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Facts
The assessee filed an appeal against the final assessment order under section 147 r/w section 144C(13) of the Income Tax Act, 1961. The core issue revolves around the validity of the reopening of assessment, specifically the issuance of a notice under section 148 after the expiry of three years from the end of the assessment year 2017-18. The escapement of income was alleged to be Rs. 43,32,000, which is below the Rs. 50 lakh threshold for issuing such a notice beyond three years without specific conditions.
Held
The Tribunal held that the notice issued under section 148 of the Act was time-barred and issued in contravention of the provisions of section 151, as the proper specified authority did not grant the sanction. The court followed the decision of the Hon'ble Jurisdictional High Court in Siemens Financial Services (P.) Ltd. v/s DCIT, which stated that TOLA does not affect the scope of section 151 and that sanctions must be obtained according to the law existing at the time of sanction. The approval obtained was from Principal CIT-8, which is not the specified authority for cases where more than three years have elapsed. Therefore, the notice and the subsequent reassessment proceedings were considered void ab initio and bad in law.
Key Issues
The primary issue is the validity of the reopening of assessment under section 147 due to the notice under section 148 being issued beyond the prescribed time limit and without proper sanction from the specified authority.
Sections Cited
147, 144C(13), 148, 148A, 149(1)(b), 151, 56(2)(vii)(b)
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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned final assessment order dated 23/03/2024, passed under section 147 r/w section 144C(13) of the Income Tax Act, 1961 ("the Act"), pursuant to the directions dated 20/02/2024 issued by the learned Dispute Resolution Panel-3, Mumbai (“learned DRP”), for the assessment year 2017-18.
In this appeal, the assessee has raised the following grounds: –
“1.Reopening of assessment is bad in law:
The learned CIT(DRP-3) erred in upholding the reopening of assessment vide notice u/s 148 of the Act dated 15.06.2021 i.e. after expiry of three years from the end of the assessment year 2017-18 without appreciating that notice under 148 can be issued beyond 3 years only if income escapement is above 50 lacs, in fact of present case the impugned notice issued for AY. 2017-18 is for income escaped below Rs.50 lacs, i.e. Rs.43,32,000/-, therefore, reopening is bad in law. 2 The learned CIT(DRP-3) failed to appreciate that the JAO have no jurisdiction to issue show cause notice u/s 148A(b) and notice u/s 148 and pass order u/s 148A(d) as after 29.03.2022 same can be done in a faceless manner, therefore the reassessment proceedings is bad in law. 3. The learned CIT (DRP-3) failed to appreciate that the AO issued reopening notice beyond period of three years, approval was required to be taken as per provisions of amended section 151 of the Act from Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General however approval is from PCIT. ON MERITS: 4. The learned CIT(DRP-3) has failed to appreciate the Permanent Alternative Accommodation Agreement, which has become a non-starter as the assessee has neither surrendered his tenancy rights nor given possession of existing premises and still continues to enjoy hhis occupation rights as on day and the developer has not started any development work, as the obligation of assessee in PAA is not discharged till day, therefore, Ld FAO erred in applying section 56(2)(vii)(b) of the Act. 5. The learned CIT(DRP-3) has failed to considered that as tenancy rights are not surrendered by the assessee, the assessee is continued to pay rent, therefore, there was no question of acquiring new residential premises in lieu thereof. 6. Alternatively assessee submits that execution of agreement happened in AY. 2016-17 and registration relates back to date of execution, therefore, section 56(2)(vii) is wrongly invoked in AY 2017-18.”
In the present case, the assessee has challenged the validity of the reopening of assessment under section 147 of the Act on various grounds and has also challenged the addition made by the AO under section 57(2)(vii)(b) of the Act. Since the grounds challenging the reopening of assessment under section 147 of the Act have raised jurisdictional issues, therefore the same are considered 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 non-resident individual, and derives income from other sources. For the year under consideration, the assessee filed its return of income on 09/08/2017 declaring a total income of Rs.25,950. In the present case, the information was received from the office of DIT(I&CI), Mumbai regarding the data received from the office of the Sub- Registrar of sales and purchases for the year under consideration in respect of transactions of immovable property where there were instances of a possible infringement, inter-alia, of section 56(2)(vii) of the Act. On verification of the data, it was observed that the assessee has purchased immovable property for a consideration of Rs. Nil. Further, the stamp duty value of the said property as per the Stamp Value Authority was determined according to the SRO at Rs.43,32,000. On verification of the return of income filed by the assessee, it was observed that the assessee has not declared the difference between the value of purchase consideration and market value of Rs.43,32,000 as the income for the year under consideration as per the provisions of section 57(2)(vii)(b) of the Act. Accordingly, notice under section 148 of the Act was issued on 15/06/2021 on the basis that the difference of Rs.43,32,000 is the income of the assessee chargeable to tax which has escaped assessment.
