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Income Tax Appellate Tribunal, B BENCH, CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI S.R.RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
This appeal by the assessee is filed against the order of the Commissioner of Income Tax (Appeals), PCIT, Madurai - 1, for the assessment year 2018-19, vide order dated 17.03.2025.
The grounds raised by the assessee are as follows:
:-2-: ITA. No:895/Chny/2025 1) 1. The revisional order of the PCIT, Madurai – 1 dated 17.03.2025 vide DIN & Order No. ITBA/REV/F/REV5/2024-25/1074592223(1) for the above mentioned Assessment Year is contrary to law, fact and in circumstances of the case. 2) The PCIT erred in assuming jurisdiction u/s 263 of the Act and consequently erred in setting aside the re-assessment order dated 20.11.2023 without assigning proper reasons and justification. 3) The PCIT failed to appreciate that revision order was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 4) The PCIT failed to appreciate that there could not be any scope for setting aside an order of re-assessment passed in assuming incorrect jurisdiction in terms of Section 147 of the Act and ought to have appreciated that the consequential assumption of jurisdiction under Section 263 of the Act to revise an invalid order of re-assessment order should accordingly be reckoned as bad in law. 5) The PCIT failed to appreciate that the twin conditions prescribed for assuming jurisdiction under Section 263 of the Act were not satisfied concurrently on the facts and in the circumstances of the case and hence ought to have appreciated that the order of revision under consideration was passed out of time, invalid, passed without jurisdiction and not sustainable both on facts and in law. 6) The PCIT failed to appreciate that the findings in the impugned order were wrong, erroneous, incorrect, invalid, unjustified and not sustainable both on facts and in law and ought to have appreciated that the distinction between the concept of review and the concept of revision under the Act was completely over looked and brushed aside in as much as in this regard, ought to have appreciated that the review of the assessment order completed would be prohibited with in the scope of the powers of revision under Section 263 of the Act. 7) The PCIT failed to appreciate that the distinction between lack of enquiry and inadequate enquiry was also over looked before passing the revision order and ought to have appreciated that there could not be any presumption of lack of enquiry on the part of the Assessing Officer much less inadequate enquiry on the facts and in the circumstances of the case there by vitiating the revision order. 8) The PCIT erred in impliedly directing the Assessing Officer to disallow the claim of deduction under Section 80P of the Act to the tune of Rs.10,91,802/- forming part of the return of income filed in response to notice under Section 148 of the Act without assigning proper reasons and justification. 9) The PCIT failed to appreciate that there was complete scrutiny of facts referred to in the revision order while passing the re-assessment order passed by the JAO and hence ought to have appreciated that the decision to direct the JAO to revisit the issue should be reckoned as bad in law. 10) The PCIT failed to appreciate that there was no proper opportunity given before passing of the impugned order and any order passed in violation of the principles of natural justice would be nullity in law. 11) The Appellant craves leave to file additional grounds/arguments at the time of hearing.
:-3-: ITA. No:895/Chny/2025
The brief facts of the present case are that the assessee Society is a primary Agricultural Co-operative Society, registered under the Tamilnadu Co- operative Societies Act. It provides short term credit facilities to members by way of loans for crops fertilizer and equipment for agricultural activities and sale of controlled materials. It also provides short term jewel loan for agriculture purpose and operates Current Accounts with another Bank of its class for the purpose of withdrawing cash for its members loan disbursement and depositing repayment of Loan from the member into the same Current Account. The assessee during the assessment year 2018-19 had carried out the above activities but had not filed the return of income in terms of Section 139 of the Act.
The Jurisdictional Assessing Officer, ITO, Ward 1, Tuticorin, upon receipt of the NMS information available in the Insight Portal for Assessment Year 2018- 19 regarding the deposit of cash aggregating to Rs. 64,88,776/- in one or more accounts (other than current accounts), deposit of cash to the tune of Rs.35,50,000/- in one or more accounts (other than current accounts and time accounts) and deposit of cash Rs.35,50,000/- (other than current accounts and time accounts of a person), had issued the Show Cause Notice in terms of Section 148A(b) of the Act dated 23.03.2022 in DIN & Notice No. ITBA/AST/F/148A(SCN)/2021- 22/1041308081(1) in proposing to issue a notice u/s.148 of the Act for the assessment year under consideration in view of there being an information suggesting income chargeable to tax for the assessment year under consideration had escaped assessment.
5. The said Show Cause Notice u/s.148A(b) of the Act was stated to have been issued by the Assessing Officer after obtaining the approval of the PCIT, Madurai - 1 on 23.03.2022. The assessee had responded to the said Show Cause Notice issued in terms of Section 148A(b) of the Act vide reply dated 29.03.2022 having Acknowledgement No. 462060161290322 in pleading to drop the proposed initiation of re-assessment proceedings in terms of Section 147 of :-4-: ITA. No:895/Chny/2025 the Act for the reasons stated thereon. Thereafter, a letter was issued on 04.04.2022 by the Assessing Officer(AO) in seeking further details from the assessee on or before 08.04.2022. The assessee had sought for time to file details sought for in the letter dated 04.04.2022.
Subsequently, the order came to be passed in terms of Section 148A(d) of the Act on 19.04.2022 vide DIN & Order No. ITBA/AST/F/148A/2022- 23/1042767494(1) by the office of the ITO, Ward 1, Tuticorin in coming to a conclusion that it was a fit case for issuance of notice u/s.148 of the Act for the Assessment Year 2018-19. The said order u/s.148A(d) of the Act was passed with prior approval of PCIT, Madurai-1, Madurai.
The AO, as a consequence had issued the notice u/s.148 of the Act on 19.04.2022 in DIN & Notice No. ITBA/AST/S/148_1/2022- 23/1042767534(1). The said notice is stated to have been issued after obtaining prior approval of the PCIT, Madurai-1 on 18.04.2022. The assessee, in response to notice u/s.148 of the Act, had filed the return of income on 13.05.2022 in E-filing Acknowledgement Number: 616431420130522 in claiming deduction in terms of Section 80P of the Act aggregating to Rs.10,91,802/-. Thereafter the AO had issued notice in terms of Section 143(2) of the Act on 22.05.2023 and notice(s) u/s.142(1) of the Act on multiple dates, calling for details in support claim of deduction u/s.80P of the Act forming part of the return of income filed in response to Notice u/s.148 of the Act.
The assessee during the course of re-assessment proceedings had filed the following details in response to the statutory notice(s) on 10.05.2023: i) Statement of Bank account maintained with Indian Overseas Bank for the period F. Y. 2017-18. ii) Statement of bank account maintained with Nazareth Urban Co-operative Bank Ltd.for F.Y.2017-18 iii) Form 26AS for A. Y. 2018-19. iv) I.T.R. filed in response to the Notice u/s 148 of the Income-tax Act, 1961 for A. Y. 2018-19.
