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Facts
The assessee, a partnership firm dealing in ceramic tiles, filed its return for AY 2016-17. A search operation led to the discovery of accommodation entries by way of bank transactions amounting to Rs.62,55,107. The AO initiated reassessment proceedings under Section 147, confirming additions under Sections 68 and 69A.
Held
The Tribunal held that the approval for reassessment proceedings under Section 151 was not obtained from the competent authority as per the provisions of the Act and the case law. Therefore, the reassessment proceedings were quashed.
Key Issues
Whether the reassessment proceedings initiated and the consequent order passed were valid, specifically concerning the approval obtained under Section 151 of the Income Tax Act.
Sections Cited
147, 144, 148, 148A, 151, 68, 69A, 132, 142(1), 44AD
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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI PRASHANT MAHARISHI & SHRI SOUNDARARAJAN K.
Per Prashant Maharishi, Vice President
This appeal is filed by Star Ceramics (the assessee/appellant) for the assessment year 2016-17 against the appellate order passed by the National Faceless Appeal Centre, Delhi (NFAC) [ld. CIT(A)] dated 18.2.2025 wherein the appeal filed by the assessee against the assessment order passed on 27.5.2023 u/s. 147 r.w.s. 144 of the Income-tax Act, 1961 [the Act] by the National Faceless Assessment Centre was dismissed.
The assessee is aggrieved with the same and has preferred this appeal raising the following grounds of appeal :- “I The order of the learned Commissioner of Income Tax (Appeals) [CIT (A)] and learned Assessing Officer is opposed to the law, facts and circumstances of the case. II On the facts and in the circumstances of the case, and in law, the learned CIT (A) erred in upholding the additions and confirming the assessment order passed under Section 147 r.w.s. 144 of the Income Tax Act, 1961 (hereinafter referred to as the "Act"), without proper appreciation of facts, law, and principles of natural justice. III. The learned CIT(A) erred in upholding the reassessment proceedings-initiated under Section 148, and completed under Section 147 r.w.s. 144 of the Act, without appreciating that the proceedings were initiated based on vague, borrowed, and unverified information, and without independent application of mind by the learned Assessing Officer. IV The notice under Section 148 and the order under Section 148A(d), issued after April 1, 2021, are invalid as the amended provisions of Sections 147 to 151 of the Act require prior approval from the Chief Commissioner or Principal Chief Commissioner of Income Tax, not the Principal Commissioner of Income Tax. V The order issued under Section 148A(d) and the subsequent notice under Section 148 of the Act, issued by the Jurisdictional Assessing Officer instead of the Faceless Assessment Unit, is legally invalid. VI The manual notice issued under Section 148 of the Act is invalid in law due to the absence of a Document Identification Number (DIN) in it.
VII Without prejudice to the above, the notice issued under Section 148 dated 30-Jun-2022 for reopening of the assessment is time- barred, in accordance with the directions issued by the Hon'ble Supreme Court in the case of Ashish Agarwal v. Union of India, which were subsequently reaffirmed in the case of Rajeev Bansal. VIII The learned CIT(A) erred in upholding the addition without granting effective opportunity to rebut the adverse material used against the appellant, including statements of third parties and reports, which were neither furnished to the appellant nor subjected to cross-examination, in violation of the principles laid down in various judgments of the Courts. IX That the learned CIT(A) erred in confirming the addition of Rs 50,00,000/-under Section 68 of the Act on alleged accommodation entry transactions, without appreciating that: • The appellant had no nexus with the entities involved; • The appellant did not benefit from the transaction; • Funds were passed on to M/s Entire Ceramics, and the Appellant was merely a conduit under compulsion. X That the learned CIT(A) erred in upholding the addition of Rs.12,55,107/- as unexplained cash under Section 69A, without any independent evidence of actual cash found or impounded from the appellant, and solely based on third-party statements without correlation or cross-verification. XI That the learned CIT(A) erred in relying upon the judgment in Swati Bajaj v. PCIT and Suman Poddar v. ITO which are factually distinguishable and do not apply to the appellant's case, where no penny stock transaction or bogus LTCG claim was involved. XII The authorities below failed to appreciate that the appellant had duly complied with the notices issued and that the entire funds were ultimately transferred to another party, clearly demonstrating the absence of any intention of concealment of income. XIII The learned Assessing Officer and learned CIT(A) erred in rejecting the appellant's claim regarding the role of M/s Entire
Ceramics and undue influence, without examining factual circumstances. XIV The Appellant craves leave to add, alter, substitute, and delete any or all the grounds of appeal urged above.”
