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Facts
The assessee's appeal was filed beyond the prescribed time limit due to preoccupation of key personnel. The reopening of assessment under Section 147 was based on alleged cash deposits and interest income, with the AO accepting the returned income. The PCIT initiated proceedings under Section 263 on different grounds.
Held
The Tribunal held that the notice issued under Section 148 was invalid as it lacked prior approval from the prescribed authority. Consequently, the reassessment order was non est in law, and the proceedings under Section 263 by the PCIT were quashed.
Key Issues
Whether the reassessment proceedings initiated without valid prior approval under Section 151 are void ab initio and whether Section 263 proceedings can be invoked on issues unrelated to the original reopening grounds.
Sections Cited
147, 148, 263, 151, 37(1)
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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
आदेश /O R D E R
PER S. R. RAGHUNATHA, AM :
1. This appeal by the assessee is filed against the order of the PCIT (Central), Chennai, for the assessment year 2013-14, vide order dated 25.03.2024.
At the outset, we find that the appeal filed by the assessee is time barred by 259 days, for which, a petition for condonation of delay in filing of the appeal along with Affidavit explaining the reasons for delay, has been filed by the assessee. The Ld.AR for the assessee referring to petition filed by the assessee submitted that the key personnel of the assessee-company were preoccupied with the bid procurements till June 2024. In connection with the same, the key personnel had to :-2-: ITA. No:467/Chny/2025 supervise the operations of the bio-gas plant as well as review the construction phase of other bio gas plants. Since, the assessee-company’s key personnel were required to travel frequently to and fro to these destinations, to oversee project bidding, and coordinate with various municipal corporations and Governmental authorities, along with supervising the impetus and growth of the subsidiary bio-gas plants from March, 2024 till Jan, 2025 they inadvertently missed to take further course of action on the order u/s 263 received from the Principal Commissioner of Income Tax in March, 2024, which led to an unavoidable delay in filing the appeal, on the petitioner's end.
2.2 It is submitted that the assessee company had not engaged any authorized representative to present its case before the Principal Commissioner of Income Tax during the revisionary proceedings u/s.263 and it was handled by the company's management on its own. Subsequent to the receipt of the order u/s.263, since the key management personnel were preoccupied with the bidding process and submission the assessee-company inadvertently missed to take note of the due date for filing the appeal against the order u/s 263. Hence, there was a delay in filing the appeal by the assessee. After considering the Affidavit filed by the assessee and also hearing both the parties, we find that there is a reasonable cause for the assessee in not filing appeal on or before the due date prescribed under the law and thus, in the interests of justice, we condone delay in filing of appeal and admit the appeal filed by the assessee for adjudication.
The brief facts of the case are that the assessee is engaged in the business of manufacturing of Indian made foreign Liquor. The assessment u/s.147 of the Income Tax Act, 1961, (the Act) was completed by the Assessing Officer (AO) vide order
:-3-: ITA. No:467/Chny/2025 dated 19.03.2022 by accepting the returned income of the assessee. Thereafter, a show cause notice dated 13.02.2024 was issued by the Principal Commissioner of Income Tax (Central), Chennai - 2 (the ld.PCIT) in respect of revision proceedings u/s.263 of the Act. The Order u/s.263 was passed by the ld.PCIT on 25.03.2024. Aggrieved by the order of the ld.PCIT the assessee filed an appeal before this Tribunal.
The ld.AR submitted that the proceedings u/s.263 of the Act cannot be done on non est. assessment order and submitted the following chart for showing the dates and events.
Date Particulars Page No.
