ACIT CIRCLE-4(3)(1), MUMBAI, MUMBAI vs. JMP SECURITIES PVT LTD, MUMBAI

In the interest of justice, the slight delay of 10 days in filing the appeal by the Revenue is condoned.

In its appeal, the Revenue has raised the ground challenging the relief granted by the learned CIT(A) on merits. On the other hand, the assessee has filed the cross objection challenging the initiation of reassessment proceedings under section 147 of the Act.As the issues raised by the assessee vide its cross objection are jurisdictional issues, which go to the root of the matter,therefore, we are considering the same at the outset.

As far as the issue relating to the validity of reopening under section 147 of the Act, the brief facts are that the assessee is a trader in shares and securities. For the year under consideration, the assessee filed its original return of income on 22/10/2017 declaring a total income of Rs.2,88,35,630. The return was processed on 06/08/2021 under section 143(1) read with section 154 of the Act. On the basis of information received from DIT(Inv.), Kolkata that the assessee is a beneficiary of bogus capital gains from transactions in penny stocks, notice under section 148 of the Act was originally issued on 28/06/2021. 3

Subsequently, in view of the decision of the Hon’ble Supreme Court in Union of India v/s Ashish Agarwal, Civil Appeal No. 3005 of 2022,original notice issued under section 148 on 28/06/2021 was deemed to be notice issued under section 148A(b) of the Act. Vide show cause notice dated 30/05/2022,the information and material relied upon by the Revenue was provided to the assessee and time was granted to the assessee to respond within two weeks in terms of the provisions of section 148A(b) of the Act.

After rejecting the objections filed by the assessee, an order under section 148A(d) of the Act was passed on 30/07/2022 declaring that it is a fit case for issuance of notice under section 148 of the Act. Thereafter, on 31/07/2022 notice under section 148 of the Act was issued by the Jurisdictional Assessing Officer. The assessment order was passed under section 147 r/w section 144B of the Act assessing the total income of the assessee at Rs. 5,96,37,276 after making an addition of Rs. 4,44,11,556 under section 68 of the Act. The learned CIT(A), vide impugned order, dismissed the grounds raised by the assessee challenging the initiation of reassessment proceedings under section 147 of the Act.

During the hearing, the learned Authorised Representative (“learned AR”) submitted that the reopening of assessment under section 147 of the Act, in the present case, is bad in lawas theorder dated 30/07/2022 was passed under section 148A(d) of the Act, after the grant of approval by the Principal CIT, Mumbai vide letter dated 28/07/2022 Ref No. MUM/No.Pr. CIT- 4/148A(d)/Approval/2022-23.It was submitted that as per the provisions of 4 CO No. 165/MUM/2024 (A.Y.: 2016-17) JMP Securities Pvt Ltd section 151(ii) of the Act, if more than three years have elapsed from the end of the relevant assessment year, the Specified Authority for the purpose of sections 148 and 148A of the Act is Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

On the contrary, the learned Departmental Representative (“learned DR”) submitted that since the original notice under section 148 of the Act was issued on 28/06/2021, i.e. within the extended time as provided by the Taxation and Other Laws (Relaxation and Amendment of certain provisions) Act, 2020 (“TOLA”), therefore the limitation period and power of granting sanction for issuance of notice under section 148 shall be governed by the provisions of the Act, before the amendment by Finance Act, 2021.

We have considered the submissions of both sides and perused the material available on the record. Before proceeding further, it is pertinent to note the provisions of the Act, which are relevant for deciding the issue at hand. The relevant provisions of section 148 of the Act, as amended by Finance Act 2021, read as follows: –

Therefore, as per the first proviso to section 148 of the Act, it is evident that for issuing notice under the section the AO is required to obtain prior approval of the Specified Authority. The second proviso to section 148 further provides that no such approval shall be required where the AO with the prior approval of the Specified Authority has passed the order undersection 148A(d) of the Act. Further, Explanation 3 clarifies that the Specified Authority for the purpose of section 148 shall be the Specified Authority as referred to in section 151 of the Act.

Further, section 151 of the Act deals with the Specified Authority for section 148 and section 148A of the Act, and the same reads as follows: –

Therefore, from the plain reading of section 151 of the Act, it is evident that in the case where more than three years have elapsed from the end of the relevant assessment year, the Specified Authority for the purpose of granting prior approval, as required under section 148 of the Act, is Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

We find that while considering the similar issue and similar submissions the Hon’ble Jurisdictional High Court in Siemens Financial Services (P.) Ltd. v/s DCIT, (2023) 457 ITR 647 (Bom.) held that TOLA would not affect the scope of section 151 and sanction of Specified Authority was to be obtained in accordance with the law existing when the sanction was obtained. It was further held thatwhere the Assessing Officer issued a reopening notice beyond the period of three years, approval was required to be taken as per provisions of amended section 151 from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. The relevant observations of the Hon’ble High Court, in the aforesaid decision, are reproduced as follows: – “20. Under Section 151 "specified authority" for the purposes of section 148 and section 148A shall be, if three years or less than three years have elapsed from the end of the relevant assessment year, Principal Commissioner or Principal Director or Commissioner or Director. If more than three years have elapsed from the end of the relevant assessment year, then Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

Admittedly, in this case, the approval/sanction for order under section 148A(d) of the Act has been granted by the Principal Commissioner of Income Tax-8. The entire controversy is, therefore, (a) whether the Principal 7 CO No. 165/MUM/2024 (A.Y.: 2016-17) JMP Securities Pvt Ltd Commissioner was the specified authority, who could have granted the approval/sanction ?, (b) if not, the effect thereof? 22. In our view, the approval is not valid. Hence, the impugned order passed under section 148A(d) read with notice issued under section 148 of the Act dated 31st July 2022 is not valid and has to be quashed and set aside.

