MAHESH GOKULDAS FULWANI,AURANGABAD vs. ITO WARD 1(1) AURANGABAD, AURANGABAD

In appeal the Ld. CIT(A) / NFAC upheld the action of the Assessing Officer.

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal.

The Ld. Counsel for the assessee at the outset submitted that the entire re- assessment proceedings are invalid on account of improper approval / sanction. He submitted that the assessment year in the instant case is assessment year 2017-18 and the 148 notice is dated 26.07.2022. Referring to the notice issued u/s 148 of the Act, copy of which is placed at page 1 of the paper book, he submitted that the approval was obtained from the PCIT, Nashik who accorded his approval on 22.07.2022. Referring to the provisions of section 151 of the Act as they stood at the relevant time, he submitted that as per the said provisions when the re- assessment notice is issued beyond a period of three years from the end of the relevant assessment year, the competent authority for granting the approval for issue of notice u/s 148 of the Act is the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. He submitted that since the approval in the instant case has been given by the PCIT instead of Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, therefore, such re-assessment proceedings not being in accordance with law has to be quashed. For the above proposition, he relied on the decision of the Co-ordinate Bench of the Tribunal in the case of M/s. Karia Builders vs. ITO vide for assessment year 2017-18, order dated 23.07.2025.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. It is an admitted fact that the notice u/s 148 of the Act dated 26.07.2022 for the assessment year 2017-18, copy of which is placed at page 1 of the paper book was issued after obtaining the prior approval of the PCIT, Nashik. The said notice reads as under:

Even the Assessing Officer at page 4 of the assessment order has also mentioned as under: “The assessee replied during the proceedings, but the Jurisdictional Officer was not satisfied with his reply and therefore, the JAO concluded the following in his order U/s 148 A(d) of the IT Act dated 28.07.2022: 06. In view of the above facts, the information in my possession as mentioned above suggests that by not showing cash loan of Rs.1,00,00,000/-, the assessee has not shown its correct income. Therefore, assets to the tune of Rs.1,00,00,000/- has escaped assessment. Therefore this is a fit case for issue of notice u/s 148.

This order is passed with prior approval of Pr.CIT-4, Pune vide Letter No.PN/PCIT-4/Proposal/2022-23/1272 dated 27/07/2022.”

Provisions of section 151 as it stood at the relevant time read as under: “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 Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year:] [Provided that the period of three years for the purposes of clause (i) shall be computed after taking into account the period of limitation as excluded by the third or fourth or fifth provisos or extended by the sixth proviso to sub-section (1) of section 149.] 24. Since the notice has been issued beyond the period of three years from the end of the relevant assessment year, therefore, in view of the provisions of section 151, the competent authority for granting the approval for issue of notice u/s 148 of the Act is the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Since the approval in the instant case has been granted by the PCIT instead of any of the above authorities, therefore, such approval being not in accordance with law, the re-assessment proceedings are invalid. For the above proposition, we rely on the decision of the Hon’ble Delhi High Court in the case of Bhagwan Sahai Sharma vs. DCIT (supra) where it has been held that section 151 mandates that where more than three years have elapsed from end of relevant assessment year, notice under section 148 requires prior approval of the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General. The Hon’ble High Court further held that TOLA would have no relevance for determining the specified authority whose approval was mandatory under section 151 for issuance of a notice under section 148 and the bifurcation of those powers would continue unaltered and unaffected by TOLA.

We find the Hon’ble Bombay High Court in the case of Cipla Pharma and Life Sciences Ltd. vs. DCIT (supra) has held as under: “8. On a plain reading of Section 148A it is clear that the Assessing officer before issuing any notice under section 148 is required to follow the procedure as set out in clauses (a) to (d) of Section 148A. One of the pre- conditions as ordained by clause (d) of Section 148A is that an order under such provision can be passed by the Assessing Officer only with the approval of "Specified Authority". Thus, necessarily when clause (d) of Section 148A provides for prior approval of specified authority, it relates to the provisions of Section 151 of the Act providing for 'Specified authority for the purposes of Section 148 and Section 148A of the Act'. In the present case, Section 151 as amended by the Finance Act, 2021 and Section 148A as also introduced by Finance Act, 2021 have become applicable, as although the assessment year in question is 2016-17 in respect of which the assessment is sought to be reopened by issuance of notice under section 148, which is dated 30 July, 2022. Such amended provision would squarely become applicable the date of notice under section 148 itself being 30 July, 2022.

The record clearly indicates that the sanction in the present case was issued by the Principal Commissioner which can only be in respect of cases if three years or less than three years have elapsed from the end of the relevant assessment year, as would fall under the provisions of clause (i) of Section 151 of the Act. As in the present case the assessment year in question is 2016-17 and the impugned notice itself has been issued on 30 July, 2022, it is issued after a period more than 3 years having elapsed from the end of the said assessment year, hence, clause (ii) of Section 151 of the Act was applicable, which required the sanction to be issued by either Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General for issuance of notice under Section 148 of the Act.

As rightly pointed out at the bar, such issue fell for consideration of the Division Bench of this Court in Siemens Financial Services Pvt. Ltd. (supra), wherein the Division Bench considered the provisions of Section 151 of the Act read with the provisions of Section 148A(b), the latter provision clearly providing that prior to issuance of any notice under Section 148 of the Act, the assessing officer shall provide an opportunity of being heard to the assesse only after considering the cumulative effect of Section 148A(b) read with Section 151 of the Act and as provided under sub-clause (d), the assessing officer shall decide on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under Section 148 by passing an order, with the prior approval of specified authority within one month from the end of the month in which the reply is received. It is held that the sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained and, therefore, the sanction is required to be obtained by applying the amended section 151(ii) of the Act and since the sanction has been obtained in terms of section 151(i) of the Act, the impugned order and impugned notice are bad in law and should be quashed and set aside.

In the present case, it is not in dispute that an appropriate sanction of the specified authority as per the provisions of Section 151(ii) of the Act was not obtained and for such reason, certainly, as held by this Court in Siemens Financial Services Pvt. Ltd. (supra), the impugned notices would be rendered bad and illegal. The petition accordingly needs to succeed on such ground of the Court requiring to delve on such issues of challenge as raised by the petitioner as also prior procedure adopted in that regard.

The various other decisions relied on by the Ld. Counsel for the assessee also supports his case to the proposition that the improper approval obtained u/s 151 of the Act vitiates the entire reopening proceedings. We, therefore, hold that the re-assessment proceedings being not in accordance with law, have to be quashed.”

Since admittedly in the instant case the approval has been granted by the PCIT instead of Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, therefore, such approval being not in accordance with law is not a valid approval. Therefore, such improper approval obtained u/s 151 of the Act vitiates the re-assessment proceedings. We, therefore, hold that the re-assessment proceedings being not in accordance with law, has to be quashed. We accordingly quash the re-assessment proceedings. Ground No.1 raised by the assessee challenging the re-assessment proceedings is accordingly allowed.

In the result, the appeal filed by the assessee is partly allowed.