03.02.2021 Notice issued u/s.148 by the Assessing Officer 2 of Paper book Approval sought for by the Assistant Commissioner of Income Tax, Central Circle - 1, 16.03.2021 Coimbatore 6 of Paper book Approval granted by Additional Commissioner of 17.03.2021 Income Tax, Central Range, Coimbatore 8 of Paper book Approval granted by Principal Commissioner of 23.03.2021 Income Tax, Central -2, Chennai 8 of Paper book
In connection with the above tabulation, the ld.AR submitted that the no prior approval was obtained by the Assessing Officer from the prescribed authority before issuance of notice u/s.148 of the Income Tax Act. The ld.AR place a reliance on the decision of the Hon’ble Allahabad High Court in the case of Vikas Gupta v Union of India [2022] 448 ITR 1 (All) wherein it was held as under: “ 6. Facts of Writ Tax No. 554 of 2022 are that as per approval under section 151 of the Act, 1961 for the Assessment Year 2013-14 filed as Annexure-4 to the writ petition, the Principal Commissioner of Income-tax (for short 'PCIT') granted approval on 31-3-2021 at 07:05 P.M., i.e. 19:05 hours by digitally signing the approval. Jurisdictional notice under section 148 of the Act, 1961 was digitally signed by the respondent No.3 Assessing officer on 31-3-2021 at 05:43 P.M., i.e. 17:43 hours, which is prior to the grant of digitally signed approval by the PCIT under section 151 of the Act, 1961. As per section 151 of the Act, 1961, as stood at the relevant time no notice shall be issued by the :-4-: ITA. No:467/Chny/2025 Assessing Officer after expiry of four years from the end of the Assessment Year unless the Principal Chief Commissioner/ PCIT is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuing such notice.”
29. In the present set of facts there was no valid satisfaction recorded by the by the Prescribed Authority under section 151 of the Act, 1961 when the Assessing Officer issued notice to the assessee under section 148 of the Act, 1961. At the time when the notice under section 148 of the Act, 1961 was issued by the Assessing Officer to the petitioner there was no valid satisfaction recorded by the Prescribed Authority i.e. the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. Subsequent to issuance of the notice under section 148 of the Act, 1961by the Assessing Officer, the satisfaction under section 151 was digitally signed by the Prescribed Authority. Therefore, the point of time when the Assessing Officer issued notices under section 148, he was having no jurisdiction to issue the impugned notices under section 148 of the Act, 1961. Consequently the impugned notices issued by the Assessing Officer under section 148 of the Act, 1961 were without jurisdiction.”
The ld.AR argued that from the plain reading of the discussion rendered by the Hon’ble Allahabad High Court it is clear that if the notice issued u/s.148 of the Act is issued without obtaining prior approval from the prescribed authority then the impugned notice issued by the Assessing officer is without jurisdiction.
Further reliance in this connection is drawn to the following decision of the Tribunal wherein it was held Principal Commissioner of Income Tax could not have assumed jurisdiction u/s.263 of the Act over a non-est assessment order which can never be erroneous and prejudicial to the interest of the Revenue.
- L.G.Electronics Inc Ltd v ACIT in to 653 / Del / 2021 – Delhi Tribunal – Page No. 30 (Para 16), Page No. 31 (Para 17 &18) of Case laws book - Westlife Development Ltd v PCIT [2017] 88 taxmann.com 439 (Mum) – Page No. 36 (Para 7), Page No. 39 (Para 8.10) and Page No. 44 (Para 4.11) of Case laws book 8. The ld.AR took us through the reason for reopening the assessment issued by the Assessing Officer is as under: “The assessee company has made a cash deposits of Rs.11,30,000/- and earned interest income of Rs.53,20,667/- during the financial year relevant to the assessment year 2013-14. On verification in AST and e-filing portal it is found that the assessee company has not filed return of income for the :-5-: ITA. No:467/Chny/2025 assessment year 2013-14. Since the assessee has not filed the return income for the A.Y.2013-14 the income of Rs.64,50,667/- has escape assessment. Therefore, I have reason to believe that the income of Rs.64,50,667/- has escaped assessment in the case of the assessee.” – Refer Page No. 5 (Para 5) of the paper book.
The ld.AR submitted that as per the reason for reopening the Assessing officer has to verify the cash deposit and interest income earned by the assessee during the previous year relevant to the assessment year 2013-14. The same was verified and no addition was made by the Assessing Officer and the returned income of the assessee was accepted by the Assessing Officer.
Thereafter, the ld.PCIT, has in the show cause notice stated that the following issues were not considered by the Assessing Officer:
“2. On verification of assessment records for the AY 2013-14, the following observations have been made.
Sale of liquor for the period under consideration is Rs.120,67,56,545/-. However, as per Form 3CD, the TCS required to be collected has not been collected on the same.
2. Depreciation amounting to Rs.6,17,15,194/- has been determined as per Companies Act and the same has been claimed for the AY 2013-14. As per Income-tax Act, the amount of depreciation to be claimed is to be Rs.5,61,28,605/-. Hence, the excess amount of depreciation i.e. Rs.55,86,589/- is liable for disallowance.