The first proviso to section 148 of the Act refers to the approval of the specified authority being obtained before a notice under section 148 of the Act can be issued. Explanation 3 to section 148 of the Act specifies that the meaning of the term 'specified authority' as provided for in section 151 of the Act is to apply for the purpose of section 148. Section 148A(d) of the Act also requires the Assessing Officer to pass an order after considering the reply of the assessee as to whether or not it is a fit case to issue a notice under section 148 of the Act and such an order under section 148A(d) of the Act has to be passed with the prior approval of the specified authority. The Explanation to section 148A of the Act also incorporates the meaning of 'specified authority' as provided for in section 151 of the Act.

As per section 151 of the Act, the 'specified authority' who has to grant his sanction for the purposes of section 148 and section 148A is the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, the Chief Commissioner or Director General if more than three years have elapsed from the end of the relevant assessment year. The present petition relates to the AY 2016-17, and as the impugned order and impugned notice are issued beyond the period of three years which elapsed on 31st March, 2020 the approval as contemplated in section 151(ii) of the Act would have to be obtained which has not been done by the Assessing Officer. The impugned notice mentions that the prior approval has been taken of the 'Principal Commissioner of Income-tax - 8' ('PCIT-8') which is bad in law as the approval should have been obtained in terms of section 151(ii) and not section 151(i) of the Act and the PCIT-8 cannot be the specified authority as per section 151 of the Act. Further, even in the affidavit-in-reply, the department has accepted that the approval obtained is of the 'Principal Commissioner of Income-tax - 8' and, hence, such an approval would be bad in law.

TOLA, enacted on 29th September 2020 and came into force on 31st March 2020. It inter alia, provided for a relaxation of certain provisions of the Income-tax Act, 1961. Where any time limit for completion or compliance of an action such as completion of any proceedings or passing of any order or issuance of any notice fell between the period 20th March 2020 to 31st December 2020, the time limit for completion of such action stood extended to 31st March 2021. Thus, TOLA only seeks to extend the period of limitation and does not affect the scope of section 151.

The Assessing Officer cannot rely on the provisions of TOLA and the notifications issued thereunder as section 151 has been amended by Finance Act, 2021 and the provisions of the amended section would have to be 8 CO No. 165/MUM/2024 (A.Y.: 2016-17) JMP Securities Pvt Ltd complied with by the Assessing Officer, w.e.f., 1st April 2021. Hence, the Assessing Officer cannot seek to take the shelter of TOLA as a subordinate legislation cannot override any statute enacted by the Parliament. Further, the notification extending the dates from 31st March 2021 till 30th June 2021 cannot apply once the Finance Act, 2021 is in existence. 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 undisputed that even the original notice under section 148 of the Act was issued to the assessee on 28/06/2021, i.e. after the expiry of three years from the end of the relevant assessment year, i.e. 2016-17.Therefore, respectfully following the aforesaid decision of the Hon’ble Jurisdictional High Court we find no merits in the reliance placed by the Revenue on the provisions of TOLA. As, in the present case, the period of three years has elapsed from the end of the relevant assessment year and the order dated 30/07/2022 was passed under section 148A(d) of the Act after obtaining the approval of the Principal CIT, Mumbai vide letter dated 28/07/2022, we are of the considered view that the Revenue has not followed the mandatory provisions of the Act while initiating the reassessment proceedings and sanction of the Specified Authority is not in conformity with the law prevalent at the time of grant of sanction.

Thus, in the present case, it is discernible that the notice under section 148 of the Act was issued in contravention of the provisions of section 151 as the sanction of the concerned Specified Authority was not obtained. Accordingly, we are of the considered view that the notice issued under section 148 of the Act is void abinitio and bad in law and therefore is 9 CO No. 165/MUM/2024 (A.Y.: 2016-17) JMP Securities Pvt Ltd quashed. Consequently, the entire reopening proceedings and assessment order passed under section 147 r/w section 144B of the Act is also quashed.

Since the relief has been granted to the assessee on the aforenoted jurisdictional aspect, the other grounds raised by the assessee in its cross objection on jurisdiction are rendered academic and therefore are left open.

Accordingly, the appealby the Revenue on merits has been rendered academic and therefore is dismissed as infructuous.

In the result, the cross objection by the assessee is allowed, while the Revenue’s appeal is dismissed. Order pronounced in the open Court on 01/10/2024