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 and CBDT Circular No. 1 of 2022 dated 11/05/2022, notice under section 148A(b) was issued to the assessee on 23/05/2022 to show cause as to why notice under section 148 of the Act should not be issued on the basis of the information which suggests that income chargeable to tax has escaped assessment.
After rejecting the objections filed by the assessee, an order under section 148A(d) of the Act was passed on 18/07/2022 declaring that it is a fit case for initiation of reassessment proceedings under section 147 by issuing notice under section 148 of the Act. Thereafter, on 24/07/2022 notice under section 148 of the Act was issued by the Jurisdictional Assessing Officer. The final assessment order was passed under section 147 r/w section 144C(13) of the Act assessing the total income of the assessee at Rs. 43,57,950 after making an addition of Rs. 43,32,000 under section 57(2)(vii)(b) 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 law, inter-alia, on the following basis: –
(a) As per the provisions of section 149(1)(b), notice under section 148 of the Act can only be issued after three years from the end of the relevant assessment year, if the income escaping assessment is Rs.50 lakh or more. However, in the present case, as per the order dated 18/07/2022 passed under section 148A(d) of the Act, the income escaping assessment is only to the tune of Rs.43,32,000 and notice under section 148 of the Act was issued after the expiry of three years from the end of the relevant assessment year. Thus, it was submitted that the notice issued under section 148 of the Act is time- barred.
(b) As per the provisions of 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. However, in the present case, the order dated 18/07/2022 was passed under section 148A(d) of the Act, after the grant of approval by the Principal CIT–1, Mumbai vide letter dated 15/07/2022.
On the contrary, the learned Departmental Representative (“learned DR”) submitted that since the notice under section 148 of the Act was issued on 15/06/2021, 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. The written submissions filed by the learned DR are reproduced as follows: –
“Sub: Written submissions in the case of Manish J Joshi AY 2017-18 As directed by the Hon'ble bench the department's contention on the 2 grounds relating to issuance of notice u/s 148 and approval granted u/s 151 of the IT Act, 1961 is as under.
Ground No. 1: The Id. CIT (DRP-3) erred in upholding the reopening of assessment vide notice u/s. 148 of the Act dated 15/06/2021 i.e. after expiry of three years from the end of the assessment year 2017-18 without appreciating that notice under 148 can be issued beyond 3 years only if income escapement is above 50 lacs, in fact of present case the impugned notice issued for A.Y. 2017-18 is for income escaped below Rs.50 lacs. i.e. Rs.43, 32,000/-, therefore reopening is bad in law. Department's stand: Page | 5 As mentioned in the CIT (DRP) order, in Para 6.3.2, the issue was deliberated as per instructions issued by the CBDT consequent to the Hon'ble SC decision in the case of Ashish Aggarwal. In this regard it is further submitted that the procedure laid out in Ashish Agarwal relates to those matters where, although notices may have been issued, proceedings were yet to attain finality. The Hon'ble Supreme Court prescribed a procedure following which Revenue was rendered remedies to assess the escaped income and where notices had been already issued. The Hon'ble Court held that all such notices would be treated as being under Section 148A(b) and where proceedings were to be taken forward in accordance with law thereafter. Under the old Section 149(1)(b) as it stood prior to 1/4/2021, the period for which a notice u/s 148 could have been issued as on 31/3/2021 was up to AY 2015-16. Extension of time limit: The time limit for issuing notice under un-amended Section 149 which was falling from 20th March 2020 till 31st March 2021 was extended by Section 3 of the Taxation and Other Laws (Relaxation and Amendment of certain provisions Act), 2020 (TOLA) read with Notification No.20 of 2021 dated 31st March 2021 and Notification No.38 of 2021 dated 27th April 2021, until 30th June 2021. The power of reassessment that existed prior to 31st March 2021 continued to exist till the extended period, i.e., till 30th June 2021. In the present case notice u/s 148 was issued on 15.06.2021. Thus, all notices issued on or after 1st July 2021 would have to necessarily follow the requirements as per changed procedure. The Finance Act, 2021, had merely changed the procedure to be followed prior to issuance of notice with effect from 1st April 2021. Subsequently, the Hon'ble Apex Court in Ashish Agarwal (Supra) held that the Section 148 notices issued between 1st April 2021 and 30th June 2021 will be deemed to have been issued under Section 148A of the Act. Thus it is submitted that notice u/s 148 has been issued following the correct procedure. Accordingly, it is prayed that assessee's grounds in this regard may be dismissed.
