Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Dr. Manish Borad & Shri Pradip Kumar Choubey
order
: 22.07.2024 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short “AY”) 2015-16 is directed against the revision order passed u/s 263 of the Income Tax Act, 1961 in short the “Act”) by Ld. Pr. Commissioner of Income-tax, Kolkat-13 [in short Ld. “Pr. CIT”] dated 15.03.2024 arising out of the assessment order u/s 147 r.w.s. 144B of the Act by AO, NFAC, Delhi dated 27.03.2022.
Grounds of appeal
raised by the assessee read as under:
1. For that the Ld. PCIT erred in revising the reassessment order which was itself invalid and bad in law as sanction for reopening of assessment proceedings was not taken from prescribed authority as per section 151.
2. For that the Ld. PCIT erred in revising the reassessment order which was itself invalid and not in accordance with law since the initiation of proceedings u/s 147 was itself bad in law and by following the legal maxim "Sublato Fundamento Cadit Opus", meaning in case a foundation is removed, the superstructure falls, the proceedings u/s 263 cannot lie.
3. For that the Ld. PCIT erred in revising the reassessment order when the reopening was done on the same issue on which the revisionary jurisdiction was exercised, the assessee duly filed detailed explanation on the issue which was considered by the AO after due application of mind and therefore the reassessment order was neither erroneous nor prejudicial to the interest of revenue. 4. For that the Ld. PCIT erred in revising the reassessment order when the view take by the AO was not unsustainable in law and therefore the order of the Ld PCIT is liable to be set aside. 5. For that the Ld. PCIT erred in directing the AO to make an addition of Rs.97,56,500/- on account of bogus share transaction wherein the said transaction was carried out through registered brokers, recognized stock exchange and regular banking channels and the script was not even in the list of 84 penny stocks identified by the department.”
3. The assessee has challenged the assumption of jurisdiction u/s. 263 of the Act on the ground that firstly, reassessment order which is subject matter of revisionary proceeding itself deserves to be quashed because there was no proper approval u/s. 151 of the Act, reopening was bad for lack of any tangible material and confirmation of belief. Revisionary proceedings have also been challenged on the ground that the alleged issue has already been examined by the AO in the reassessment proceedings which were initiated solely for the alleged reason which has been mentioned in the show cause notice u/s. 263 of the Act.
Facts in brief are that the assessee is an individual and furnished return of income for AY 2015-16 on 24.08.2015 declaring total income of Rs.12,65,780/-. Thereafter, based on information provided by Investigation Wing that the assessee has entered into transaction in penny stock companies namely, AMM LTD & EML and sold the shares for Rs.97,56,500/- claiming long term capital gain of Rs.95,75,888/-, Ld. AO issued notice u/s. 148 of the Act. Assessment proceedings were carried out u/s. 147 read with section 144B of the Act and returned income was accepted. Thereafter, Ld. PCIT assuming jurisdiction u/s. 263 of the Act called for the assessment record and observed that Ld. AO has not properly carried out the assessment proceedings regarding the transaction of sale of shares of AML Ltd. & EML and thereafter considering the submission of assessee which included the contention of improper issue of sanction u/s. 151 of the Act, failed to find any merit in the same and set aside the assessment order directing the AO to make the addition of Rs.97,56,500/- on account of bogus share transaction. Aggrieved, assessee is now in appeal before the Tribunal.