:-5-: ITA. No:895/Chny/2025 v) Trading, Profit and Loss account for A. Y. 2018-19. vi) Form 3CA, 3CD for A. Y. 2018-19. vii) Statement of saving bank accounts of assessee society maintained with the Thodtukudi District Central Co-operative Bank Ltd and Nazareth Urban Co- operative Bank Ltd viii) Explanatory submission
Further, the assessee had filed the following details on 05.07.2023 in support of the return of income filed in response to Notice u/s.148 of the Act:
(i) Schedule 18- Interest earned. (ii) Annexure to schedule 18-Interest received and accrued. (iii) Form no.14-Certificate of Registration (dated 28/09/ 2010) under Tamilnadu Co-Operative Society Act,1983. (iv) Schedule 19-Miscellaneous income received and accrued (Other income) (v) Profit and loss account for the assessment year 2018-19 (vi) Trading account for the assessment year 2018-19 (vii) Schedule Trade income (viii) Explanatory submission
10. The AO after taking into consideration the details furnished by the assessee during the course of re-assessment proceedings had proceeded to pass the re-assessment order dated 20.11.2023 in terms of Section 147 of the Act by accepting the claim of deduction made in terms of Section 80P of the Act forming part of the return of income dated 13.05.2022, filed in response to notice u/s.148 of the Act dated 19.04.2022, in assessing the income at Rs. NIL. Thereafter, the PCIT, Madurai-1 had issued the Show Cause Notice in terms of Section 263 of the Act on 21.02.2025 in proposing to invoke revisionary jurisdiction in terms of Section 263 of the Act.
The PCIT, Madurai-1 in the said Show Cause Notice had observed that the appellant had not filed the return of income in terms of Section 139(1) of the Act, however, had filed the return of income in response to notice u/s.148 of the Act in claiming deduction in terms of Chapter VI-A / Section 80P of the Act to the tune of Rs.10,91,802/-. The AO had passed the re-assessment order dated 20.11.2023 in accepting the returned income.
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12. The PCIT, Madurai-1 further observed that the failure to comply with the mandate of filing return of income in terms of Section 139(1) of the Act for validly claiming the deduction in terms of Section 80P of the Act / Chapter VIA of the Act, as stipulated in terms of Section 80AC of the Act, with effect from 01.04.2018, the assessee could not have claimed such deduction in the return of income filed in response to notice u/s.148 of the Act inasmuch the re-assessment order passed in terms of Section 147 of the Act in accepting such returned income was erroneous in so far as it is prejudicial to the interest of the revenue, within the ambit of provisions in Section 263 of the Act.
13. The PCIT, Madurai – 1, accordingly proposed to invoke revisionary powers in terms of Section 263 of the Act in view of the re-assessment order passed in terms of Section 147 of the Act accepting such returned income for the assessment year under consideration. The assessee had responded to the said Show Cause Notice vide reply dated 03.03.2025 in Acknowledgement No. 890298881030325, wherein it was submitted that the validity of the claim of deduction u/s.80P of the Act for the assessment year under consideration on the facts of the present case were examined in toto by the AO during the course of re-assessment proceedings in view of issuance of specific notice(s) u/s.142(1) of the Act / 143(2) of the Act in calling for details regarding the claim of deduction u/s.80P of the Act.
14. Further, it was submitted that AO had very much examined the claim of deduction in terms of Section 80P of the Act in view of the fact of there being an application of mind by the AO / recording of fact of examination of such claim of deduction in terms of Section 80P of the Act in the body of re-assessment order dated 20.11.2023, thereby establishing the fact of there being complete enquiry by the AO on the claim of deduction u/s.80P of the Act during the course of re- assessment proceedings.
:-7-: ITA. No:895/Chny/2025 15. Furthermore, the assessee placed reliance upon the decision of the Hon’ble Supreme Court in the case of Malabar Industries, wherein the Hon’ble Supreme Court had held that phrase "prejudicial to the interest of the revenue'' has to be read in conjunction with the term "erroneous" inasmuch it was submitted when the Assessing Officer had adopted one of the views permissible in law and it has resulted in loss to the revenue, with which the PCIT does not agree, it cannot be treated as an order prejudicial to the interest of the revenue unless the view taken by the Assessing Officer is unsustainable in law.
The assessee submitted that the provisions in Section 80AC(ii) of the Act which mandated filing of return of income in terms of Section 139(1) of the Act for validly claiming deduction under Section 80P of the Act was introduced only vide Finance Act, 2018, with effect from 01.04.2018, i.e. Assessment Year: 2018 – 19 inasmuch the requirement of filing a return of income in terms of Section 139(1) of the Act for validly claiming statutory deduction u/s.80P of the Act was only introduced from Assessment Year 2018-19, that is the assessment year under consideration, thereby necessitating the requirement for construing such mandate in the first year of operation liberally and not strictly.
The assessee had also placed reliance upon the decision rendered by this Tribunal in wherein the provisions in Section 80AC of the Act were reckoned to be merely directory and not mandatory and accordingly the appellant pleaded for dropping the revisionary proceedings initiated in terms of Section 263 of the Act. However, the PCIT, Madurai-1 had proceeded to pass the revision order dated 17.03.2025 in assuming jurisdiction u/s.263 of the Act in setting aside the re-assessment order dated 20.11.2023 passed in terms of Section 147 of the Act by holding the same to be erroneous insofar as it is prejudicial to the interest of the revenue in directing the AO to pass an assessment order.
:-8-: ITA. No:895/Chny/2025 18. The assessee, being aggrieved by the revision order passed by the PCIT, Madurai-1, has filed the present appeal before us.
19. Before us, the Ld. AR argued that PCIT, Madurai – 1 could not have invoked revisionary jurisdiction u/s.263 of the Act in setting aside the re- assessment order dated 20.11.2023 in view of the fact that the re-assessment order sought to be set aside was passed without proper sanction of law in terms of Section 151 of the Act inasmuch the Ld. AR argued that the PCIT, Madurai – 1 could not have set aside an invalid order of re-assessment by invoking the powers in terms of Section 263 of the Act.
The Ld. AR argued that the notice issued u/s.148 of the Act 19.04.2022 on the facts of the present case for A.Y.2018-19 was issued without obtaining proper sanction of the competent authority as prescribed in terms of Section 151(ii) of the Act and accordingly the Ld. AR argued that the consequential re-assessment order passed u/s.147 of the Act dated 20.11.2023, passed in consequent to issuance of such invalid notice u/s.148 of the Act should be reckoned as non-est.
