act. The appeal preferred by the Assessee against the aforesaid Assessment Order was dismissed by the CIT(A) vide Order, dated 2 Assessment Year 2016-17 13/03/2024. The CIT(A) rejected the challenge to the validity of reassessment proceedings and declined to grant any relief on merits. Being aggrieved, the Assessee has preferred the present appeal before the Tribunal.
The contention of the Assessee is that order under Section 148A(d) of the Act was issued after obtaining approval from the Principal Commissioner of Income Tax instead of the Principal Chief Commissioner of Income Tax. Therefore, the reassessment proceedings stand vitiated and therefore, the same are bad in law.
It was contended on behalf of the Revenue that the approval, dated 28/07/2022, was granted by Chief Commissioner of Income Tax (OSD).
We have considered the rival submissions and perused the materials on record.
In the facts of the present case the issue that arises for consideration is whether the Principal Commissioner of Income Tax or the Principal Chief Commissioner of Income Tax was the Specified Authority for seeking approval for passing order under section 148A(d) of the Act.
In this regard we deem it appropriate to refer to judgment of the Hon’ble Supreme Court in the case Union of India vs. Rajeev Bansal [2024] 469 ITR 46 (SC)[03/10/2024]. The Hon’ble Supreme Court had, while dealing with the issue of sanction from specified authority, made the following observations: “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 3 Assessment Year 2016-17 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.
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 4 Assessment Year 2016-17 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. 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 5 Assessment Year 2016-17 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 High Court Bar Association v. State of U P [2024] 160 taxmann.com 32/299 Taxman 21 (SC)/[2024] 6 SCC 267.
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.” (Emphasis Supplied)
On bare reading of the above extract of the judgment of Hon’ble Supreme Court in the case of Rajeev Bansal (supra), we find that the Hon’ble Supreme Court had clarified as under:
(a) Under new regime introduced by the Finance Act, 2021 Assessing Officer was required to obtain prior approval or sanction of the ‘Specified Authority’ at four stages – at first stage under Section 148A(a), at second stage under Section 6 Assessment Year 2016-17 148A(b), at third stage under Section 148A(d), and at fourth stage under Section 148. In the case of Ashish Agarwal (supra) the Hon’ble Supreme Court waived off the requirement of obtaining prior approval under section 148A(a) and Section 148A(b) of the Act only. 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. (b) Under new regime if income escaping assessment is more than Rupees 50 lakhs a reassessment notice could be issued after expiry of three years from the end of the relevant previous year only after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
(c) 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 20th March 2020 and 31st March 2021, then the ‘Specified Authority’ under Section 151(i) has an extended time till 30th June 2021 to grant approval.
(d) 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
(e) Grant of sanction by the appropriate authority is a 7 Assessment Year 2016-17 precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice.
In the present case the period of 3 years from the end of the Assessment Year 2016-2017 fell for completion on 31 March 2020. It fell during the time period of 20th March 2020 and 31st March 2021, contemplated under Section 3(1) of TOLA. Resultantly, the authority specified under Section 151(i) of the new regime could have granted sanction till 30th June 2021. In the present case, it is admitted position that the sanction under for Section 148A(d) of the Act was granted on 28/07/2022. On perusal of the order passed under Section 148A(d) of the Act we find that the said order states as under: “7. Therefore, on the basis of material available on record and submissions made by the assessee………………… The order under Section 148A(d) is passed by the prior approval of the specified authority i.e. the Principal Commissioner of Income Tax – 3, Mumbai”
Thus, the order under Section 148A(d) of the Act clearly states that the approval has been obtained from Principal Commissioner. As per the new regime, the authority specified under Section 151(ii) of the Act is Principal Chief Commissioner or Chief Commissioner. Placing reliance on the upon the approval dated 28/07/2022, an attempt was made by the Revenue to contend that the approval has been granted by the Principal Chief Commissioner. However, on perusal of the said approval we find that the approval has been granted by the ‘CCIT (OSD) in charge of Pr. Commissioner of Income Tax’. Thus, the approval was granted while holding charge of and in the capacity of Principal Commission of Income Tax only. We note that even the notice, dated 30/07/2022, issued under Section 148 of the new regime stated that the notice is being issued after obtaining the prior approval of the Principal Commissioner of Income Tax.
8 Assessment Year 2016-17 Accordingly, we conclude that in the present case the approval has been obtained by authority specified under Section 151(i) of the new regime instead of the authority specified under Section 151(ii) of the new regime.
Thus, non-compliance by the Assessing Officer with the provisions contained in Section 148A(d) read with Section 151(ii) of the new regime affects the jurisdiction of the Assessing Officer to issue a notice under Section 148 of the Act. Accordingly, the order, dated 29/07/2022 passed under Section 148A(d) of the Act and the consequential reassessment proceedings and the order, dated 02/05/2023, passed under Section 147 read with Section 144B of the Act are quashed as violative of the provisions contained in Section 148A(d), Section 148 and Section 151(ii) of the Act and being bad in law. Accordingly, Ground No. 3 and 4 raised by the Assessee are allowed while all the other grounds raised by the Assessee are dismissed as having been rendered infructuous.
In terms of the paragraph 12 above, the present appeal preferred by the Assessee is allowed.