3. At the outset it was found that the appeal filed by the assessee is time barred by 6 days. The assessee has received the order of the CIT(A) on 18.2.2025, whereas the appeal has been filed on 6.5.2025. In the condonation petition filed by the assessee, it was submitted that the delay in question arose due to the legal and technical opinion to be obtained from the AR of the Petitioner regarding the reopening of assessment and therefore there is a nominal delay of 6 days which may be condoned.
The ld. DR vehemently objected to the same.
We find that the delay is merely on account of legal dispute and is therefore bonafide, and also small , so we condone the delay and admit the appeal of the assessee.
Briefly stated the facts of the case show that assessee is a partnership firm engaged in the business of Ceramic Tiles, Vitrified, Granites, Betham Cherla and allied commodities, etc, filed its return of income for AY 2016-17 on 27.9.2016 at a total income of Rs.1,45,090 on presumptive basis applying the provisions of section 44AD of the Act. There was a search operation u/s. 132 carried out in the case of Mehta Finance, Nava Bajar, Tower Road, Himmatnagar wherein it was found that the assessee has obtained accommodation entries by way of bank transactions amounting to Rs.62,55,107. Based on this, notice u/s. 148
was issued on 30.6.2021. Further in view of the decision of the Hon’ble Supreme Court in the case of UOI v. Ashish Agarwal it was treated as a fit case for issue of notice u/s. 148 and show cause notice u/s. 148A(d) of the Act was issued and information and relevant material was provided to the assessee. The assessee was asked to furnish the reply, but no compliance was made. Subsequently order u/s. 148A(d) of the Act was passed on 30.6.2022 and notice u/s. 148 was issued to the assessee after obtaining administrative approval u/s. 151 of the Act. The assessee was also directed to file return of income within 30 days of the service of notice which was not complied with. Subsequently in response to notice u/s. 142(1) of the Act compliance was made. The ld. AO found that assessee has given Rs.62,55,107 in cash to Mehta Finane and taken accommodation entry of Rs.50 lakhs. The AO noted that assessee has stated that it has taken loan from Mehta Finance of Rs.50 lakhs on 29.3.2016 and same is transferred to Entire Ceramics Ltd. on the same day towards security deposit. Assessee could only furnish the bank statement as documentary proof for confirmation of loan. The Investigation Report stated that it was an accommodation entry. Accordingly a show cause notice was issued on 11.5.2023. The assessee submitted its reply on 16.5.2023 wherein assessee contended that addition could not have been made as it is not an accommodation entry. The AO rejected the explanation of the assessee and thereafter determined the total income at Rs.64,00,196 wherein addition was made u/s. 68 of Rs.50 lakhs and further addition of Rs.12,55,107 was made u/s. 69A of the Act, whereas the returned income was only Rs.1,45,089.
This reassessment order was challenged before the CIT(Appeals).The assessee submitted written submissions challenging the addition on merits of the case and submitting that there was no opportunity of cross-examination provided to the assessee. The assessee also challenged the same stating that the transactions are genuine. The assessee also objected to the reopening of assessment stating that reopening has been made on the borrowed satisfaction. The ld. CIT(A) dismissed the grounds on reopening and further with respect to the addition of Rs.50 lakhs and Rs.12,55,107 was also confirmed relying on several judicial precedents. Accordingly the appeal of the assessee was dismissed.
Aggrieved with the appellate order, the assessee is in appeal before us. The ld. AR has filed a paperbook containing 57 pages and also placed written submissions on record. In the written submissions assessee has challenged the validity of reassessment proceedings u/s. 147 of the Act. It was submitted that the Act requires prior approval from the Chief Commissioner of Principal Chief Commissioner and not Principal Commissioner of Income Tax which has been taken by the AO. On this ground it was submitted that the provisions of section 151 are clear and further the decision of the Supreme Court in the case of Rajeev Bansal, Civil Appeal No.8629 of 2024 wherein in para 73 the above issue is discussed. The ld. AR further referred to the notice u/s. 148 of the Act dated 30.6.2021 wherein it is specifically mentioned that notice is being issued after obtaining the necessary approval of PCIT, Bengaluru-1. He referred the notice u/s. 148 of the Act dated 30.6.2022 wherein also in the last para it was mentioned that notice is issued after obtaining prior approval of Principal Commissioner of Income Tax, Bengaluru. It was the claim of assessee that in this case notice u/s. 148 was issued for AY 2016-17, which should have been issued after the approval. In this case since the alleged income escaping assessment exceeds Rs.50 lakhs and notice was issued after more than 3 years from the end of the relevant assessment year, the appropriate authority for approval should have been the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General of Income Tax. In this case, approval is obtained from Principal Commissioner of Income Tax and therefore the same is not valid and hence the whole reassessment proceedings culminating into reassessment order is invalid. For this proposition, he has relied upon several judicial precedents of the coordinate Benches and further decision of Hon’ble Bombay High Court in the case of Cipla Pharma and Life Sciences Ltd. Thus his claim was that the order passed u/s. 148A(d) and subsequent notice u/s. 148 of the Act is issued without valid sanction obtained u/s. 151 of the Act renders the whole assessment order as invalid.