The Ld. AR argued that in view of the fact that the sanction for passing the order u/s.148A(d) of the Act and issuance of notice u/s.148 of the Act dated 19.04.2022 being obtained after the expiry of 3 assessment years from the end of the assessment year under consideration, i.e. Assessment Year 2018-19, the proper authority for granting sanction for issuing such notice u/s.148 of the Act is “Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General” as prescribed in terms of Section 151(ii) of the Act.
However, on the facts of the present case, the notice u/s.148 of the Act dated 19.04.2022 came to be issued after obtaining sanction from the office of the PCIT, Madurai-1 on 18.04.2022, which sanctioning authority is prescribed in terms of Section 151(i) of the Act, i.e. competent authority for granting sanction
:-9-: ITA. No:895/Chny/2025 in terms of Section 151 of the Act in instances where notice u/s.148 of the Act is issued within 3 years from the end of the relevant assessment year.
Thus, the Ld. AR argued that notice u/s.148 of the Act being issued for the assessment year 2018-19 on 19.04.2022, the competent authority to grant sanction in terms of Section 151 of the Act for the purpose of issuance of such notice u/s.148 of the Act was that of the authorities prescribed in terms of Section 151(ii) of the Act, i.e. “Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General” and not that of the authorities prescribed in terms of Section 151(i) of the Act, i.e.” Principal Commissioner or Principal Director or Commissioner or Director”. The Ld. AR further submitted that the proviso to Section 151 of the Act would not be applicable to the facts of the present case since the same was inserted by way of amendment in Finance Act, 2023 while the notice u/s.148 of the Act in the year 2022.
The Ld. AR argued that therefore in view of notice u/s.148 of the Act being issued without proper sanction of law as prescribed in terms of Section 151(ii) of the Act, the consequential re-assessment order passed in terms of Section 147 of the Act is to be considered as non-est in law and as a consequence, the PCIT – 1, Madurai could not have set aside such invalid / non-est re-assessment by invoking revisionary jurisdiction in terms of Section 263 of the Act.
This bench had raised a query to the Ld. AR, whether the assessee can challenge the validity of an assessment proceedings in the appeal emanating from the revisionary proceedings in terms of Section 263 of the Act / collateral proceeding, the Ld. AR drew support of the following decisions rendered by the co-ordinate benches of the Tribunal as well as the Hon’ble High Courts:
1) M/s. Classic Flour & Food Processing Pvt. Ltd. Kolkata v; C.I.T., Kol-IV, Kolkata - ITA Nos..764 to 766/Kol/2014 dated 05.04.2017
:-10-: ITA. No:895/Chny/2025 2) Mikado Realtors P. Ltd v. Pr. CIT(Central) Gurugram. - dated 20.04.2021 3) Krishan Kumar Saraf v. Commissioner of Income-tax, Hissar. - dated 24.09.2015. 4) Concord Infra Projects (P) Ltd. vs. Principal Commissioner Of Income Tax - ITA No. 174/Kol/2021 dated 13.10.2021 5) M/s Westlife Development Ltd (Successor to Wespoint Leisureparks Income Ltd) v. Vs Principal Commissioner of Income-tax-5 Mumbai - ITA No.688 /Mum/2016 dated 24.06.2016 6) Principal Commissioner Of Income Tax vs. Badal Prakash Jindal (HUF) & Ors - IT Appeal Nos. 7 to 10 of 2023 dated 02.03.2023 - Orissa High Court 7) CIT Central-I, Vs. Escorts Farms Pvt. Ltd – Delhi High Court - 180 ITR 280
The Ld. AR submitted that without prejudice to his arguments on the issue of validity of the re-assessment proceedings in terms of Section 147 of the Act in the present appeal emanating from revision order passed in terms of Section 263 of the Act, that the provisions in Section 80AC(ii) of the Act warranting filing of return of income in terms of Section 139(1) of the Act for the purpose of claiming deduction in terms of Section 80P of the Act, ought to be reckoned as directory and not mandatory in view of the decision rendered by this Tribunal in ITA No. 945/CHNY/2019.
Furthermore, he argued that the Finance Act, 2018 had amended the said provisions, wherein the provisions in Section 80AC(ii) of the Act were amended so as to create a requirement for filing of return in terms of Section 139(1) of the Act for claiming deduction in terms of Chapter VIA of the Act including Section 80P of the Act and the said amendment was introduced with effect from 01.04.2018, i.e. A.Y.2018-19, inasmuch the A.Y. under consideration also being A.Y.2018-19, the said requirement provided for in such provision ought to be considered liberally in view of first year of introduction.
The Ld. AR submitted that the AO having taken one plausible view, a view sustainable in law by reckoning such consideration liberally on the facts of the present case, the PCIT – 1, Madurai could not have invoked the revisionary jurisdiction in terms of Section 263 of the Act to substitute such plausible view
:-11-: ITA. No:895/Chny/2025 taken by the AO and accordingly pleaded for quashing the impugned revision order passed in terms of Section 263 of the Act on this count too.
Per contra, the Departmental Representative argued that with regard to the plea of the Ld.AR in challenging the validity of the re-assessment proceedings in the present appellate proceedings arising from the revisionary proceedings, the said plea could not have been raised at this stage of proceedings, being the revisionary proceeding. It was argued that if the assessee was aggrieved by the validity of the re-assessment proceedings passed in terms of Section 147 of the Act, the same ought to have been challenged by filing an appeal against the re- assessment proceedings and not that of the revisionary proceedings initiated in terms of Section 263 of the Act. It was further submitted that the same are different and distinct appellate proceedings with separate issue to be considered / grievances of the assessee are not the same in both such proceedings. The Departmental Representative accordingly pleaded for rejecting the arguments of the Ld. AR put forth in this regard before the Tribunal.
With regard to other arguments of the Ld.AR, the Departmental Representative argued that the amendments brought into the statute by way of Finance Act, 2018, with effect from 01.04.2018 mandating filing of return of income in terms of Section 139(1) of the Act for claiming deduction in terms of Section 80P of the Act was not considered by the AO in view of the fact that the re-assessment order was passed in terms of Section 147 of the Act accepting the claim of deduction in terms of Section 80P of the Act, which claim was made by the appellant for the first time in the return of income filed in response to notice u/s.148 of the Act and in the absence of any return of income filed in terms of Section 139(1) of the Act, the claim of deduction made in terms of Section 80P of the Act ought not to have been accepted while passing the re-assessment order, thereby rendering the same to be erroneous in so far as it is prejudicial to the interest of the revenue, within the ambit of provisions in Section 263 of the :-12-: ITA. No:895/Chny/2025 Act and accordingly pleaded for dismissal of the appeal filed by the assessee in confirming the revision order passed in terms of Section 263 of the Act.
