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Facts
The assessee filed a return of income declaring Rs. 30,63,633/-. The Assessing Officer (AO) reopened the case under Section 147 based on information that the assessee was a beneficiary of long-term capital gain of Rs. 28,39,899/-. The AO rejected the exemption claim under Section 10(38) and added the sale proceeds.
Held
The Tribunal held that the reassessment proceedings were initiated without obtaining approval from the competent authority (Principal Chief Commissioner/Principal Director General) as the notice was issued beyond three years from the end of the assessment year. The approval was obtained from a lower authority (PCIT). Therefore, the reassessment proceedings were quashed.
Key Issues
Whether the reassessment proceedings initiated beyond three years from the end of the assessment year are valid without approval from the Principal Chief Commissioner/Principal Director General. Whether the notice issued under Section 148 is valid if approval is obtained from a lower authority.
Sections Cited
147, 148, 10(38), 69A, 115BBE, 153C, 151, 148A, 149
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & SHRI VINAY BHAMORE
The above two appeals filed by the respective assessees are directed against the separate orders dated 03.08.2024 of the Ld. CIT(A) / NFAC, Delhi relating to assessment year 2018-19. Since identical grounds have been raised by the respective assessees in both these appeals, therefore, for the sake of convenience, these were heard together and are being disposed of by this common order. as the lead case. Facts of the case, in brief, are that the assessee is an individual and has filed his return of income on 26.09.2018 declaring total income at Rs.30,63,633/-. On the basis of information that the assessee is a beneficiary of long term capital gain / loss or short term capital gain / loss and has received Rs.28,39,899/- during the assessment year 2018-19, the Assessing Officer reopened the case within the meaning of section 147 read with the provisions of Explanation to said section of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). Accordingly, a notice u/s 148 of the Act was issued and served on the assessee. The assessee in response to the same filed his return of income on 26.04.2022 declaring total income of Rs.28,13,270/-. During the course of assessment proceedings the Assessing Officer asked the assessee to justify the long term capital gain claim as exempt u/s 10(38) of the Act in respect of the transaction of shares of Kushal Tradelinks Ltd. He further noted that a search and seizure action u/s 132 of the Act was conducted in the Kushal group of Ahmedabad on 05.02.2019 wherein it was established that the said company was used for price rigging and providing bogus accommodation entries in the form of bogus long term capital gain. Rejecting the various explanations given by the assessee and relying on various decisions, the Assessing Officer added the entire sale proceeds of Rs.28,39,899/- u/s 69A r.w.s. 115BBE of the Act and accordingly, rejected the claim of exemption u/s 10(38) of the Act.
Before the Ld. CIT(A) / NFAC, the assessee apart from challenging the addition on merit, challenged the validity of re-assessment proceedings. However, the Ld. CIT(A) / NFAC upheld the validity of re-assessment proceedings as well as the addition on merit.
Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee has raised various grounds i.e. both challenging the validity of re-assessment proceedings and the addition on merit.
The Ld. Counsel for the assessee while challenging the validity of re- assessment proceedings made two-fold arguments. In his first plank of argument, he submitted that since the re-assessment proceedings were initiated on the basis of search conducted in Kushal group of cases of Ahmedabad on 05.02.2019, therefore, the Assessing Officer should have issued notice u/s 153C of the Act instead of reopening the assessment u/s 147 of the Act.
6. In his second plank of argument, the Ld. Counsel for the assessee referring to the notice issued u/s 148 of the Act submitted that the same was issued on 13.04.2022 and the assessment year involved is assessment year 2018-19. Thus, the notice u/s 148 of the Act being issued beyond a period of four years, the approval of the Principal CCIT should have been taken whereas the Assessing Officer in the instant case has taken the approval of PCIT, Pune.
7. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Davos International Fund vs. ACIT vide order dated 13.01.2025, he submitted that the Tribunal, following the decision of the Hon’ble Bombay High Court in the case of Vodafone Idea Limited vs. DCIT in WP No.2768 of 2022, order dated 06.02.2024, has held that the notice issued by the Assessing Officer u/s 148 of the Act without obtaining the approval from the correct appropriate authority is invalid and the assessment completed u/s 147 r.w.s. 151 of the Act is liable to be quashed. He accordingly submitted that on both counts the re-assessment proceedings are not being in accordance with law, should be quashed.
So far as the merit of the case is concerned, the Ld. Counsel for the assessee submitted that the various details were furnished before the Assessing Officer as well as the Ld. CIT(A) / NFAC to substantiate the long term capital gain which is exempt u/s 10(38) of the Act. He accordingly submitted that both the legal and factual grounds of appeal of the assessee should be allowed.