All these grounds were also agitated by him stating that notice issued u/s. 148 is time barred in accordance with the direction of Supreme Court in the case of Ashish Agarwal and in the case of Rajeev Bansal.
He also submitted a detailed tabulated chart and also relied upon several judicial precedents. He further stated that the order issued u/s. 148A(d) and subsequent notice u/s. 148 issued by the jurisdictional AO is invalid, it should have been issued by the Faceless Assessment Unit and therefore notice issued is invalid. He relied upon the decision of Hon’ble High Courts of Telangana, Bombay and Madras. He states that this issue is covered in favour of assessee by the decision of coordinate Bench in the case of Obulapuram Mining Company P. Ltd. v, DCIT dated 29.7.2016.
On the merits the assessee also , he made a detailed submissions by stating that the decisions cited by the ld. CIT(A) are not relevant to the facts of the case and the transaction is genuine.
The ld. DR vehemently supported the orders of the ld. lower authorities. He submitted that the assessee has entered into a bogus transaction with the entity which was searched. During the search, documentary evidence such as invoices and bank statements was found. These documents indicated that the transaction was not genuine. Therefore, the ld. DR argued that there is no infirmity in the addition made by the AO and confirmed by the ld. CIT(A). On the issue of reopening of assessment, the ld. DR supported the orders of the lower authorities. They stated that the orders passed under section 148A(d), the notice issued under section 148, and the approval granted under section 151 of the Act were all valid.
We have carefully considered the rival contentions and perused the orders of the ld. lower authorities. The impugned assessment year in appeal is AY 2016-17. Originally on the basis of search conducted on Mehta Finance, Himmatnagar, notice u/s. 148 was issued on 30.6.2021 under the pre-amended law. The notice was also coupled with notice u/s. 142(1) of the Act dated 27.10.2021. Subsequently Hon’ble Supreme Court in the case of Ashish Agarwal was rendered and therefore the ld. jurisdictional AO issued notice u/s. 148A(b) on 18.5.2022 providing the details of alleged accommodation entry of Rs.62,55,107. An order u/s. 148A(d) was passed on 30.6.2022 and manual notice u/s. 148 was issued on the same date by the jurisdictional AO. The approval u/s. 151 of the Act was obtained from the Principal Commissioner of Income Tax, Bengaluru-1. The order u/s. 148A(d) of the Act was also issued on 30.6.2022 wherein in para 8 it is mentioned that this order is passed with the prior approval of PCIT-1, Bengaluru. Further notice u/s. 148A of the Act was issued on 30.6.2022 which did not have any DIN and issued by ITO, Ward 1, Chitradurga, which also stated in para 3 that notice is issued after obtaining the approval of PCIT, Bengaluru dated 29.6.2022. It is apparent that according to provisions of section 151(1) of the Act, if the notice is issued for reopening of the assessment after expiry of 4 years from the end of the relevant assessment year, the specified authority granting approval/sanction is Principal Chief Commissioner or Chief Commissioner. In the new regime of assessment if the notice is issued after more than 3 years from the end of relevant assessment year, the approval should have been taken from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. In this case, it is apparent that approval has been taken from the Principal Commissioner of Income Tax, Bengaluru. Thus, there is no proper approval obtained by the ld. AO.
If approval is not proper, the subsequent proceedings is also not proper. Thus if the approval obtained by the AO is bad in law, subsequent proceedings are also bad in law. Such is the mandate of the decision of coordinate Bench in the case of Dandu Jolappa Francis v. ITO [ITA No.2305/Bang/2024], Surya Ferrous Alloys P. Ltd. [169 taxmann.com 736]. Further the Hon’ble Bombay High Court in WP No. 149 of 2023 filed by Cipla Pharma and Life Sciences Ltd. held that sanction of specified authority must comply with the law in effect at the time the sanction is obtained. As proper sanction is not obtained in this case, the reopening of assessment is quashed. Thus, ground No.4 of the appeal is allowed.
As we have already quashed the reassessment proceedings, all other grounds are not required to be adjudicated, hence same are dismissed.
In the result, the appeal of the assessee is allowed. Pronounced in the open court on this 03rd day of September, 2025.