We have heard the rival contentions perused the material available on record and gone through the orders of the lower authorities along with judicial precedents relied on. This bench before examining the validity of the assumption of jurisdiction in terms of Section 263 of the Act on the facts of the present case, finds it necessary to adjudicate the preliminary argument raised by the Ld.AR, i.e. whether the validity of the re-assessment proceedings initiated and completed in terms of Section 147 of the Act can be questioned in the revisionary proceedings and the appellate proceedings arising therefrom, being the collateral proceeding?
The Ground No. 4 forming part of the Form No. 36 filed challenging the revision order dated 17.03.2025 reads as follows:
“4. The PCIT failed to appreciate that there could not be any scope for setting aside an order of re-assessment passed in assuming incorrect jurisdiction in terms of Section 147 of the Act and ought to have appreciated that the consequential assumption of jurisdiction under Section 263 of the Act to revise an invalid order of re-assessment order should accordingly be reckoned as bad in law.” The preliminary argument put forth by the Ld.AR is to be examined by this Tribunal by keeping in mind the legal maxim “sublato Fundmento Credit opus” meaning in case a foundation is removed, the super-structure falls. The Hon’ble Supreme Court the case of Badarinath v. Tamil Nadu AIR 2000 SC 3243, held that once the basis of proceedings is gone, all consequential orders & acts would fall on the ground automatically which is applicable to judicial and quasi judicial proceedings. The Hon’ble Supreme Court had held as follows:
“27. This flows from the general principle of applicable to `consequential orders'. Once the basis of a proceeding is gone, may be at a later point of time by order of a superior authority, any intermediate action taken in the meantime - like the recommendation of the State and by the UPSC and the action taken thereon - would fall to the ground. This principle of consequential orders which is applicable to judicial and quasi-judicial proceedings is equally applicable to administrative orders. In other words, where an order is passed by an authority and its validity is being :-13-: ITA. No:895/Chny/2025 reconsidered by a superior authority (like the Governor in this case) and if before the superior authority has given its decision, some further action has been taken on the basis of the initial order of the primary authority, then such further action will fall to the ground the moment the superior authority has set aside the primary order.”
Similarly, the Hon’ble Supreme Court in the case of K.C. Builders v. Assistant Commissioner of Income-tax, reported in 265 ITR 562 had held as follows:
“26. In our view, once the finding of concealment and subsequent levy of penalties under section 271(1) (c) of the Act has been struck down by the Tribunal, the Assessing Officer has no other alternative except to correct his order under section 154 of the Act as per the directions of the Tribunal. As already noticed, the subjectmatter of the complaint before this Court is concealment of income arrived at on the basis of the finding of the Assessing Officer. If the Tribunal has set aside the order of concealment and penalties, there is no concealment in the eyes of law and, therefore, the prosecution cannot be proceeded with by the complainant and further proceedings will be illegal and without jurisdiction. The Assistant Commissioner of Income-tax cannot proceed with the prosecution even after the order of concealment has been set aside by the Tribunal. When the Tribunal has set aside the levy of penalty, the criminal proceedings against the appellants cannot survive for further consideration. In our view, the High Court has taken the view that the charges have been framed and the matter is in the stage of further cross- examination and, therefore, the prosecution may proceed with the trial. In our opinion, the view taken by the learned Magistrate and the High Court is fallacious. In our view, if the trial is allowed to proceed further after the order of the Tribunal and the consequent cancellation of penalty, it will be an idle and empty formality to require the appellants to have the order of Tribunal exhibited as a defence document inasmuch as the passing of the order as aforementioned is unsustainable and unquestionable.
27. The same view as that of ours has been taken by this Court and the various other High Courts in catena of decisions.
1. CIT v. Bahri Bros. (P. ) Ltd. [1987] 167 ITR 880 (Pat.) "Held, that the penalty was based on the earlier assessment order wherein the amount representing cash credits was included. Since that order had been set aside and the cash credits deleted from the assessment, the consequent order of penalty had been rightly cancelled. " (p. 881) 2. CIT v. Bhagwan Ltd. [1987] 168 ITR 846 (Cal.) "Held, that the orders of reassessment on the basis of which penalties were levied had been set aside by the Tribunal. Hence, the order of penalty could not stand by itself. The cancellation of penalty was justified. " (p. 846) 3. CIT v. Bengal Jute Mills Co. Ltd. [1988] 174 ITR 402 (Cal.) "Where penalty was imposed solely on the basis of an addition of Rs. 4 lakhs to the assessee's total income and the addition was deleted by the Tribunal : Held, that it was evident from the material on record that the penalty had been imposed solely on the basis of the addition of Rs. 4 lakhs to the assessee's income. If the addition was deleted, the charge of concealment of income could not be sustained. Imposition of penalty under section 271(1) (c) of the Income-tax Act, 1961, was, therefore, not valid. " (p. 402)
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4. CIT v. Madanlal Sohanlal [1989] 176 ITR 189 (Cal.) "Penalty cannot stand on its own independently of the assessment. Where, in an appeal against the assessment reopened under section 147 of the Income-tax Act, 1961, the Appellate Tribunal deleted the addition on account of deemed dividend under section 12(1B) read with section 2(6A) (e) of the Indian Income-tax Act, 1922, the deemed dividend which had been deleted could not form the subject-matter of imposition of penalty under section 271(1) (c) of the Income-tax Act, 1961, because the basis for imposition of penalty had ceased to exist. Therefore, the Tribunal was correct in cancelling the penalty imposed on account of the addition. " (p. 189) 5. CIT v. Bedi & Co. (P. ) Ltd. [1990] 183 ITR 59 (Kar.) "Held, that, in view of the conclusion reached by the High Court that the amount in question was not assessable, there was no basis for the imposition of penalty. The cancellation of penalty was valid. [The Supreme Court has dismissed the special leave petition filed by the Department against this judgment of the High Court in relation to penalty under section 271(1) (c) arising out of an assessment, wherein the addition of a loan has been cancelled by the High Court as reported in [1983] 144 ITR 352 : See [1990] 181 ITR (St. ) 19-Ed. ]" 6. CIT v. Agarwalla Bros. [1991] 189 ITR 786 (Pat.) "Held, (i) that the fact a particular construction had not been shown in the accounts of the assessee was not relevant since this circumstance had not been recorded as one of the reasons for initiating the proceedings under section 147(a) ; (ii) that the Tribunal had found, after examining the entire record, that there had been no failure to disclose primary facts on the part of the assessee. The reassessment was, therefore, not valid; (iii) that penalty had been imposed consequential to the reassessment. Since