5. Ld. Counsel for the assessee firstly referred to the legal and technical point and referring to the paper book containing 17 pages and also plethora of decisions submitted that in light of the settled judicial precedence assessee is entitled to challenge the validity of the reassessment proceeding in collateral proceeding u/s. 263 of the Act and submitted that the reopening has been carried out after four years from the end of the assessment year but the approval u/s. 151 of the Act has not been given by Principal CCIT/CCIT or Principal CIT and in lack of proper approval the reopening proceeding deserves to be quashed. He challenged the reopening proceeding also on the ground that the Ld. AO has simply carried out the proceeding on the basis of information of Investigation Wing and no independent application of mind and verification has been carried out by AO to unearth intangible material. Reopening is simply on borrowed satisfaction from Investigation Wing. He also submitted that the reopening proceeding carried out were firstly concluded by the AO by not making any addition vide assessment order dated 27.03.2022 but prior to finishing the assessment proceeding, Ld. AO issued fresh notice u/s. 148A(b) of the Act on 23.03.2022 on the very same issue. He also submitted that during the course of revisionary proceeding, the reassessment proceedings which were initiated vide notice u/s. 148A(b) of the Act still continued. Copy of screen shot of the e-proceeding taken on 22.06.2024 shows that the proceeding for second reopening are still continuing. He thus stated that even on this ground that the issue is already under examination by the AO, the impugned revisionary proceeding deserves to be quashed. He also submitted that the alleged penny stock company is not part of the 84 list of the penny stock companies identified by the department and, therefore, since the assessee has not dealt in the alleged penny stock company as per the list identified by the department, the reopening proceeding itself deserves to be quashed. Reliance placed on the following decisions: i) Charm Vincom in dated 01.01.2020, ii) J.M. Financial & Investment Consultancy Services Pvt. Ltd. Vs. in WP No. 1050 of 2022 dated 04.04.2022 (Bom.HC), iii) Siemens Financial Services Pvt. Ltd. V. DCIT in WP No. 4888 of 2022 dated 25.08.2023 (Bom), iv) ITO Vs. Vinay Kumar Singh & Ors. in GA No. 1 of 2023 dated 19.02.2024 (Cal HC), v) PCIT Vs. RMG Polyvinyl in 396 ITR 5, vi) PCIT Vs. Meenakshi Overseas in 395 ITR 677, vii) Garud Credit & Holding Pvt. Ltd. in ITAT No. 1270/Kol/2013 dated 01.05.2023 and viii) Techno Tracom Pvt. Ltd. in dated 18.04.2022.
On the other hand, Ld. DR submitted that there were Covid restrictions at that point of time when approval was taken and even on account of Covid the reopening was carried out at a later date and, due to this reason the period of four years had been expired and therefore, Ld Jt. Commissioner was authorised to grant approval. He, thus, submitted that there was a proper approval u/s. 151 of the Act. He also submitted that Ld. AO in the reassessment proceeding had not carried out any verification of the alleged transaction and even if a second notice u/s. 148A(b) of the Act has been issued but the assessment order has still not been framed and, therefore, the direction given u/s. 263 of the Act can be implemented. As far as merits of the case are concerned, reliance was placed on the decision of the Ld. PCIT. He also placed reliance on the following decisions: i) Akshat Pramodkumr Chaudhary Vs. DCIT [2023] 153 taxmann.com 25 (Guj), ii) Pushpa Uttamchand Mehta Vs. ITO [2022] 139 taxmann.com 409 (Guj), iii) Purviben Snehalbhai Panchhigar Vs. ACIT [2019] 101 taxmann.com 393 (Guj), iv) Pr. CIT Vs. Gokul Ceramics [2016] 71 taxmann.com 341 (Guj), v) Sumermal Jain Vs. DCIT [2014] 43 taxmann.com 57 (Cal), vi) Shyam Sundar Dhanuka Vs. Union of India [2023] 156 taxmann.com 499 (Cal) and vii) Anju Singh Vs. Chief Commissioner of Income Tax [2023] 154 taxmann.com 191 (Patna), 7. We have heard the rival contentions and perused the material available on record. We find that revisionary proceeding u/s. 263 of the Act is being challenged before us. The first ground taken by the assessee is that the reassessment order is the subject matter of revisionary proceeding itself deserves to be quashed. For challenging the validity of the reassessment proceedings during the course of the revisionary proceeding is justified in view of the settled judicial precedents. Before us reliance has been placed on the decision of this Tribunal in the case of Garud Credit & Holding Pvt. Ltd. (Supra). In the said order it has been held that the assessee is entitled to challenge the validity of the reassessment in collateral proceeding u/s. 263 of the Act. Now assessee has challenged the validity of reassessment proceeding on the ground that there has been no proper approval u/s. 151 of the Act. As per section 151 of the Act which deals with sanction for issue of notice and sub-section (1) says that no notice shall be issued u/s. 148 of the Act by an AO after the expiry of a period of four years from the end of the relevant assessment year, unless the PCIT or CCIT or CIT is satisfied with the reason recorded by the AO that it is a fit case for issue of such notice. It is an admitted fact that the case of the assessee has been reopened after the end of four years and the approval which is placed at pages 2 to 5 of the paper book has been granted by Jt. Commissioner of Income Tax. Before referring to the decision relied on by the Ld. Counsel for the assessee we also take note of the contention made by the Ld. DR that there were Covid restrictions and the Taxation and Other Laws (Relaxation and Amendment of certain provisions) Act, 2020 [TOLA] which was enacted on 29.09.2020 and came into force w.ef. 31.03.2020 as per which for the period between 20.03.2020 to 31.03.2020 time limit for completion of action were extended up to 31.03.2021. We, however, find that this plea of the Ld. DR is not maintainable because TOLA is only sought to extend the period of limitation and does not affect the scope of sec. 151 of the Act. We draw support from a judgment of Hon’ble Bombay High Court in the case of Siemens Financial Services Pvt. Ltd. (supra) wherein vide para 25 of the order the Hon’ble Court has held as under: “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.”
Now, once it has been held that concept of TOLA is not applicable on the scope of section 151 of the Act and that in the instant case reopening has been carried out after four years of the end of the assessment year. Admittedly, there is no proper approval u/s. 151(c) of the Act as it has been signed by Joint Commissioner whereas as per section 151() of the Act the approval ought to have been obtained from Ld. PCIT/CIT/CCIT. Under these given facts and circumstances, where there is no Page 7 of 11 proper approval u/s. 151 of the Act, Hon’ble Bombay High Court in the case of J.M. Financial & Investment Consultancy Services Pvt. Ltd. (supra) dealing with the similar issue and on almost identical facts has held as follows: “4. Admittedly in this case, four years from the end of the relevant assessment year has expired before the issuance of notice and the approval also has been obtained from the Additional Commissioner of Income Tax and not Principal Commissioner of Income Tax. In the affidavit in reply filed through one Nikhil Bansal affirmed on 4th March 2022, these facts have not been disputed but according to respondents, the approval granted by the Additional Commissioner of Income Tax was a valid approval because the Additional Commissioner of Income Tax was a competent authority.
Respondents have relied upon a letter dated 18th March 2021 issued by one Income Tax Officer, who has given an opinion to the Additional Commissioner of Income Tax that in view of the Taxation and other Laws (Relaxation of Certain Provisions) Act, 2020 (Relaxation Act), limitation, inter alia, under provisions of Section 151(1) and Section 151(2), which were originally expiring on 31st March 2020 stand extended to 31st March 2021. According to the Income Tax Officer, in view of the above, Assessment Year 2015-2016 which falls under the category within four years as on 31st March 2020, the statutory approval for issuance of notice under Section 148 of the Act for the Assessment Year 2015-2016 may be given by the Range Head as per the said provisions. Mr. Sharma clarifies that the Income Tax Officer is only conveying the view of the Principal Commissioner of Income Tax because this letter has been issued on the letterhead of Principal Commissioner of Income Tax.
6. Even for a moment we agree with the view expressed by the Principal Commissioner of Income Tax, still it applies to only cases where the limitation was expiring on 31st March 2020. In the case at hand, the assessment year is 2015-2016 and, therefore, the six years limitation will expire only on 31st March 2022. Certainly, therefore, the Relaxation Act provisions may not be applicable. In any event, the time to issue notice may have been extended but that would not amount to amending the provisions of section 151 of the Act.