Ground No. 3: The Id. CIT (DRP-3) failed to appreciate that the AO issued reopening notice beyond period of three years, approval was required to be taken as per provisions of amended section 151 of the Act from Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General however approval is from PCIT. Department's stand: As discussed above in response to Ground No. 1, the notice had been correctly issued by following the Hon'ble Supreme court judgement in the Ashish Aggarwal case. The requirements of prescribed authority and search case to have escaped assessment be above Rs 50 Lakhs would kick in if the original notice had not been issued till the extended period that is 30 June 2021. In the present case original notice had been issued on 15.06.21. Thus correct procedure has been followed in this regard too. Further, as mentioned in Para 6.3.3 on PCIT sanction issue, department has filed an SLP in the matter against the Hon'ble Bombay High court decision and if the DRP does not follow departmental line later no remedy would be left in case. Accordingly it is prayed that the department's contentions on the above grounds may be upheld and the case may be heard further on merits.”
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: –
“148. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice: Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section: ………. Explanation 3.—For the purposes of this section, specified authority means the specified authority referred to in section 151.” Page | 7
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 under section 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: –
“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.”
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.
Section 149 of the Act provides a time limit for issuance of notice under section 148 of the Act and the relevant portion of the same reads as follows: –
“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— (i) an asset; (ii) expenditure in respect of a transaction or in relation to an event or occasion; or (iii) an entry or entries in the books of account, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more: ……….”
Therefore, in a case where three years have elapsed no notice under section 148 of the Act can be issued unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 50 lakh or more.
In light of the aforenoted relevant provisions of the Act, the actual delineation of the pertinent facts in the present case are as follows: - (i) On 15/06/2021, notice under section 148 of the Act was issued to the assessee as per the old provisions of the Act, after the expiry of three years from the end of the relevant assessment year, i.e. 2017-18.
(ii) The Hon’ble Supreme Court in Ashish Agarwal (supra) held that notices issued under section 148 of the Act after 01/04/2021 as per the erstwhile provisions shall be deemed to be show cause notice issued under section 148A(b) of the Act.
(iii) On 23/05/2022, the AO granted the opportunity to the assessee to show cause in light of the information received, as required under section 148A(b) of the Act.
(iv) On 15/07/2022, prior approval of Principal CIT–1, Mumbai was granted to pass the order under 148A(d) of the Act.
(v) On 18/07/2022, the AO passed the order under 148A(d) of the Act after considering the assessee's objections.
(vi) On 24/07/2022, the AO issued a notice under section 148 of the Act.
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 that where 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 Page | 10 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 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 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.”
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 23/05/2022 was passed under section 148A(d) of the Act after obtaining the approval of the Principal CIT-1, Mumbai vide letter dated 15/07/2022, 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.
From the perusal of the order dated 23/05/2022 passed under section 148A(d) of the Act, it is further evident that based on the information in possession of the AO, it was concluded that there is an escapement of income to the tune of Rs.43,32,000 under section 56(2)(vii)(b) of the Act. The aforesaid order further mentions that the conditions of section 149(1) are satisfied in this case for the assessment year 2017-18. However, undisputedly three years from the end of the relevant assessment year elapsed in the present case even at the time of issuance of the first notice under section 148 of the Act. Subsequently, after completion of the process, as per the existing provisions dealing with reassessment, the Jurisdictional AO issued notice under section 148 of the Act on 24/07/2022. As noted in the foregoing paragraph, as per the provisions of section 149, as amended by Finance Act 2021, no notice under section 148 of the Act shall be issued after the expiry of three years but not more than ten years, unless the AO is in the position of documents or evidence which reveal that income amounting to Rs.50 lakh or more chargeable to tax has escaped assessment. As noted above in the present case, the income which is alleged to have escaped assessment is less than Rs.50 lakh. We find that the Hon’ble Jurisdictional High Court in Bhavesh Maganlal Dharod v/s ITO, [2023] 155 taxmann.com 335 (Bom.) held as follows: -
“3. ……..Under Section 149(1)(b) of the Act no notice can be issued if the amount is less than Rs. 50 lakhs. Further, if Section 149(1)(b) of the Act is applicable, then the approval could be granted only by the Principal Chief Commissioner and not Principal Commissioner as in this case.”
Thus, in the present case, it is discernible that the notice under section 148 of the Act was issued not only in contravention of the provisions of section 151 as the sanction of the concerned Specified Authority was not obtained, but the same is also time-barred as per the provisions of section 149 of the Act as the same was issued after three years and the amount alleged to have escaped assessment is only Rs.43,32,000, i.e. less than Rs.50 lakh. Accordingly, we are of the considered view that the notice issued under section 148 of the Act is void ab initio and bad in law and therefore is quashed. Page | 13 Consequently, the entire reopening proceedings and impugned final assessment order passed under section 147 r/w section 144C(13) of the Act is also quashed.
Since the relief has been granted to the assessee on the aforenoted jurisdictional aspects, the other grounds raised by the assessee in the present appeal on merits as well as on jurisdiction are rendered academic and therefore are left open.
In the result, the appeal by the assessee is allowed. Order pronounced in the open Court on 26/08/2024