the reassessment had been set aside, the order of the Tribunal cancelling the penalty levied under section 271(1) (c) of the Act was also legal. " (p. 787) 7. Addl. CIT v. Badri Prasad Kashi Prasad [1993] 200 ITR 206 (All.) "Held, that the levy of penalty was based on the addition to income made by the Income-tax Officer. The addition was deleted by the Tribunal. Hence, the Tribunal was justified in cancelling the penalty. " 8. CIT v. Roy Durlabhji [1995] 211 ITR 470 (Raj.) "Held, dismissing the application for reference, that the Tribunal had set aside the penalty on the ground that the additions to income had already been deleted. Since there was no liability to tax, no penalty could be levied. The Tribunal was justified in cancelling the penalty and no question of law arose from its order. " (p. 470)” In yet another decision in the case of Kiran Singh and Others v. Chaman Pawan and Others (AIR 1954 SC 340) (pages 518-525 of JPB-III), the Hon’ble Supreme Court had held as follows: “The facts were that the appellant in that case had undervalued the suit at Rs.2,950 and laid it in the court of the Subordinate Judge, Monghyr for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the High Court the Registry raised the objection as to valuation under Section 11. The value of the appeal was fixed at Rs.9,980. A contention then was raised by the plaintiff in the High Court that on account of the valuation fixed by the High Court the appeal against the decree of the court of the Subordinate Judge did not lie to the District Court, but to the High Court and on that account the decree of the District Court was a nullity. Alternatively, it was contended that it caused prejudice to the appellant. In considering that contention at page 121, :-15-: ITA. No:895/Chny/2025 a four Judge Bench of Hon'ble Supreme Court speaking through Vankatarama Ayyar, J. held that: "It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties." “ The Hon’ble Supreme Court in the case of Balwant N. Viswamitra and Others v. Yadav Sadashiv Mul (dead) through IRS and Others reported in (2004) 8 SCC 706 (pages 657-667 of JPB-III) has held as under: “9 The main question which arises for our consideration is whether the decree passed by the trial court can be said to be 'null and 'void'. In our opinion, the law on the point is well settled. The distinction between a decree which is void and a decree which is wrong, incorrect, and irregular or not in accordance with law cannot be overlooked or ignored. Where a court lacks inherent jurisdiction in passing a decree or making an order, a decree or order passed by such court would be without jurisdiction non est and void ab initio. A defect of jurisdiction of the court goes to the root of the matter and strikes at the very authority of the court to pass a decree or make an order. Such defect has always been treated as basic and fundamental and a decree or order passed by a court or an authority having no jurisdiction is nullity. Validity of such decree or order can be challenged at any stage, even in execution or collateral proceedings.
Five decades, in Kiran Singh & Ors. v. Chaman Paswan & Ors., [SCR p. 121) this Court declared; "It is a fundamental principle well established that a decree passed by a court without jurisdiction is a nullity and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties.
11. The said principle was reiterated by this Court in Seth Hiralal Patni v. Sri Kali Nath. The Court said: (SCR pp. 751-52) "Competence of a court to try a case goes to the very root of the jurisdiction, and where it is lacking, it is case of inherent lack of jurisdiction."
In Vasudev Dhanjibhai Modi v. Rajabhai Abdul Rehman & Ors., [1871] 1 SCR 66, a decree for possession was passed by the Court of Small Causes which was confirmed in appeal as well as in revision. In execution proceedings, it was contented that the Small Causes Court had no jurisdiction to pass the decree and, hence, it was a nullity.”
Rejecting the contention, this Court stated: (SCC p. 672, para 6) "a Court executing a decree cannot go behind the decree : between the parties or their representatives it must take the decree according to its tenor, and cannot entertain any objection that the decree was incorrect in law or on facts. Until it is set aside by an appropriate proceeding in appeal or revision, a decree even if it be erroneous is still binding between the parties.
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Suffice it to say that recently a bench of two-Judges of this Court has considered the distinction between null and void decree and illegal decree in Rafique Bibi v. Sayed Waliuddin,. One of us (R.C. Lahoti, J. as his Lordship then was), quoting with approval the law laid down in Vasudev Dhanjibhai Modi, stated: (SCC pp. 291- 92, paras 6-8) "6 What is 'void' has to be clearly understood. A decree can be said to be without jurisdiction, and hence a nullity, if the court passing the decree has usurped a jurisdiction which it did not have; a mere wrong exercise of jurisdiction does not result in a nullity. The lack of jurisdiction in the court passing the decree must be patent on its face in order to enable the executing court to take cognizance of such a nullity based on want of jurisdiction, else the normal rule that an executing court cannot go behind the decree must prevail. 7 Two things must be clearly borne in mind. Firstly, 'the court will invalidate an order only if the right remedy is sought by the right person in the right proceedings and circumstances. The order may be a 'a nullity' and 'void' but these terms have not absolute sense: their meaning is relative, depending upon the court's willingness to grant relief in any particular situation. If this principle of illegal relativity is borne in mind, the law can be made to operate justly and reasonably in cases where the doctrine of ultra vires, rigidly applied, would produce unacceptable results.' (Administrative Law, Wade and Forsyth, 8th Edn., 2000, p. 308). Secondly, there is a distinction between mere administrative orders and the decrees of courts, especially a superior court. 'The order of a superior court such as the High Court must always be obeyed no matter what flaws it may be thought to contain. Thus, a party who disobeys a High Court injunction in punishable for contempt of court even though it was granted in proceedings deemed to have been irrevocably abandoned owing to the expiry of a time-limit.' (ibid., p. 312) 8 A distinction exists between a decree passed by a court having no jurisdiction and consequently being a nullity and not executable and a decree of the court which is merely illegal or not passed in accordance with the procedure laid down by law. A decree suffering from illegality or irregularity of procedure, cannot be termed inexecutable by the executing court; the remedy of a person aggrieved by such a decree is to have it set aside in a duly constituted legal proceedings or by a superior court failing which he must obey the common of the decree. A decree passed by a court of competent jurisdiction cannot be denuded of its efficacy by any collateral attack or in incidental proceedings." 15 From the above decisions, it is amply clear that all irregular or wrong decrees or orders are not necessarily null and void. An erroneous or illegal decision, which is not void, cannot be objected in execution or collateral proceedings. … 20 In our considered opinion, such a decree, by no stretch of imagination, can be described nullity. If the decree is not null and void, as per settled law, appropriate proceedings will have to be taken by the persons aggrieved by such decree.
