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Facts
The assessee filed two appeals against separate orders of the Commissioner of Income Tax (Appeal) related to Assessment Years 2017-18 and 2016-17. These orders stemmed from assessment orders under Section 147 of the Income Tax Act, 1961. The core issue revolves around the validity of notices issued under Section 148A(d) and Section 148, particularly concerning the approval obtained from the relevant income tax authorities.
Held
The Tribunal held that the orders passed under Section 148A(d) and the notices issued under Section 148 for both Assessment Years were bad in law. This was primarily due to the incorrect sanctioning authority approving the notices, violating the provisions of Section 151 of the Income Tax Act, as more than three years had elapsed from the end of the respective assessment years, and the escaped income was less than Rs. 50 lakhs.
Key Issues
Whether the notice issued under Section 148 and the subsequent order under Section 148A(d) were valid when the approval was obtained from an authority not specified under Section 151 for cases beyond three years and below Rs. 50 lakhs in escaped income.
Sections Cited
147, 148, 250, 151, 148A, 149, 69A, 44AD, 151A
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Income Tax Appellate Tribunal, PUNE BENCHES “SMC” :: PUNE
Before: DR.DIPAK P. RIPOTE & SHRI VINAY BHAMORE
ORDER PER DR. DIPAK P. RIPOTE, AM: These two appeals filed by the Assessee against the separate orders of ld.Commissioner of Income Tax(Appeal)[NFAC] passed under section 250 of the Income Tax Act, 1961 for the A.Y.2017-18 and A.Y.2016-17 both dated 29.04.2024 emanating from separate Assessment Orders under section 147 of the Act, for A.Y.2017-18 and A.Y.2016-17 respectively; both dated 19.05.2023. For the sake of convenience, these two appeals were heard together and are being & 757/PUN/2025 [A] disposed of by this common order. We treat the appeal in as lead case. The Assessee has raised the following grounds of appeal :
1. Appellant contends that order passed u/s 148A(d) of the ITA, 1961 and the notice issued u/s 148 of the ITA, 1961 by the learned ITO, Ward 1, Dhule (hereinafter referred to as the learned AO) is invalid and bad in law, as the learned AO has obtained the prior approval of the learned PCIT-1, Nashik. The learned AO ought to have appreciated that since more than three (3) years have elapsed from the end of assessment year, prior approval of the learned PCCIT should have been obtained, as per provisions of section 151(ii) of the ITA, 1961.
1. 2. Appellant contends that the order passed by the learned AO u/s 147 r.w.s. 144 of the ITA, 1961 is invalid and bad in law, as it is based on the notice u/s 148 of the ITA, 1961 issued by the learned jurisdictional AO instead of the learned faceless AO, which is not in accordance with the provisions of section 151A of the ITA, 1961.
3. The learned CIT(A), NFAC erred in law and on facts in upholding the addition of Rs. 27,24,280/- u/s 69A of the ITA, 1961 made by the learned AO, for cash / credit transactions in Renukamata Multi-state Urban Credit Co-op. Society Ltd. The learned l-T Authorities ought to have appreciated that the said cash / credit transaction is nothing but turnover of appellants business viz. trading in scrap items.
4. Alternatively, and without prejudice to the above Grounds of Appeal, appellant contends that learned l-T Authorities ought to have computed profit @ 8% on turnover of Rs. 27,24,280/- i.e. Rs.3,37,239/-, as all the conditions of section 44AD of the ITA, 1961 are satisfied.
4. Appellant contends that, the learned l-T Authorities ought to have appreciated the nature of appellant's activities, wherein, too much insistence on documents and trail thereof is uncalled for.
5. Appellant craves leave to add / alter / modify / amend / delete all / any of the Grounds of Appeal.” Additional Ground of Appeal :
Hearing for the above referred appeal is scheduled on07/08/2025. Appellant is filing Additional Grounds of Appeal relating to the above appeal. It is submitted, the said Additional Grounds of appeal are legal in 2 nature and have a bearing on the present appeal before the Honorable ITAT & 757/PUN/2025 [A] Bench. Appellant requests the Honorable Bench to kindly accept the Additional Grounds of Appeal and oblige. The appellant would like to rely on the ratio laid by the Hon'ble Supreme Court in the case of National Thermal Power Company Ltd. Vs CIT (1998) 229 ITR 383 (SC) wherein it was held that where adjudication of an additional ground does not require any fresh investigation of facts and involves pure legal issue, The additional ground is to be admitted for adjudication. As such, appellant requests the Honorable Bench to kindly consider the Additional Grounds of Appeal and oblige.” Findings & Analysis :