The Ld. DR on the other hand referring to the decision of the Hon’ble Delhi High Court in the case of Pr.CIT vs. Naveen Kumar Gupta vide judgment dated 20.11.2024, submitted that the Assessing Officer can reopen the assessment u/s 147 of the Act on the basis of information received from the Investigation Wing on the basis of search conducted on a third party. So far as the approval u/s 151 of the Act is concerned, he submitted that the Assessing Officer has correctly taken the approval from the competent authority.
So far as the merit of the addition is concerned, he submitted that the Ld. CIT(A) / NFAC has elaborately discussed the issue and has held that the assessee did not offer proper explanation / supporting evidences in support of his claim regarding the exemption u/s 10(38) of the Act. He accordingly submitted that the grounds raised by the assessee should be dismissed.
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. We find clauses 1, 2, 6 and 7 of the order dated 13.04.2022 passed under clause (d) of section 148A of the Income Tax Act, 1961 read as under: ―GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1, KOLHAPUR. To HARESHKUMAR DUNGARMAL JAIN 39 SHIVAJI PARK, E WARD NEAR CBS KOLHAPUR 416003, Maharashtra India PAN: AY Dated DIN & Notice No: AAHPH2287D 2018-19 13/04/2022 TBA/AST/F/148A/2022-23/1042737900(1) Name of the assessee HARESHKUMAR DUNGARMAL JAIN Address of the assessee 39 SHIVAJI PARK, E WARD NEAR CBS KOLHAPUR 416003, Maharashtra India Resident Not Ordinarily Resident Non-Resident Date of order 13/04/2022 Specified authority approval Name PCIT, Pune-1 Reference No. 100000029101926 Date Order under clause (d) of section 148A of the Income-tax Act.1961 1. Brief Details of the Assessee: The assessee Harishkumar Dungarmal Jain has filed return of income for the A Y 2018-19 in ITR-3 on 26/09/2018 declaring total income at Rs.30,63,633/-.
The assessee is a beneficiary of LTC gain/loss or STC Gain/loss and has received Rs.23,39,899/- during the A.Y 2018-19.
Brief details of information collected/received by the AO: In this case the information is received through Insight portal, in accordance with the risk management strategy formulated by the CBDT (Board). The Information of transaction done by the assessee during AY 2018-19 is as under- The assessee is a beneficiary of LTC gain/loss or STC Gain/loss and has received Rs.28,39,899/- during the A.Y 2018-19. 3……….. 3.1……... 04……… 05……..
It is evident that income of Rs.23,39,899/- or more has escaped assessment for year under consideration within the meaning of sec. 147 read with provision & explanation to the said section and it is evident that this is a fit case made out for issue of notice u/s 148 r.w.s 151 of the IT Act, 1961 for the AY 2018-19 to assess income in the case.
As this case is within 3 years, from the end of the assessment under consideration the approval is sought from specified authority u/s 151 i.e. Pr.CIT- 1, Pune. Therefore, an approval of the PCIT, Pune-1 to re-open the assessment u/s 147 of the Act, is sought u/s 148A(d) and subsequent issue of notice u/s 148 for AY 2018-19 in the present case, if approved. JAGDISH SHANKAR JAGTAP CIRCLE 1, KOLHAPUR‖
A perusal of the above shows that the order under clause (d) of section 148A of the Act was passed on 13.04.2022 after obtaining the approval of the PCIT, Pune. Since the assessment year involved is assessment year 2018-19 and the notice u/s 148 was issued on 13.04.2022 it has to be seen as to who is the competent authority from whom the approval has to be obtained.
We find the provisions of section 151 of the Act read as under: “151. 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……‖
A perusal of the above provisions clearly shows that w.e.f. 01.04.2021 the Principal Chief Commissioner or the Principal Director General is the competent authority for giving sanction if more than 3 years have elapsed from the end of the relevant assessment year.