In our view, since four years had expired from the end of the relevant assessment year, as provided under Section 151 (1) of Page 8 of 11
the Act, it is only the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner who could have accorded the approval and not the Additional Commissioner of Income Tax. On this ground alone, we will have to set aside the notice dated 31st March 2021 issued under Section 148 of the Act, which is impugned in this petition. In view thereof, the consequent orders and notices will also have to go.”
The above judgment of Hon’ble Bombay High court in the case of J.M. Financial & Investment Consultancy Services Pvt. Ltd. (supra) has subsequently been followed by Hon’ble Bombay High Court in the case of Siemens Financial Services Pvt. Ltd. (supra) wherein the Hon’ble Court has held that “approval for issuance of notice u/s. 148A(d) of the Act has not been properly obtained and hence the order passed thereunder and consequent notice issued under section 148 of the Act have to be quashed and set aside. The sanction ought to have been granted under section 151(ii) and not under section 151(i) of the Act.” The above decision of Hon’ble Bombay High Court has subsequently been followed by Hon’ble jurisdictional High Court in the case of Vinay Kumar Singh & Ors. (supra) wherein the Hon’ble Court observed as under: “This intra-court appeal by the Income tax department is directed against the order dated 3rd May, 2023, passed in WPO No. 969 of 2023, by which the order passed under section 148A(d) of the Income Tax Act, 1961 (the Act), dated 29th July, 2022, relating to the assessment year 2017-18, was challenged on the ground of non-compliance of the formalities of taking approval of the specified authority mentioned in Section 151 (ii) of the Act. The revenue cannot dispute the fact that identical issue was decided against the Department in the case of Siemens Financial Services (P) Ltd. Vs. Deputy Commissioner of Income-tax, (2023) 155 taxmann.com 159 (Bombay). This Court also had an occasion to consider similar issue in (2024) 159 taxmann. com 5 (Bombay). The decision in Siemens Financial Services (P) Ltd. (supra) has also been followed in the case of (2024) 159 taxmann.com 5 (Bombay).
Thus, following the above decisions, the appeal filed by the revenue is dismissed.”
Considering the ratio laid down by the Hon’ble courts and the consistent view taken therein in absence of proper approval u/s. 151 of the Act reopening proceeding cannot be held to be valid. Applying the same ratio on the instant case, we are inclined to hold that since no proper approval has been taken u/s. 151 of the Act reopening proceedings are illegal, bad in law and notice u/s. 148 of the Act deserves to be quashed. Since reassessment proceedings carried out u/s. 147 read with sec. 144B of the Act dated 27.03.2022 are hereby quashed, the revisional proceeding also deserves to be quashed since the same could not have been exercised on such invalid assessment order.
Even as far as the second plea of the assessee that the reasons recorded for reopening the assessment do not demonstrate that the Ld. AO has reasons to believe also has sufficient merit. We notice that the reopening has been done simply on the basis of information from Investigation Wing. No verification has been carried out by Ld. AO to unearth any tangible material. Neither the name of any broker or entry operator has been spelt out in the reasons nor any statement was collected where the assessee was named as a beneficiary. Reopening is simply based on borrowed satisfaction and the reasons have no live-link between tangible material and tangible belief. Ld. AO has alleged it to be a penny stock but admittedly it does not fall in the list of 84 companies earmarked by Department as penny stock companies. We find support from the judgment of Hon’ble Delhi High Court in the case of Meenakshi Overseas (supra). Hence, even for not recording proper reasons for reopening, the reassessment proceedings are held to be invalid and are liable to be quashed. Accordingly, the alleged revisionary proceedings on such invalid order have no legs to stand. Therefore, Legal ground raised
by the assessee is allowed and the revisionary proceedings are hereby quashed. Since we have already quashed the revisionary proceedings on the ground that the subject matter of the revisionary proceedings is in itself bad in law and invalid, we do not find any reason to adjudicate the merits of the case. Accordingly, appeal of the assessee is allowed.
12. In the result, appeal of the assessee is allowed. Order is pronounced in the open court on 22nd July, 2024.