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Facts
The assessee's case for AY 2017-18 was selected for reassessment based on information that the assessee introduced capital in a partnership firm. The AO issued a notice u/s 148 after obtaining approval and made additions u/s 68. The CIT(A) dismissed the assessee's appeal due to non-compliance.
Held
The Tribunal held that the sanction for reopening of assessment was obtained from a wrong authority (PCIT instead of PCCIT) as per the amended provisions of Section 151 of the Act, making the entire reassessment proceedings bad in law. Therefore, the appeal was allowed.
Key Issues
Whether the reopening of assessment is valid when the approval for issuing notice u/s 148 was granted by an authority not specified under the revised Section 151 of the Income Tax Act.
Sections Cited
148, 148A, 151, 68, 149
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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Rajesh Kumar&Shri Pradip Kumar Choubey]
ORDER / आदेश Per Pradip Kumar Choubey, JM:
This is the appeal preferred by the assessee against the order of Commissioner of Income Tax (Appeals), - NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)] dated 05.06.2024 for AY 2017-18.
Assessment Year: 2017-18 Satish Kumar Birdika 2. Brief facts of the case of the assessee are that the assessee filed its return of income for AY 2017-18 declaring total income of Rs. 5,82,020/-. The case of the assessee was selected for scrutiny under reassessment on the ground that credible information has been received that the assessee is a partner of the firm M/s Premier Engineer Words during FY 2016-17, he introduced huge capital of Rs. 2,26,30,613/- in the above partnership firm. After recording satisfaction and obtaining necessary approval from the concerned authority, the AO issued notice u/s 148 of the Act on 26.07.2022. An opportunity has been given to the assessee to submit response, show cause notice has also been issued and in response to the show cause notice, the assessee submitted his reply along with relevant documents but the AO assessed the total income of the assessee as Rs. 2,32,12,633/- by making an addition u/s 68 of the Act to the tune of Rs. 2,26,30,613/-.
Aggrieved by the said order, the assessee preferred an appeal before the Ld. CIT(A) wherein the appeal of the assessee has been dismissed as there was non- compliance before the Ld. CIT(A).
Being aggrieved and dissatisfied the assessee preferred an appeal before us.
In course of submission, the ld. A.R has raised legal grounds thereby submitting that the approval is bad in law as in the present case, approval was granted by the PCIT -5, Kolkata however, after amendment w.e.f 01.04.2021the new regime and into being forced and sanction should be granted by PCCIT. The ld. Counsel placed reliance on the following judgment, Supreme Court judgment passed in Union of India & Ors. Vs. Rajib Bansal reported in 469 ITR 46, on the order passed by the ITAT, Ahmedabad Bench in the case of Dalpat Balariya in Bombay High Court decision passed in the case of [2024] 159 taxman.com and Delhi High Court in the case of Ashok Kr. Vs. Union of India in [2024] 162 taxmann.com, ITAT, Mumbai Benches in & ors.
Contrary to that the Ld. D.R supports the impugned order thereby submitting that the assessee did not raise this issue before the lower authorities.
Assessment Year: 2017-18 Satish Kumar Birdika 6. Upon hearing the submission of the counsel of the respective parties, we have perused the records and impugned order. And following facts have been emerged – i) the assessment was reopened on 30.06.2021 by issuing notice u/s 148 of the Act. ii) Subsequently after the judgment of Hon’ble Supreme Court in the case of Asish Kumar Agarwal, the notice was treated as show cause notice and then the order u/s 148A (d) was passed on 26.07.2022 after the approval of PCIT-5, Kolkata . iii) Notice u/s 148 was issued on 21.07.022. iv) Approval was granted by the PCIT-5, Kolkata on 21.07.2022 along with 23 parties.
Looking into the above facts there is no dispute that under old regime it was the PCIT who was authorized to grant approval, however, after the amendment w.e.f. 01.04.2021 the new regime came into being force and sanction should be granted by PCCIT. We have gone through the order passed by Hon’ble Supreme court in Rajib Bansal case and the relevant portion of the case is hereby reproduced:
“73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments Sri krishna (P.) Ltd. v. ITO [1996] 87 Taxman 315/221 ITR 538 (SC)/[1996] 9 SCC 534. A table representing the prescription under the old and new regime is set out below: Regime Time limits Specified authority Section 151(2) of Before expiry of four years from the end Joint Commissioner the old regime of the relevant assessment year Section 151(1) of After expiry of four years from the end Principal Chief Commissioner or Chief the old regime of the relevant assessment year Commissioner or Principal Commissioner or Commissioner Section 151(i) of Three years or less than three years Principal Commissioner or Principal the new regime from the end of the relevant assessment Director or Commissioner or Director year Section 151(ii) of More than three years have elapsed Principal Chief Commissioner or the new regime from the end of the relevant assessment Principal Director General or Chief year Commissioner or Director General 74. The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime:
Assessment Year: 2017-18 Satish Kumar Birdika (i) If income escaping assessment was less than Rupees one lakh: (a) a reassessment notice could be issued under section 148 within four years after obtaining the approval of the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and (ii) If income escaping was more than Rupees one lakh: (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
75. After 1 April 2021, the new regime has specified different authorities for granting sanctions under section 151. The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under section 151 of the new regime. The effect of Section 151 of the new regime is thus: (i) If income escaping assessment is less than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and (ii) If income escaping assessment is more than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
76. Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the assessing officer with the strict time limits prescribed under section 151 affects their jurisdiction to issue a notice under section 148.
77. Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre conditions due to the difficulties that arose during the COVID-19 pandemic. Section 3(1) of TOLA relaxes the time limit for compliance with actions that fall for completion from 20 March 2020 to 31 March 2021. TOLA will accordingly extend the time limit for the grant of sanction by the authority specified under section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(i) has an extended time till 30 June 2021 to grant approval. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under section 151(2) has time till 31 March 2021 to grant approval. The time limit for Section 151 of the old regime expires on 31 March 2021 because the new regime comes into effect on 1 April 2021.”
We have also gone through the order passed by the ITAT, Ahmedabad Bench and the relevant portion of the order is reproduced herein under:
“7. We have given our thoughtful consideration and perused the materials available on record including the Paper Book filed by the Assessee. Section 149 of the Act prescribes time limit for issuance of notice u/s. 148 of the Act. Clause (a) to sub-section (1) of Section 149 prescribes three years limitation and clause (b) of sub-section (1) of Section 149 deals with the cases beyond three years but not more than 10 years have elapsed from the end of the relevant assessment year. Further sub-section (2) of section 149 provides that issuance of notice is subject to the approval given as per the provisions of Section 151 of the Act by the Specified Authority.
7.1. Clause (i) of Section 151 describes the Specified Authority as Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than 3 years have elapsed from the end of the relevant assessment year. Whereas clause (ii) of Section 151 describes the following Officers as the specified authority namely Principal Chief Commissioner or Principal Director, Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year. It is undisputed fact, the reopening of assessment in the present case is done beyond three years period. Hence the Specified Authority under clause (ii) of Section 151 namely PCCIT or Principal Director or Chief Commissioner or Director General are the Sanctioning Authority required to approve the reopening of assessment. Whereas in this case, approval was obtained from the PCIT-3, Ahmedabad on 23-08-2022, the same is reproduced as follows:
7.1. Since the Sanctioning Authority for reopening of assessment was obtained from a wrong Specified Authority, the entire reopening itself is bad in law and liable to be quashed. Further this issue is no more res-integra by the land mark decision of the Hon’ble Supreme Court in the case of Union of India vs. Rajeev Bansal reported in [2024] 167 taxmann.com 70 deciding the same against the department as under:
“73. Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under Section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical
Regime Time limits Specified authority
Section 151(2) of the old Before expiry of four years Joint Commissioner regime from the end of the relevant assessment year
Section 151(1) of the old After expiry of four years Principal Chief regime from the end of the relevant Commissioner or Chief assessment years. Commissioner of Principal commissioner or Commissioner
Section 151(i) of the new Three years or less than three Principal Commissioner or regime years from the end of the Principal Director or relevant assessment year Commissioner or Director
Section 151(ii) of the new More than three years have Principal Chief regime elapsed from the end of the Commissioner or Principal relevant assessment year Director General or Director General
The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime: (i) If income escaping assessment was less than Rupees one lakh: (a) a reassessment notice could be issued under Section 148 within four years after obtaining the approval of the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and (ii) If income escaping was more than Rupees one lakh: (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
After 1 April 2021, the new regime has specified different authorities for granting sanctions under Section 151. The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms Assessment Year: 2017-18 Satish Kumar Birdika of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under Section 151 of the new regime. The effect of Section 151 of the new regime is thus: (i) If income escaping assessment is less than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining PART E the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and (ii) If income escaping assessment is more than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under Section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non compliance by the assessing officer with the strict time limits prescribed under Section 151 affects their jurisdiction to issue a notice under Section 148.
Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the pre- conditions due to the difficulties that arose during the COVID-19 pandemic. Section 3(1) of TOLA relaxes the time limit for compliance with actions that fall for completion from 20 March 2020 to 31 March 2021. TOLA will PART E accordingly extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has an extended time till 30 June 2021 to grant approval. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has time till 31 March 2021 to grant approval. The time limit for Section 151 of the old regime expires on 31 March 2021 because the new regime comes into effect on 1 April 2021.”
7.2. Further the Bombay High Court in the case of Holiday Developers (P.) Ltd. vs. ITO reported in [2024] 159 taxmann.com 178 held that where more than three years had expired Assessment Year: 2017-18 Satish Kumar Birdika from the end of assessment year 2018-19, sanctioning authority under section 151 (ii) should have been Principal Chief Commissioner and not Principal Commissioner and, thus, order under section 148A(d) and notice under section 148 issued on basis of approval granted by Principal Commissioner were to be quashed and set aside.
7.3. The Delhi High Court in the case of Ashok Kumar Makhija vs. Union of India reported in [2024] 162 taxmann.com 514 held that where reopening of case was occurring after a lapse of more than three years, appropriate authority for issuance of notice under sections 148 and 148A(b) should be either Principal Chief Commissioner or Principal Director General; approval from principal CIT was not valid.
8. Respectfully following the above judicial precedents, the sanction obtained for reopening of assessment from a wrong Specified Authority is not sustainable in law, consequently the entire reassessment proceedings is liable to be quashed.
In the result, the appeal filed by the Assessee is hereby allowed.”
We further find that similar view has also been taken by the Mumbai Bench, ITAT, in the case of Surya Ferrous Alloys Pvt. Ltd. in for AY 2017-18 dated 24.12.2024 and Shri Devang Ajit Jhaveri case.
In the present case, the Assessment year 2017-18. The reopening of assessment for the said year was not getting time barred up to 31.03.2021. In fact, under the old provision limitation was expiring on 31.03.2024 so in view of the above said judicial pronouncement sanction is to be given by PCCIT not by PCIT. Accordingly, we find substance in the argument of the Ld. Counsel of the assessee that the approval for reopening is bad in law. Since, the reapproval of reopening is bad in law hence, entire assessment proceedings are hereby quashed. Accordingly, the appeal of the assessee is allowed.
Order is pronounced in the open court on 30th June, 2025