2025 (3) TMI 1521 - AT - Income Tax

Reassessment under section 147 quashed for lack of Principal Chief Commissioner sanction; section 68 and 10(38) additions failed

Alok Kumar Jain Versus ACIT/DCIT, Circle-06, Jaipur And (Vice-Versa)

Alok Kumar Jain Versus ACIT/DCIT, Circle-06, Jaipur And (Vice-Versa) - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the reassessment notice issued under sections 147/148 of the Income-tax Act was validly issued - specifically, whether the Assessing Officer had jurisdiction to reopen the assessment having regard to (a) applicable limitation/extension provisions and (b) requirement of sanction under section 151 (i.e., proper specified authority/approval). 2. Whether proceedings based on information allegedly originating from search/survey in third-party cases should have been initiated under section 153C (special search provisions) instead of section 147/148. 3. Whether the reasons recorded for reopening (and the information/material relied upon) satisfied the statutory requirement and whether the information/material was properly furnished to the assessee under the section 148A regime. 4. Whether the Commissioner (Appeals) erred in admitting or considering additional evidence on appeal without remand to the Assessing Officer (implication of Rule 46A) and whether that constituted procedural infirmity. 5. On the merits (contingent on jurisdiction): whether long-term capital gains claimed as exempt under section 10(38) and the treatment of sale proceeds under section 68 (and related additions u/s 69A) were correctly upheld or deleted. 6. Whether the addition of claimed agricultural income as taxable income was justified in absence of adequate proof. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of Reopening: sanction/authority and limitation (sections 147/148/151; TOLA/Ashish Agarwal context) Legal framework: Reopening of assessment after completion is governed by section 147 read with section 148; post-amendments the sanction/approval required to issue a notice beyond specified periods is governed by section 151. Temporary extension measures (TOLA/notifications) and judicial pronouncements (allowing certain proceedings where notices had already been issued) affect the temporal validity of notices. Precedent treatment: The Tribunal referred to judicial authorities holding that where statute requires sanction from a specified higher authority for reopening after prescribed period, absence of such sanction renders proceedings illicit; cases (from various High Courts/Tribunals) were invoked as guidance. Interpretation and reasoning: The Tribunal examined the record and concluded that the sanction for issuance of the reopening notice was obtained from the Principal Commissioner (or equivalent lower authority) whereas the statutory scheme required approval from the Principal Chief Commissioner/Principal Director General for reassessments initiated after more than three years. Although the notice was issued within extended timelines under temporary measures, the Tribunal found no dispute from Revenue as to the identity of the authority who granted sanction, and therefore determined that the statutory precondition (proper specified authority) was not complied with. Ratio vs. Obiter: Ratio - where statutory provision prescribes a specified authority for sanction, issuance of notice without sanction from that specified authority vitiates the reassessment as lacking jurisdiction. Obiter - observations about legislative intent and ministerial speech explaining the 3-year scheme (contextual but not essential to the holding). Conclusions: The reassessment proceedings were quashed for want of proper sanction/approval as required by section 151. The Tribunal held the assessment to be without jurisdiction and bad in law. Issue 2 - Appropriate procedural vehicle: section 153C vs section 147/148 Legal framework: Section 153C is a special provision for assessments of persons other than searched persons based on seized material; general reassessment under section 147/148 applies otherwise. Jurisprudence requires that where seized material is the basis, section 153C should be invoked. Precedent treatment: Decisions cited establish that reopening based solely on seized material of a third party without independent application of mind or proper invocation of section 153C is impermissible. Interpretation and reasoning: The Tribunal noted parties' contentions and precedent conflict but did not rest its final decision primarily on this point because the reassessment was quashed on sanction grounds. The Tribunal recorded the issue as relevant to challenges raised but treated it as ancillary given the primary jurisdictional defect. Ratio vs. Obiter: Obiter in this judgment - discussion of section 153C applicability recorded but not necessary to dispose of the appeals. Conclusions: The point was noted and left open as academic because the reassessment was quashed on section 151 non-compliance. Issue 3 - Sufficiency and disclosure of reasons/info under section 148A and related sharing of material Legal framework: The amended regime (sections 148A and related instructions) requires that information relied upon be communicated (subject to redaction where necessary) so as to permit an effective response; reasons recorded must disclose sufficient material to form 'reason to believe'. CBDT instructions and case law require disclosure of relevant