MEGNANAPURAM PACCS,TIRUCHENDUR vs. PCIT,, MADURAI

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 Juri ictional 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.

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 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:

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:

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 juri iction 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.

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.

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.

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.

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 ITA No.945/CHNY/2019 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 juri iction 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.

The assessee, being aggrieved by the revision order passed by the PCIT, Madurai-1, has filed the present appeal before us.

Before us, the Ld. AR argued that PCIT, Madurai – 1 could not have invoked revisionary juri iction 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

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. 24. 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 juri iction 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:

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. 27. 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 juri iction in terms of Section 263 of the Act to substitute such plausible view

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

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 juri iction 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:

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:

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)

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)

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)

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)

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. ]"

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)

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. "

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,

Five decades, in Kiran Singh & Ors. v. Chaman Paswan & Ors., [SCR p. 121) this Court declared;

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 juri iction, and where it is lacking, it is case of inherent lack of juri iction."

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 juri iction 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.

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)

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:

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 juri iction. 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 juri iction 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. 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:..

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).

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 juri iction 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.”

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.” 5. 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

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?

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 juri iction 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. 41. The provisions of Section 151 defines the sanctioning authority and the relevant provisions as it stood at that point in time reads as under:

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.

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:

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. 50. 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

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.

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.”

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.

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 juri iction. 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 juri iction 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.

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.

अपीलाथी/Appellant 2. प्रत्यथी/Respondent 3.आयकर आयुक्त/CIT– Chennai/Coimbatore/Madurai/Salem 4. धवभागीय प्रधतधनधि/DR 5. गार्ा फाईल/GF