3. It is seen from the schedule to the Balance sheet under the head ‘Loan from related parties’ a sum of Rs.16,04,48,158/- was received from Imperial Spirits Limited. However, the same is not reflected in Form 3CD. Further, as per records, the same is yet to be confirmed by the Imperial Spirits Limited. Hence, the loan receipt of the assessee remains unexplained. 4. Penalty charges for a sum of Rs.7,14,514/- is claimed in the P & L account. However, the nature of the expenditure is not available in assessment records. Further, no break up details are available for the Tasmac Charges of Rs.15,01,17,905/- and Interest expenditure of Rs.11,36,48,070/-.”
The ld.AR submitted that from the above stated issues raised by the ld.PCIT in the show cause notice, it is clear that the Assessing Officer has verified the issues
:-6-: ITA. No:467/Chny/2025 for which the reopening was done. He placed a reliance on the following decisions of the jurisdictional High Court where it is held that the purported income discovered subsequently during the course of reassessment proceedings, can be brought to tax, only, if the escaped income, which caused, in the first instance, the issuance of notice u/s.148 of the Act, is assessed to tax.
- Martech Peripherals Pvt. Ltd. v DCIT [2017] 394 ITR 0733 (Mad) – Refer Page No. 58 & 59 (Para No. 21 and 23) of Case laws book - Anand Cine Services (P) Ltd v ACIT [2024] 169 taxmann.com 236 (Mad) – Refer Page No. 70 (Para No. 14 and 15) of Case laws book 12. Hence, the ld.AR submitted that since the subject matter of reassessment failed, as per the above decision the reopening also fails. Thus, there is no scope for the ld.PCIT inferring u/s.263 direct an Assessing officer to do a thing which could not have been done by the Assessing officer in the reassessment proceedings.
Further the ld.AR placed a reliance in this connection on the following decision of the Jurisdictional Tribunal wherein it is held that Assessing Officer cannot travel beyond the issues on which assessment has been taken up for limited scrutiny. Therefore, once the Assessing Officer does not have power to go beyond the issues on which he has taken up case for scrutiny, then obviously, the ld. PCIT cannot term the assessment order passed by the Assessing Officer as erroneous, insofar as it is prejudicial to the interests of revenue on issues other than the issue taken up by the Assessing Officer in scrutiny assessment proceedings.
– Page No.5 & 6 (Para 6) - Subbunadar Chandrasekar v. ITO in – Page No.5
Further, ld.AR stated that based on the above decision, a parallel reference can be drawn in the case of reassessment proceedings that the Assessing Officer
:-7-: ITA. No:467/Chny/2025 cannot go beyond the issue in reassessment proceedings and then obviously the ld.PCIT could not look into the issue which the Assessing officer could not have looked into during the course of reassessment proceedings.
The ld.AR submitted that the ld.PCIT has set aside the assessment order relating to 3 issues to the file of the Assessing Officer which are as follows: - TCS on sale of liquor - Loan from Related Party - Imperial Spirits Limited - Penalty & Charges paid to Tasmac
(i) TCS on sale of Liquor: – TCS does not have bearing on the computation of Total Income and hence could not been part of the 263 directions from the ld.PCIT to the Assessing Officer. (ii) Loan from Related Party: – Imperial Spirits Limited - The assessee during the course of 263 proceedings had filed confirmation letter along with ITR – V to establish the identity, genuineness and creditworthiness of the lender. The same was looked into, but still direction were given to the Assessing officer to verify the concerned ledger account. (iii) Penalty & Charges paid to Tasmac: - The assessee had paid charges to TASMAC (i.e. Company) which is not a government company and hence no disallowance can operate u/s.37(1) of the Act. The expenditure which is incurred by the assessee for any purpose which is an offence or which is prohibited by law to subject to disallowance u/s.37(1) of the Act. The amount paid towards penalty and charges are in the nature of contractual terms which were entered and the expenditure is not in the nature of any offence or which is prohibited by law. Hence could not be part of section 263 direction from the ld.PCIT to Assessing Officer.
:-8-: ITA. No:467/Chny/2025
Thus, the ld.AR submitted that in the instant case the notice issued u/s.148 by the Assessing Officer without prior approval from the prescribed authority is liable to be quashed and the assessment order passed based on the notice issued u/s.148 without prior approval is a non est assessment order. Hence the ld.PCIT could not have assumed jurisdiction u/s.263 of the Act over a non-est assessment order which can never be erroneous and prejudicial to the interest of the Revenue.