We find an identical issue had come up before the Mumbai Bench of the Tribunal in the case of Davos International Fund vs. ACIT (supra). We find the Tribunal after considering various decisions including the decision of the Hon’ble jurisdictional High Court has observed as under: ―7. We heard the parties and perused the material on record. In assessee's case the 148A notice for AY 2017-18 was issued on 12.03.2022 and the order disposing the objections of the assessee was passed on 04.04.2022 under section 148A(d) of the Act. The AO issued notice under section 148 dated 04.04.2022. On perusal of the order under section 148A(d) of the Act and 148 (page 42 to 46 and 47 of PB) we notice that the impugned notices are issued after obtaining the prior approval of CIT (IT), Mumbai-2. The case of the revenue is that the notice dated 04.04.2022 is issued within three years since as per the 5th proviso to section 149, the AO has got additional 9 days for issue of notice under section 148 i.e. upto 09.04.2022. since the extended time of 9 days i.e. from 22.03.2022 to 31.03.2022 was given to the assessee. Therefore, it is argued by the revenue that notice issued on 04.04.2022 is within period of three years and the approval has been correctly obtained by the authority as specified in section 151(i) of the Act. The assessee is contending that the 5th proviso to section 149 under which the revenue is taking cover is inserted w.e.f. 01.04.2023 and therefore not applicable to assessee's case. In this regard, we notice that the Hon'ble Bombay High Court iIn the case of Vodafone Idea Ltd (supra) has held that – ―1. Petitioner is impugning a notice dated 19th March 2022 issued under Section 148A(b) of the Income Tax Act, 1961 ("the Act"), the order passed
under Section 148A(d) of the Act and the notice both dated 7th April 2022 issued under Section 148 of the Act. One of the grounds raised is that the sanction to pass the order under Section 148A(d) of the Act and issuance of notice under Section 148 of the Act is invalid inasmuch as the sanction has been admittedly issued by the Principal Commissioner of Income Tax ("PCIT") and not by the Principal Chief Commissioner of Income Tax (PCCIT").
2. Petitioner's request for a copy of the sanction has also been denied. Even in the affidavit in reply, the Department is refusing to give the sanction which makes us wonder what is the national secret involved in that, that Assessee is being refused what he is rightfully entitled to receive from the Department. In the affidavit in reply, the stand taken by the Revenue is it will be made available during the re- assessment proceeding.
3. The impugned order and the impugned notice both dated 7th April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai
5. The matter pertains to Assessment Year ("AY") 2018-19 and since the impugned order as well as the notice are issued on 7th April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151 (ii) of the Act. The proviso to Section 151 has been inserted only with effect from 1" April 2023 and, therefore, shall not be applicable to the matter at hand.
4. In this circumstances, as held by this Court in Siemens Financial Services Private Limited Vs. Deputy Commissioner of Income Tax & Ors., the sanction is invalid and consequently, the impugned order and impugned notice both dated 7th April 2022 under section 148A(d) and 148 of the Act are hereby quashed and set aside.‖
8. Similar view is held by the jurisdictional High Court also in other cases as listed herein above. In the decision of the Vodafone Idea (supra), the Hon'ble High Court has given a specific finding that the proviso to section 151 extending the time limit as per the third, fourth or fifth proviso to section 149 is not applicable for AY 2018-19 as the same is inserted only w.e.f. 01.04.2023. When we apply the said ratio to assessee's case, in our considered view, the claim of the revenue that the period of 3 years expires only on 09.04.2022 is not correct and that revenue cannot take shelter under the proviso to section 151 which came into effect only from 01.04.2023. Accordingly the notice issued on 04.04.2022 by the AO is issuedbeyond three years and therefore the approval should have been obtained by the authorities as specified under section 151(ii) Principle Chief Commission. As already stated the approval in assessee's case is obtained from CIT(IT) and therefore we are inclined to agree with the contention of the assessee that the notice under section 148 has been issued without obtaining the approval from the correct authority as specified under section 151. Respectfully following the above decisions of the Hon'ble Bombay High Court we hold that the notice issued by the AO under section 148 without obtaining approval from correct appropriate authority is invalid and the assessment done under section 147 r.w.s. 144(13) of the Act is liable to be quashed.
9. Since we have adjudicated the legal contentions raised through additional ground in favour of the assessee, the grounds raised on merits have become academic and not warranting any specific adjudication.‖
Since in the instant case the notice u/s 148 of the Act has been issued on 13.04.2022 which is beyond the period of three years from the end of the relevant assessment year, therefore, the competent authority who should have given sanction for reopening proceedings is the Principal Chief Commissioner / Principal Director General. However, in the instant case, the same has been approved by the PCIT-1, Pune. Therefore, such approval being not in accordance with law, is invalid and consequently, the entire re-assessment proceedings are vitiated. We, therefore, quash the re-assessment proceedings.
Since the assessee succeeds on this preliminary issue, the other grounds challenging the validity of re-assessment proceedings and the grounds challenging the addition on merit are not being adjudicated being academic in nature.
In the result, the appeal filed by the assessee is allowed.
After hearing both sides, we find the grounds raised in . We have already decided the issue and quashed the re-assessment proceedings being not in accordance with law. Since, here also the notice u/s 148 of the Act has been issued on 13.04.2022 and the approval has been obtained from the PCIT- 1, Pune instead of the Principal CCIT / Principal Director General, therefore, such re-assessment proceedings being not in accordance with law, are also quashed. Consequently, the appeal filed by the assessee is allowed.
In the result, the appeals of the respective assessees are allowed.
Order pronounced in the open Court on 24th February, 2025.