2. Both these appeals were heard together and disposed of in a common order.
2.1 We have heard both the parties and perused the records. In this case, ld.AR for the Assessee brought to our notice that order u/s.148A(d) was passed on 26.07.2022 for A.Y.2017-18 and A.Y.2016-17. Copies of these orders are in paper book. The Relevant paragraphs for A.Y.2017-18 and for A.Y.2016-17 of the order under section 148A(d) are reproduced as under : “For A.Y.2017-18 : 05. Findings of the AO: - In this case, the assessee has not filed any return of income for the year under consideration. As stated above, the assessee has not submitted any response to the letter and hence it implies that the assessee has no explanation to offer in the matter and the said transactions are remained undisclosed as well as unexplained in the hands of the assessee. On the basis of the information available on record and the fact that the assessee has failed to respond to the show-cause notice issued u/s. 148A(b) of the Act, it is concluded that this is a fit case for issue of notice u/s. 148 of the 3 & 757/PUN/2025 [A] Act.
6. In view of the above facts, the information in my possession as mentioned above suggests that the income chargeable to tax of Rs.27,24,280/- and represented in the form of asset has escaped assessment. Therefore this is a fit case for issue of notice u/s 148.
This order is passed with the prior approval of Pr.CIT-1, Nashik.” For A.Y.2016-17 : 05. Finding of the AO:- In this case, the assessee has not filed any return of income for the year under consideration. As stated above, the assessee has not submitted any response to the letter and hence it implies that the assessee has no explanation to offer in the matter and the said transactions are remained undisclosed as well as unexplained in the hands of the assessee. On the basis of the information available on record and the fact that the assessee has failed to respond to the show-cause notice issued u/s. 148A(b) of the Act, it is concluded that this is a fit case for issue of notice u/s. 148 of the Act.
In view of the above facts, the information in my possession as mentioned above suggests that the income chargeable to tax of Rs.42,15,492/- and represented in the form of asset has escaped assessment. Therefore this is a fit case for issue of notice u/s 148.
7. The order is passed with prior approval of Pr.CIT-1, Nashik.
RAHUL RAMKRUSHNA NAGDEVE WARD 1, DHULE/”
2.2 Thus, it can be observed that order u/s.148A(d) for A.Y.2016- 17 and A.Y.2017-18 was passed after a lapse of three years from the end of the Assessment Year. The income alleged to have been escaped for both these years is less than Rs.50 lakhs. Section 149 and Section 151 of the Income Tax are reproduced as under : 4 & 757/PUN/2025 [A] “Section – 149 : [Time limit for notice. 149. (1) No notice under section 148 shall be issued for the relevant assessment year,— (a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); (b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year: Provided that no notice under section 148 shall be issued at any time in a case for the relevant assessment year beginning on or before 1st day of April, 2021, if such notice could not have been issued at that time on account of being beyond the time limit specified under the provisions of clause (b) of sub-section (1) of this section, as they stood immediately before the commencement of the Finance Act, 2021: Provided further that the provisions of this sub-section shall not apply in a case, where a notice under section 153A, or section 153C read with section 153A, is required to be issued in relation to a search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or before the 31st day of March, 2021: Provided also that for the purposes of computing the period of limitation as per this section, the time or extended time allowed to the assessee, as per show-cause notice issued under clause (b) of section 148A or the period during which the proceeding under section 148A is stayed by an order or injunction of any court, shall be excluded: Provided also that where immediately after the exclusion of the period referred to in the immediately preceding proviso, the period of limitation available to the Assessing Officer for passing an order under clause (d) of section 148A is less than seven days, such remaining period shall be extended to seven days and the period of limitation under this sub-section shall be deemed to be extended accordingly. Explanation.—For the purposes of clause (b) of this sub-section, "asset" shall include immovable property, being land or building or both, shares and securities, loans and advances, deposits in bank account. 5 & 757/PUN/2025 [A] (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151.] Section – 151 : [Sanction for issue of notice.