We find that Hon’ble Calcutta High Court in the case of Keshav Narayan Banerjee v. CIT reported in 238 ITR 694, under circumstances had held as follows:
:-17-: ITA. No:895/Chny/2025 “We have, therefore, no hesitation in holding that the service by registered post of the notices allegedly sent to the appellant writ applicant, resulting in the passing of the order under section 147 of the Act was not properly effected or accomplished. Since, admittedly, the service of such notices was a necessary prerequisite, a condition precedent for passing of the orders under section 147 of the Act, we also have no hesitation in holding that such orders were bad in law, and, therefore, the proceedings under section 263 of the Act, admittedly, originating from such orders could not be initiated against the appellants.”
Furthermore, the Hon’ble Madhya Pradesh High Court in the case of CIT v. Kalyan Solvent Extraction Ltd. reported in 276 ITR 154 had observed the following: “Once the original order stands rectified then it loses its identity at least to the extent it stood rectified. In such circumstances, the Commissioner should have invoked his suo motu powers under section 263 of the Act against the subsequent rectified order dated March 14, 1989, if he was of the view that the same is erroneous and prejudicial to the interests of the Revenue. We are, therefore, of the view that the Tribunal made no mistake in coming to the conclusion that the order of the Commissioner passed under section 263 of the Act which had the effect of setting aside the assessment order dated March 13, 1987, is without jurisdiction. Accordingly, and in view of the aforesaid discussion, we answer the reference against the Revenue and in favour of the assessee.”
Further, Hon’ble Delhi High Court in the case of CIT v. Software Consultants reported in 341 ITR 240 has held as under: “14. For exercise of power under Section 263 of the Act, it is mandatory that the order passed by the Assessing Officer should be erroneous and prejudicial to the interest of the Revenue. In the present case, the Assessing Officer did not make any addition for the reasons recorded at the time of issue of notice under Section 148 of the Act. This position is not disputed and disturbed by the Commissioner of Income Tax in his order under Section 263 of the Act. Sequitur is that the Assessing Officer could not have made an addition on account of share application money in the assessment proceedings under Section 147/148. Accordingly, the assessment order is not erroneous. Thus, the Commissioner of Income Tax could not have exercised jurisdiction under Section 263 of the Act.”
We find that various co-ordinate benches of the Income Tax Appellate Tribunal had adjudicated under identical circumstances as follows:
1) Mumbai bench of the Income Tax Appellate Tribunal in the case of Mikado Realtors P. Ltd (supra) had held as follows:
“19. It is incontrovertible that proceedings u/s. 263 are collateral proceedings of the assessment, because ld. CIT/PCIT exercise revisionary jurisdiction u/s.263
:-18-: ITA. No:895/Chny/2025 seeking to revise the assessment order on the ground that it is erroneous in so far as it is prejudicial to the interest of revenue. The edifice of the proceedings u/s 263 is the assessment order which is the original proceedings which has come to an end. However, if the original assessment order itself was invalid or illegal in terms of jurisdiction or was not in accordance with the provisions of the statute or was barred by limitation, then such an invalid order cannot be subject matter of further proceedings so as to validate the said assessment order in collateral proceedings like u/s 263. This precise principle has been reiterated by the Hon’ble Apex Court in several cases which is evident from the judgment of Kiran Singh and others vs. Chaman Pawan and others (supra) and Balwant N. Viswamitra and others vs. Yadav Sadashiv Mul (supra) which we have quoted extenso in the forgoing paragraphs. In view of the binding judicial precedents and the principle and ratio laid down by the Hon’ble Apex Court as well as by the Hon’ble Jurisdictional High Court, the principle laid down by the Kerala High Court and Madras High Court may not have the binding precedence to hold otherwise. Accordingly, we hold that the present proceedings being collateral proceedings and if the assessment order is inherently invalid or bad in law, then validity of such an order can be challenged at any stage in the collateral proceedings including the proceedings u/s.263, because invalid order cannot be set aside or can be revised to make it valid. Though assessment order may be said to be erroneous but certainly it cannot be held prejudicial to the interest of the revenue in such circumstances when assessment order itself is unsustainable, in view of the provisions of law as reiterated by the Hon’ble Jurisdictional High Court as discussed herein above. Accordingly, we set aside the impugned order passed u/s.263, as Ld. PCIT could not have revised the assessment order which itself is an invalid order. Accordingly, the appeal of the assessee is allowed on this score. The other grounds raised by the assessee are treated as academic in nature.” 2). The Mumbai bench in yet another case of M/s Westlife Development Ltd Vs Principal Commissioner of (Successor to Wespoint Leisureparks Income-tax-
5. Ltd) (supra) had proceeded to quash the revision order under identical circumstances by following as follows:
“10. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the imp u g ned order u/s 263 to revise the non est assessment order: Having decided the aforesaid two issues, the next issue that is to be decided by us is about the validity of order passed u/s 263 by the Ld. CIT seeking to revise the assessment order which was nullity in the eyes of law. 10.1. We have discussed in detail in earlier part of our order that an invalid order cannot give birth to legally valid proceedings. It is further noticed by us that some of the judgments relied upon by the Ld. Counsel have already addressed this issue. This issue has also been decided by the co-ordinate bench (Delhi Bench of Tribunal) in the case of Krishna Kumar Saraf vs CIT (supra). The relevant part of the order is reproduced below:.. 10.2. It is further noticed by us that similar view has been taken by Chandigarh Bench of the Tribunal in the case of Steel Strips Ltd (supra).
:-19-: ITA. No:895/Chny/2025 11. Thus, after taking into account all the facts and circumstances of the case, we find that in this case, the original assessment order passed u/s 143(3) dt 24-10- 2013 was null & void in the eyes of law as the same was passed upon a non- existing entity and, therefore, the Ld. CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the Ld.CIT is also nullity in the eyes of law and therefore the same is hereby quashed.” 3). The Kolkatta bench of the Income Tax Appellate Tribunal in the case of M/s. Classic Flour & Food Processing Pvt. Ltd. Kolkata (supra) had held as follows:
“16. In the present case also the re-assessment proceedings have been initiated only for the purpose of verification and examination which is not the scope of reassessment proceedings. It would be the case of rather reasons to suspect rather than reasons to belief that there was escapement of income. It is a case of the AO seeking to make fishing and roving inquiry without any basis. We have no hesitation in concluding that initiation of reassessment proceedings in the present case was not valid as the mandatory requirement of such 147 has not been satisfied. We therefore hold that reassessments orders for A.Y.2007-08 and 2008- 09 dated 30.12.2011 were invalid. Consequently order passed u/s 263 of the Act dated 21.03.2014 for A.Y.2007- 08 and 2008-09 are also held to be invalid and quashed. Thus the appeals being and 766/Kol/2014 are allowed.” 4). The Delhi bench of the Income Tax Appellate Tribunal in the case of Krishan Kumar Saraf (supra) had held as follows:
“18. However, u/s 263 the ld. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice u/s 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the same was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon’ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the same was legal, which went to the root of the matter.