Without prejudice to the above, the Ld.PCIT could not look into the issue which the Assessing Officer could not have looked into during the course of reassessment proceedings for the reason that the no addition has been done on the issues based on which reopening was done by the Assessing Officer.
Per contra the ld.DR relied on the order of the ld.PCIT.
We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, the assessee filed its return of income on 24.04.2021 admitting a NIL income in response to notice u/s.148 of the Act was issued on 03.02.2021. The reassessment was completed u/s. 147 of the Act by order dated 19.03.2022, wherein the AO accepted the returned income. Subsequently, the ld.PCIT issued a show cause notice u/s.263 of the Act dated 13.02.2024 alleging that certain issues were not examined by the AO, and passed an order on 25.03.2024 setting aside the reassessment order and directing fresh examination.
The main contention raised in legal grounds by the assessee is that the reassessment order is non est and void ab initio as the notice u/s.148 was issued
:-9-: ITA. No:467/Chny/2025 without prior approval from the prescribed authority u/s.151 of the Act and hence the ld.PCIT cannot invoke section 263 in respect of a non-est order.
We find that the assessee had filed an application to the CIT, Central Circle, Coimbatore under the RTI Act 2005 and had obtained the following document from the order passed u/s.7(1) of the RTI Act, 2005 dated 23.05.2025 (page No.3 to 8 of the Paper book), which shows the chronology of the events of reassessment proceedings.
- The Notice issued by the AO u/s.148 of the Act on 03.02.2021 - Recording of reasons for initiating proceedings u/s.147 by the AO on 16.03.2021 - Satisfaction recorded by the Additional Commissioner of Income tax on 17.03.2021 - Approval granted by the PCIT on 23.03.2021.
On perusal of the chronology of events here shows that the notice u/s.148 of the Act was issued on 03.02.2021, whereas the satisfaction of the AO recorded on 16.03.2021 and the satisfaction recorded by the additional CIT on 17.03.2021 before obtaining the approval u/s.151 of the Act from PCIT on 23.03.2021. Thus, it is clear that the mandatory statutory precondition was violated, and accordingly, the notice issued u/s. 148 is invalid and consequently the reassessment order dated 19.03.2022 is non est in law, having been passed based on a void notice. We note that the legal position is well settled in the decision of Hon’ble Allahabad High Court in the case of Vikas Gupta v Union of India [2022] 448 ITR 1 (All), wherein it is held as under:
:-10-: ITA. No:467/Chny/2025 “ 6. Facts of Writ Tax No. 554 of 2022 are that as per approval under section 151 of the Act, 1961 for the Assessment Year 2013-14 filed as Annexure-4 to the writ petition, the Principal Commissioner of Income-tax (for short 'PCIT') granted approval on 31-3-2021 at 07:05 P.M., i.e. 19:05 hours by digitally signing the approval. Jurisdictional notice under section 148 of the Act, 1961 was digitally signed by the respondent No.3 Assessing officer on 31-3-2021 at 05:43 P.M., i.e. 17:43 hours, which is prior to the grant of digitally signed approval by the PCIT under section 151 of the Act, 1961. As per section 151 of the Act, 1961, as stood at the relevant time no notice shall be issued by the Assessing Officer after expiry of four years from the end of the Assessment Year unless the Principal Chief Commissioner/ PCIT is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuing such notice.”
In the present set of facts there was no valid satisfaction recorded by the by the Prescribed Authority under section 151 of the Act, 1961 when the Assessing Officer issued notice to the assessee under section 148 of the Act, 1961. At the time when the notice under section 148 of the Act, 1961 was issued by the Assessing Officer to the petitioner there was no valid satisfaction recorded by the Prescribed Authority i.e. the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. Subsequent to issuance of the notice under section 148 of the Act, 1961by the Assessing Officer, the satisfaction under section 151 was digitally signed by the Prescribed Authority. Therefore, the point of time when the Assessing Officer issued notices under section 148, he was having no jurisdiction to issue the impugned notices under section 148 of the Act, 1961. Consequently the impugned notices issued by the Assessing Officer under section 148 of the Act, 1961 were without jurisdiction.” 23. Further we concur with the ld.AR’s reliance on the following decision of the Tribunal wherein it was held Principal Commissioner of Income Tax could not have assumed jurisdiction u/s.263 of the Act over a non-est assessment order which can never be erroneous and prejudicial to the interest of the Revenue.
