2024 (12) TMI 1602 - AT - Income Tax

Section 148 reassessment notices invalid due to limitation period exceeded and improper sanctioning authority approval

Ashok Amratlal Shah Versus ITO WARD 42 (1) (1), Mumbai

The ITAT Mumbai ruled in favor of the assessee, holding that reassessment notices issued under Section 148 were invalid on two grounds. First, regarding ... Reopening of assessment u/s 147 - period of limitation under both the old and the new regimes - Scope of new regime - TOLA - HELD THAT:- Respectfully following the direction of Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] the said notice u/s 148 is not duly covered as per the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) which overrides Income tax Act to extend the relaxation in time limit for issuance of assessment notice which fell for completion on 20/03/2020 to 31/03/2021 till 30/06/2021. The issue is considered by the Hon’ble Apex Court. The ruling in Rajeev Bansal (supra) explicitly addresses the issue of limitation for notices issued under the new regime. The relevant observations from paragraphs 112 and 113 of the judgment clarify that any reassessment notice issued beyond the surviving time limit is invalid. For AY 2015-16, the surviving time limit was exceeded, and the notice issued on 30/06/2022 is therefore barred by limitation. CIT (A) observed that the notices under Section 148 were issued in compliance with the directions in Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] and the escaped income for AY 2015-16 exceeded Rs. 50 lakhs, and therefore, the extended limitation period u/s 149(1)(b) of the Act applied. Thus, we hold that the notice issued under Section 148 for AY 2015-16 is invalid, rendering the subsequent assessment proceedings null and void. Validity of the sanction u/s 151 for the issuance of notices u/s 148 - HELD THAT:- As per the provisions of Section 151(ii) under the new procedural regime, for assessment years where the notice under Section 148 is issued after more than three years from the end of the relevant assessment year, the sanction must be obtained from the Principal Chief Commissioner or Principal Director General. The ITAT’s ruling in Manish Financials clarified that while the Hon’ble Supreme Court in Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] allowed certain procedural relaxations for notices issued during the transition period, post-01/04/2021, the amended provisions under Section 151 must be strictly adhered to. Specifically, for cases where more than three years have elapsed, the required sanction must come from the higher authorities mentioned under Section 151(ii) of the Act. In Manish Financials, for AY 2016–17, Bench found that the notice issued under Section 148 was approved by the Principal Commissioner of Income Tax (Pr.CIT) instead of the Principal Chief Commissioner, as mandated. Consequently, the notice and the subsequent assessment order were deemed invalid. Applying the same rationale here, it is evident that for both assessment years under consideration, the sanctioning authority failed to comply with the specific requirements of Section 151(ii) of the Act. Since the notices were issued under the new regime but lacked the necessary approval from the appropriate authority, the sanction process stands invalid. As a result, the notices u/s 148 are deemed to have no legal foundation. Assessee appeal allowed. ISSUES: Whether the reassessment notices issued under Section 148 of the Income-tax Act, 1961 (the Act) are barred by limitation under Section 149 of the Act, considering the transition from the old to the new procedural regime under Sections 148A and 148.Whether the sanction for issuance of reassessment notices under Section 148 was validly obtained from the appropriate authority as required under Section 151 of the Act in the new regime.Whether notices issued by the jurisdictional Assessing Officer instead of the National Faceless Assessment Centre comply with the mandate of Section 151A of the Act.Whether the addition under Section 69 of the Act for unexplained investments was justified on the facts of the case. RULINGS / HOLDINGS: On limitation: The notice issued under Section 148 for the Assessment Year (AY) 2015-16 was held to be barred by limitation as it was issued beyond the surviving time limit prescribed under the new regime, following the Supreme Court's rulings in Ashish Agarwal v. Union of India and Union of India v. Rajeev Bansal. Consequently, the reassessment proceedings for AY 2015-16 were declared null and void.On sanction authority: For AYs 2016-17 and 2017-18, the reassessment notices under Section 148 were issued without obtaining sanction from the appropriate authority specified under Section 151(ii) of the Act, as the sanction was given by the Principal Commissioner instead of the Principal Chief Commissioner, rendering the notices invalid and the consequent assessments liable to be quashed.On issuance of notices: The notices issued by the jurisdictional Assessing Officer instead of the National Faceless Assessment Centre were not upheld as a ground for interference, given the procedural compliance under the Act and relevant rulings.On addition under Section 69: The addition of Rs. 68,15,933/- treated as unexplained investment under Section 69 was not adjudicated upon due to the disposal of appeals on procedural grounds. RATIONALE: The Court applied the statutory framework of the Income-tax Act, 1961, particularly Sections 147, 148, 149, 148A, 149(1)(b), 151, and 151A, alongside the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), which provided transitional provisions and time limit relaxations during the COVID-19 pandemic period.The Court relied heavily on the Supreme Court decisions in Ashish Agarwal v. Union of India and Union of India v. Rajeev Bansal, which clarified the interplay between the old and new reassessment regimes, the concept of 'surviving time limit,' and the necessity of obtaining sanction from the correct authority under Section 151 post 01/04/2021.The Court recognized that notices issued beyond the surviving time limit under the new regime are time-barred and that failure to obtain sanction from the specified authority under Section 151(ii) renders the notice invalid, affecting the jurisdiction of the Assessing Officer.The decision in the coordinate bench ruling in ACIT-19(1) v. Manish Financials was followed to emphasize strict compliance with Section 151(ii) for notices issued beyond three years from the end of the relevant assessment year.No substantive examination of the merits of the addition under Section 69 was undertaken due to the procedural invalidity of the reassessment notices.