While exercising powers u/s 263 ld. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If ld. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended, because the provisions of limitation are provided in the statute.”
The Kolkatta bench of the Income Tax Appellate Tribunal in the case of Concord Infra Projects (P) Ltd. vs. Principal Commissioner of Income Tax (supra) had held as follows: “After having considered the judicial precedent on the issue we are of the view that the validity of the order passed by the AO which is being interdicted by the learned Principal CIT in the impugned order assailed before us, can be examined as to :-20-: ITA. No:895/Chny/2025 whether the AO had the requisite jurisdiction to reopen/reassess the escaped income of the assessee. Therefore, in this case we need to examine the action of AO, dt. 29th Dec., 2017 passed under s. 147 of the Act which action of AO depends upon the AO assuming validly the jurisdiction to pass an order of assessment under s. 147 of the Act. It is settled law that the AO can reopen the assessment only after fulfilling the conditions laid down in the said section (s. 147 of the Act) namely reason to believe that income chargeable to tax for that assessment year has escaped assessment. If this essential condition is not satisfied by the AO before initiating assuming jurisdiction under s. 147 of the Act then in such an event it cannot be said the AO has validly assumed jurisdiction under s. 147 of the Act. As discussed even if for any reason, the assessee had not challenged the validity of proceedings under s. 147 of the Act by filing appeal against the order framed under s. 147 of the Act, it can be challenged in the appeal against an order passed by the learned Principal CIT under s. 263 of the Act revising the invalid order under s. 147 of the Act. As noted this issue has been analysed by the Mumbai Bench of the Tribunal in the case of Westlife Development Ltd. (supra) wherein the Tribunal has equated the reopening assessment under s. 147 to primary proceedings and the subsequent proceedings by learned Principal CIT under s. 263 passed to be collateral proceedings. In this order the Tribunal has taken note of several ratio's of the Hon'ble Supreme Court wherein the Hon'ble Supreme Court held that if the primary proceedings are non est in law or void on the ground of lack of jurisdiction, then the validity of such proceedings can be challenged even in an appeal arising out of collateral proceedings. Since we have already set out the ratio/operating portions of these decisions, we do not wish to repeat the same for the sake of brevity. In the light of the aforesaid discussion we are of the view that the invalidity of the primary proceedings for lack of jurisdiction can be challenged even in appellate proceedings arising out of a collateral proceeding. In view of the aforesaid legal position we will now examine the legal issue. For doing that first of all we have to examine whether the AO in the present case, could have reopened the assessment of the assessee by issuance of notice under s. 148 of the Act (which ultimately resulted in AO order dt. 29th Dec., 2017).”
Thus, respectfully following the ratio laid down by Hon’ble High Court referred to in the preceding paragraphs, followed by co-ordinate benches of the Tribunal, this Tribunal agrees with the argument of the Ld.AR that the validity of the re-assessment proceedings can be challenged and raised in the appeal emanating from the revision proceedings initiated in terms of Section 263 of the Act.
Now, the issue to be considered and examined is whether the re- assessment proceedings initiated by way of issuance of notice u/s.148 of the Act and the consequential re-assessment order passed in terms of Section 147 of the Act is bad in law as argued by the Ld. AR?
:-21-: ITA. No:895/Chny/2025 40. We find that the Show Cause Notice u/s.148A(b) of the Act came to be issued on 23.03.2022 in proposing to issue notice u/s.148 of the Act and as a consequence proposing to assumption of jurisdiction in terms of Section 147 of the Act. The assessee had filed its response to the said notice on 29.03.2022 and the AO had issued a letter dated 04.04.2022 in seeking further details in support of the submissions of the assessee and ultimately the order u/s.148A(d) of the Act came to be passed on 19.04.2022 by the AO, wherein the AO deemed it fit to issue notice u/s.148 of the Act. Thus, the notice u/s.148 of the Act came to be issued on 19.04.2022 for the A.Y. 2018-19.
The provisions of Section 151 defines the sanctioning authority and the relevant provisions as it stood at that point in time reads as under:
“151. Specified authority for the purposes of section 148 and section 148A 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.]” From a plain reading of the above provisions, the competent authority to grant / accord sanction in terms of Section 151 of the Act is determined based on the date of issuing of sanction and in the event of issuing the sanction beyond the period of three years from the end of the relevant assessment year, the same would be covered by clause (ii) to Section 151 of the Act.
If the notice u/s.148 of the Act / order u/s.148A(d) of the Act is issued / passed within 3 years from the end of the relevant assessment year, the competent authority for the purpose of granting sanction in terms of Section 151 of the Act is either Principal Commissioner or Principal Director or Commissioner or Director, as the case may be.
:-22-: ITA. No:895/Chny/2025 43. On the other hand, if the same is issued / passed after the expiry of the 3 years from the end of the relevant A.Y., the competent authority in this regard should be Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General
Now, let us examine the facts of the present case by keeping in mind the above legal position. The Show Cause Notice in terms of Section 148A(b) of the Act came to issue on 23.03.2022 after obtaining prior approval from the office of the PCIT, Madurai – 1 and thereafter the order in terms of Section 148A(d) of the Act came to be passed on 19.04.2022 along with the notice u/s.148 of the Act being issued on the same day, i.e. 19.04.2022. We find that both the order passed u/s.148A(d) of the Act as well as the notice u/s.148 of the Act dated 19.04.2022 was issued after getting approval from the office of the PCIT, Madurai – 1. The assessment year under consideration being A.Y.2018-19, the notice u/s.148 of the Act / order passed u/s.148A(d) of the Act being issued / passed on 19.04.2022, it can be said that same were passed / issued after the expiry of 3 years from the end of the A.Y under consideration.
Hence, it can be said that the notice u/s.148 of the Act was issued / order in terms of Section 148A(d) of the Act was passed without obtaining proper sanction from the competent authority as prescribed in terms of Section 151(1)(ii) of the Act.
It is pertinent to note that the proviso to Section 151 of the Act contemplates exclusion of time provided to the tax payer to response to Show Cause Notice u/s.148A(b) of the Act to the date of actual passing of the order u/s.148A(d) of the Act / notice u/s.148 of the Act, which proviso reads as follows:
“Provided that the period of three years for the purposes of clause (i) shall be computed after taking into account the period of limitation as excluded by the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of section 149.”
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However, we find that the proviso to Section 151 of the Act was only introduced by way of Finance Act, 2023, with effect from 01.04.2023, i.e. the said amendment was introduced only after the sanction was granted on the present case / not available at the time of recording of sanction in terms of Section 151 of the Act in the case of the appellant herein.