- L.G.Electronics Inc Ltd v ACIT in to 653 / Del / 2021 – Delhi Tribunal – Page No. 30 (Para 16), Page No. 31 (Para 17 &18) of Case laws book. - Westlife Development Ltd v PCIT [2017] 88 taxmann.com 439 (Mum) – Page No. 36 (Para 7), Page No. 39 (Para 8 ) 24. In the above factual matrix and respectfully following the decision of the Hon’ble Allahabad High Court and the Tribunal (supra) we are of the considered view that the notice issued u/s.148 is invalid and consequently the reassessment
:-11-: ITA. No:467/Chny/2025 order dated 19.03.2022 is non est in law. Therefore, the corresponding proceedings carried out by the ld.PCIT u/s.263 of the Act also becomes void ab initio and hence the order u/s.263 of the Act is quashed.
The next legal ground raised by the assessee is that whether the ld.PCIT is correct in invoking the provisions of section 263 for any other reason, when the reassessment was completed without making any additions based on the reasons for reopening made. We note that the reassessment proceedings were initiated by the Assessing Officer on the basis of specific information that the assessee had (i) made cash deposits of ₹11,30,000/- and (ii) earned interest income of ₹53,20,667/- during the financial year relevant to A.Y. 2013-14. It was recorded that the assessee had not filed its return of income, and therefore income amounting to ₹64,50,667/- was believed to have escaped assessment.
It is undisputed that in the course of reassessment proceedings, the Assessing Officer examined these two issues (i) the cash deposits and (ii) interest income and found no discrepancy warranting addition. Consequently, the returned income of the assessee was accepted by passing an order u/s.147 of the Act dated 19.03.2022 by accepting the return of income filed by the assessee.
Subsequently, the ld.PCIT exercised his powers u/s.263 of the Act and issued a show cause notice on entirely different issues, namely:
1. 1. Non-collection of TCS on sale of liquor amounting to ₹120.67 crores. 2. Excess depreciation claim of ₹55,86,589/-. 3. Loan from Imperial Spirits Limited not confirmed or disclosed in Form 3CD.
4. Penalty charges and unsubstantiated expenses related to Tasmac charges and interest.
28. The legal question that arises is whether such an invocation of Section 263 of the Act is valid when:
:-12-: ITA. No:467/Chny/2025 The reasons recorded for reopening the assessment did not result in any addition. The reassessment was effectively closed in favour of the assessee. The ld.PCIT seeks to revise the assessment on issues unrelated to the reasons for which the reassessment was initiated.
29. The Hon’ble Madras High Court in Martech Peripherals Pvt. Ltd. v DCIT [(2017) 394 ITR 733 (Mad)] and Anand Cine Services (P) Ltd v ACIT [(2024) 169 taxmann.com 236 (Mad)] has categorically held that where reassessment is initiated for a specific issue and no addition is made on that issue, then any other issue noticed during reassessment cannot be independently assessed unless the original issue survives and is part of the reassessed income. If the foundation of reassessment fails, the superstructure cannot be sustained.
Further, the coordinate benches of the Tribunal in Yuvaraj v. ITO (ITA No.1722/CHNY/2019) and Subbunadar Chandrasekar v. ITO (ITA No.612/CHNY/2021) have reiterated the principle that when assessment is initiated for a limited scrutiny or reassessment, the AO cannot travel beyond the specific issue(s) for which the case was reopened, unless such scope is expressly expanded. Consequently, the ld.PCIT cannot revise an order on grounds that the Assessing Officer was barred from examining.
In the present case, the reassessment was initiated specifically for examining cash deposits and interest income. These issues were duly verified and accepted by the AO. No addition was made. Therefore, in light of binding precedents of the Hon’ble jurisdictional High Court and consistent tribunal rulings, the very foundation of reassessment having failed, the proceedings u/s.263 of the Act initiated by the ld.PCIT on unrelated grounds are not sustainable in law. Accordingly, the revision order passed by the ld.PCIT u/s.263 is quashed. Since, the appeal of the assessee
:-13-: ITA. No:467/Chny/2025 is allowed on legal ground, the grounds raised on merits are not adjudicated and kept open.
In the result, the appeal of the assessee is allowed.
Order pronounced in the court on 15th July, 2025 at Chennai.