Specified authority for the purposes of section 148 and section 148A shall 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.] 3. As per Section 149 of the Act, after the lapse of three years from the end of the Assessment Year, no notice can be issued unless the income chargeable to tax which has escaped assessment is likely to be Rs.50 lakhs or more. In this case, admittedly income escaped is less than Rs.50 lakhs for both the Assessment Years 2016-17 and 2017-18. Thus, no notice could have been issued for A.Y.2016-17 and A.Y.2017-18.
3.1 Therefore, order u/s.148A(d) for A.Y.2016-17 and A.Y.2017- 18 are bad in law. Hence, consequential assessment order is bad in law.
& 757/PUN/2025 [A] 4. It is also observed that order u/s.148A(d) was approved by Pr.CIT-1, Nashik. Since three years from the end of the Assessment Years have been elapsed, as per Section 151 of the Act, the order should have been approved by Pr.CCIT. The Hon’ble Jurisdictional High Court in the case of Holiday Developers Private Limited Vs. ITO 159 taxmann.com 178(Bombay) dated 29.01.2024 held as under : “1. Petitioner is impugning a order under section 148A(d) and the notice, both dated 7th April 2022 passed under section 148 of the Income Tax Act, 1961 ("Act"). Of-course Petitioner has also impugned the notice dated 17th March 2022 issued under section 148A(b) of the Act. Various grounds have been raised but one of the primary grounds for challenging the notice under section 148A(d) and the notice under section 148 of the Act both dated 7th April 2022 is that order as well as the notice both mention the authority that has granted approval, is the Principal Commissioner of Income Tax ("PCIT"), Mumbai 5 and the approval has been granted on 7th April 2022.
Mr. Gandhi is correct in saying that the Assessment Year ("AY") is 2018-19 and, therefore, since more than three years have expired from the end of the assessment year, Sanctioning Authority under section 151(ii) of the Act should be the Principal Chief Commissioner of Income Tax ("PCCIT") and not the PCIT. Mr. Gandhi says, as held in Siemens Financial Services (P.) Ltd. v. Dy. CIT [2023] 154 taxmann.com 159/457 ITR 647 (Bom.),the sanction is invalid and consequently, the order and the consequent notice under section 148A(d) and section 148, respectively, of the Act should be quashed and set aside. 7 & 757/PUN/2025 [A] 3. In view of these facts and circumstances, we do not see any reason to just grant Rule and keep the matter pending.
As held in Siemens (Supra), the order passed under section 148A(d) and notice issued under section 148 of the Act both are quashed and set aside.”
4.1 Thus, the facts of the Holiday Developers Private Limited(supra) are identical to the facts of the present case of the assessee. In Holiday Developers Private Limited for A.Y.2018-19, order u/s.148A(d) was issued on 07.04.2022 and in the present case of Assessee Zuber Khan Iqbal Khan, the order u/s.148A(d) was passed on 26.07.2022.
4.2 Similarly, Hon’ble Madras High Court in the case of Core Logistic Company Vs. ACIT 175 taxmann.com 453(MADRAS) dated 05.06.2025 has held as under : “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 Section149, 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 8 or Principal Director General or Chief Commissioner or Director & 757/PUN/2025 [A] 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.
Accordingly, the impugned proceedings of the 3rd respondent dated 30.05.2023 is hereby quashed.”
4.3 Therefore, respectfully following Hon’ble Jurisdictional High Court and Hon’ble Madras High Court(supra), it is held that the order u/s.148A(d) is bad in law and notice u/s.148 dated 26.07.2022 is bad in law. Therefore, the Consequential Assessment Order is void ab initio.
Accordingly, Ground No.1 of the Assessee is allowed for A.Y.2016-17 and A.Y.2017-18.
5.1 Since we have allowed the Ground No.1 of the Assessee, all other grounds become academic in nature and accordingly, dismissed as unadjudicated. & 757/PUN/2025 [A] 7. Since we have already discussed and decided the same issue in the “Lead Case – shall apply mutatis-mutandis to this appeal also i.e.ITA No.757/PUN/2025. Therefore, grounds of appeal raised by the assessee are partly allowed.
In the result, appeal of the assessee in is partly allowed.
To sum up, both appeals of the assessee are partly allowed. Order pronounced in the open Court on 26 August, 2025.