The Ld. AR took us through the Finance Bill, 2023, wherein clause 71, proposing the said amendment to Section 151 as well the notes of clauses to Finance Bill, 2023, wherein relevant note to the said amendment reads as follows:
Thus, it is an irrefutable fact that the amendment brought in by Finance Act, 2023 in introducing the proviso to Section 151 of the Act by giving effect to the exclusion of time limit by operation of 3rd to 5th proviso to Section 149(1) of the Act would take effect only from 01.04.2023.
Hence, it can be said that the said amendment would not come to the rescue of the revenue on the facts of the present case in view of the fact that the notice u/s.148 as well the order u/s.148A(d) of the Act being issued / passed well prior to the introduction of the said amendment, i.e. on 19.04.2022.
:-24-: ITA. No:895/Chny/2025 51. Before us, the Ld.DR argued that the said amendment introduced by Finance Act, 2023 ought to be reckoned as clarificatory and would have retrospective applicability, thereby validating the sanction accorded by the PCIT, Madurai – 1 on the facts of the present case. He further relied on the judgement of the Hon’ble Calcutta High Court in the case of Giriraj Commercial (P.) Ltd. v. Union of India reported in 169 taxmann.com 168 in support of his contentions.
This argument of the ld.DR is unable to be countenanced by us for the simple reason that the said amendment was introduced specifically with effect from 01.04.2023 and the plain reading of the notes on clauses as well as the memorandum to Finance Act, 2023 leave no room whatsoever to interpret it otherwise. Moreover, we are not inclined to accept the argument of the Department since the AO could not have foreseen such an amendment while passing the order u/s.148A(d) of the Act / issuing the notice u/s.148 of the Act nor the PCIT, Madurai – 1 could have foreseen such amendment while according sanction in terms of Section 151 of the Act.
Hence for the reasons discussed above, we hold that the amendment to Section 151 of the Act, introduced by Finance Act, 2023, with effect from 01.04.2023 cannot be reckoned to have retrospective applicability and on this ground we reject the argument put forth by the ld.DR.
It was further argued by the ld.DR, that the approval granted by the competent authority, i.e. PCIT, Madurai – 1 to the AO for issuing the notice u/s.148A(b) of the Act vide approval dated 23.03.2022 as mandated by 1st proviso to Section 148 of the Act would suffice the requirement as per the Section 151 of the Act and as such there was no requirement for the AO to obtain approval / sanction once again by the competent authority for issuing the notice u/s.148 of the Act / passing of the order u/s.148A(d) of the Act.
:-25-: ITA. No:895/Chny/2025 55. We find that the 1st proviso to Section 148 of the Act as per Finance Act, 2021 reads as follows: “Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice.” Thus, on the facts of the present case, the Show Cause Notice u/s.148A(b) of the Act was issued upon the assessee herein only upon prior approval of the competent authority, PCIT, Madurai – 1. But whether this sanction would also be available / extended to the issuance of notice u/s.148 of the Act / passing of the order u/s.148A(d) of the Act by the AO by reckoning it was a fit case for issuance of such notice u/s.148 of the Act ?
We are unable to further accept this argument of the ld.DR, because if it were to be accepted, it would result in a scenario wherein the competent authority was according sanction / approval in terms of Section 151 of the Act for issuing notice u/s.148 of the Act even prior to reply of the assessee to the Show Cause Notice u/s.148A(b) of the Act and even prior the decision of the AO in reckoning whether it was a fit case or not for issuing notice u/s.148 of the Act.
Furthermore, if the said argument were to be accepted, then the very purpose behind introduction of provisions in Section 148A of the Act by way of Finance Act, 2021 to grant an opportunity to the tax payer to demonstrate his case for dropping the proceedings before issuing notice u/s.148 of the Act would stand defeated.
Thus, on the facts of the present case, we find that although the sanction was granted to the AO for issuing the Show Cause Notice u/s.148A(b) of the Act, a separate sanction is to be granted for the purpose of issuance notice u/s.148 of the Act as well as the passing of the order u/s.148A(d) of the Act, in the event of the AO finding it fit to do so. Hence, we reject this argument of the ld.DR also.
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We further find that the Hon’ble Madras High Court in the case of Core Logistic Company v. Assistant Commissioner of Income-tax, reported in 175 taxmann.com 453, had proceeded to quash the re-assessment order passed in terms of Section 147 of the Act on account of grant of sanction by the improper authority. The Hon’ble Madras High Court while quashing the said re-assessment order had held as follows: “9. A perusal of Section 151(i) would show that, the specified authority for the purpose of issuing notice under Section 148 within a period of three years from the end of the relevant assessment year is, the Principal Commissioner or Principal Director or Commissioner or Director. Further, in terms of provision of Section 149, three year time period is fixed for issuance of 148 notice, in the event of the amount is below 50 lakhs. In the present case, the amount involved is Rs.3,65,09,748/-, which is more than 50 lakhs. 148 notice was issued on 25.07.2022, which is beyond the period of three years. So admittedly, the approval has to be obtained from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General as defined under Section 151(ii). But, in the present case, the approval was obtained from the Principal Commissioner in terms of Section 151(i) and no approval was obtained before issuance of 148 notice in terms of provision of Section 151(ii), which is mandatory. Therefore, the notice under Section 148 was issued in the present case in violation of provision of Section 151(ii) of the Income Tax Act. In view thereof, the initiation of proceedings itself is without any jurisdiction. Hence, the same is liable to be quashed.”
Thus, respectfully following the decision of the Madras High Court in the case of Core Logistic Company (supra) we hold that the sanction accorded by the authorities prescribed u/s.151(i) of the Act on the facts of the case, i.e. PCIT, Madurai – 1 for the notice issued u/s.148 of the Act dated 19.04.2022 and the order u/s.148A(d) of the Act after the expiry of 3 years from the end of the relevant assessment year as against the correct sanction to have been granted by the authorities prescribed u/s.151(ii) of the Act would vitiate the entire re-assessment proceedings initiated and completed in terms of Section 147 of the Act. The PCIT by assuming revisionary jurisdiction in terms of Section 263 of the Act could not have set aside a non-est re-assessment order and further could not have directed the AO to pass a fresh assessment order.
:-27-: ITA. No:895/Chny/2025 61. Thus, for all the reasons stated in the preceding paragraphs, the appeal filed by the assessee is allowed. The revision order passed u/s.263 of the Act impugned in the present appeal is quashed.
In the result the appeal of the assessee is allowed.
Order pronounced in the court on 19th September, 2025 at Chennai.