information. Precedent treatment: Several High Court/Tribunal authorities require that the information forming the basis of reopening be communicated to the assessee and that reasons must reflect application of mind and tangible material rather than conjecture. Interpretation and reasoning: The Tribunal observed disputes about whether information from search/survey, SEBI orders and other material was properly confronted to the assessee. While several precedents were considered by the parties, the Tribunal did not need to rule finally on sufficiency of reasons because the absence of proper sanction rendered jurisdictional inquiry decisive. The Tribunal noted that absence of material or failure to identify the material in the reasons can render reopening invalid, citing authorities, but again treated the point as academic given the primary finding. Ratio vs. Obiter: Obiter - articulation that insufficiency/borrowed satisfaction in reasons can invalidate reopening; not applied as the operative quashing was based on sanction deficiency. Conclusions: The Tribunal recorded legal standards and concerns about non-sharing/insufficient reasons but declined to adjudicate further on merits of reasons in view of the jurisdictional quash. Issue 4 - Admission of additional evidence by Commissioner (Appeals) without remand (Rule 46A) Legal framework: Rule 46A contemplates remand to Assessing Officer for verification when additional evidence is admitted on appeal; principles of natural justice and verification are implicated. Precedent treatment: Authorities require remand when appellate authority admits material which the AO did not examine, so AO can verify and comment. Interpretation and reasoning: The parties contested whether the appellate authority violated Rule 46A by admitting evidence without remand. The Tribunal treated the contention as part of the procedural challenge but, because it quashed the reassessment itself on sanction grounds, it considered this argument academic for disposal. Ratio vs. Obiter: Obiter - if proceedings had been otherwise valid, failure to remand when required would constitute procedural error; no remedial determination necessary here. Conclusions: No adjudication on the Rule 46A point - rendered academic by quashing of assessment for lack of sanction. Issue 5 - Merits: genuineness of claimed LTCG (section 10(38)) and treatment under section 68/69A Legal framework: Exemption under section 10(38) requires transactions to satisfy statutory conditions (equity shares, STT chargeable, etc.). Section 68 enables taxation of sums found credited in books where satisfactory explanation is not forthcoming; human probabilities and circumstantial evidence can be invoked by Revenue in appropriate cases. Precedent treatment: Conflicting High Court/Tribunal decisions exist - some uphold AO additions in penny-stock/manipulation cases (placing onus on assessee), while others (including jurisdictional precedent relied on here) have favored assessee where complete documentary chain (purchase invoices, bank payments, demat records, contract notes, STT evidence) exists and is unrebutted. Interpretation and reasoning: The CIT(A) examined factual documentary trail (purchase invoices, bank payments, demat credits, contract notes, STT payment) and found the assessee's evidentiary chain unrebutted; relying on jurisdictional and higher court precedents, the CIT(A) deleted the AO's additions on merits. The Tribunal, having quashed the reassessment on jurisdictional/sanction grounds, did not decide the revenue's substantive challenge and treated the revenue appeal as academic. Ratio vs. Obiter: Obiter - explanatory discussion of factors relevant to distinguishing penny-stock manipulation cases from legitimate trading; not a determinative ratio because the result rests on jurisdictional quash. Conclusions: Merits of the LTCG/section 68 additions were not adjudicated by the Tribunal because reassessment was held void for lack of proper sanction; accordingly, revenue grounds on merits were dismissed as academic. Issue 6 - Agricultural income addition Legal framework: Agricultural income exemption requires proof of agricultural activity/income; burden lies on claimant to demonstrate entitlement in the relevant year. Interpretation and reasoning: The AO disallowed agricultural exemption for lack of supporting evidence; CIT(A) sustained that addition. The Tribunal observed that the jurisdictional quash of the entire reassessment made consideration of this addition academic and did not decide the substantive entitlement. Ratio vs. Obiter: Obiter - on general principle, ownership of agricultural land alone is insufficient to attract exemption for a given year without proof of agricultural receipts; not adjudicated on facts here. Conclusions: The agricultural income issue was rendered academic by the quashing of the reassessment. FINAL CONCLUSION OF THE TRIBUNAL The Tribunal quashed the reassessment/assessment proceedings because the statutory precondition of sanction was not complied with (approval required from the specified higher authority under section 151 was not obtained). Because the reassessment was held to be without jurisdiction and void ab initio, all consequential additions and the revenue's appeal on merits were treated as academic and not adjudicated. The appeal by the assessee was allowed on jurisdictional grounds; the revenue's appeal was dismissed for statistical purposes.