Reassessment quashed for invalid s.148, s.148A, s.147, lack of s.151 approval and unsustainable s.69A addition

ITAT Kolkata dismissed the revenue's appeal and upheld the order of CIT(A). It held that for AY 2016-17, where alleged escapement exceeded Rs. 50 lakh, TOLA was inapplicable, so the s.148 notice could not be deemed a s.148A(b) notice, rendering the subsequent s.148A(d), s.148 and s.147 proceedings without jurisdiction. Further, mandatory approval under s.151 was not obtained from the proper authority (PCCIT/CCIT). The reassessment was also invalid as additions were made on grounds not forming the recorded reasons, based on borrowed satisfaction and speculative "potential" cash borrowings. On merits, s.69A addition failed as the assessee was only a borrower, not owner of money.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the order under section 148A(d) and the consequent notice under section 148 (new regime) were validly passed/issued when prior approval was taken from an authority not specified in section 151 for the relevant elapsed period and when TOLA/applicability issues arise.

2. Whether notices issued under the pre-amended section 148 between 01.04.2021 and 30.06.2021 could be treated as show-cause notices under section 148A(b) (Ashish Agarwal) and the extent to which subsequent Supreme Court rulings (including Rajeev Bansal) and CBDT Instruction No.1/2022 affect validity and procedure.

3. Whether the Assessing Officer could assess/add income (not recorded in the reasons for reopening) - specifically the addition of Rs. 75.60 crores under section 69A - when that head did not form part of the reasons recorded under section 148A/section 148.

4. On the merits, whether the addition of Rs. 13,68,850 under section 68 (fictitious trading profits) was sustainable given the assessee's claim of earlier taxation of the same amount.

5. On the merits and on procedural fairness, whether the addition of Rs. 75.60 crores under section 69A (alleged accommodation loans/accommodation entries) was justified: (a) legal applicability of section 69A where assessee is alleged borrower (not owner); (b) sufficiency and character of investigation material (use of terms like "potential", "probable", "possible"); (c) denial of adequate details, opportunity to respond, and cross-examination.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of order under s.148A(d)/notice under s.148 where approval taken from non-specified authority (s.151 linkage)

Legal framework: The first proviso to s.148 (new regime) mandates prior approval of the "specified authority" before issuing a notice under s.148; section 151 prescribes which authority is "specified" depending on the time elapsed since the end of the relevant assessment year (different authorities if =3 years or >3 years).

Precedent treatment: Jurisdictional High Court decisions (Fabulous Travel, K.K. Aggarwal) and various High Courts/Tribunals have held that approval must be from the authority specified by s.151; coordinates and the Supreme Court in later pronouncements (Rajeev Bansal) clarified that s.151 approval is not waived by Ashish Agarwal directions and remains mandatory for orders under s.148A(d) and notices under s.148.

Interpretation and reasoning: The Court read the first proviso to s.148 conjunctively with s.151 to conclude that the approval requirement is mandatory and varies with the statutory time-limits. If the AO obtained approval from an authority falling under clause (i) of s.151 while the elapsed period required approval under clause (ii), the approval is legally ineffective. The Tribunal followed jurisdictional High Court precedents and the Supreme Court's clarifications that Ashish Agarwal did not waive s.151 approval.

Ratio vs. Obiter: Ratio - approval under s.151 as prescribed for the relevant time period is mandatory; absence or defective approval renders order under s.148A(d)/notice under s.148 invalid. Obiter - none material beyond application to facts.

Conclusion: Order under s.148A(d) and subsequent notice under s.148 were invalid because approval was taken from PCIT instead of the PCCIT/CCIT required for the elapsed-period category; the reopening and subsequent proceedings were therefore quashed on this ground (with liberty to revenue to act in accordance with law).

Issue 2 - Treatment of pre-amendment s.148 notices issued 01.04.2021-30.06.2021 as s.148A(b) show-cause notices and impact of Ashish Agarwal, Rajeev Bansal and CBDT Instruction No.1/2022

Legal framework: Ashish Agarwal held that certain pre-amendment s.148 notices issued in the specified window may be treated as s.148A(b) show-cause notices and directed procedural steps (supply of materials, s.148A(d) orders, etc.). CBDT Instruction No.1/2022 implemented those directions. Rajeev Bansal later clarified limits of TOLA applicability and that Ashish Agarwal did not waive prior approval required under s.148A(d)/s.148 (s.151 requirement).

Precedent treatment: Ashish Agarwal was followed prospectively by revenue and AO; Rajeev Bansal refined scope - particularly that TOLA does not apply in certain cases (e.g., AYs where escaped income > Rs.50 lakh and six-year period did not fall within TOLA window) and that s.151 approval remains mandatory notwithstanding Ashish Agarwal's reliefs.

Interpretation and reasoning: The Tribunal examined whether TOLA applied to AY 2016-17 in circumstances where escaped income exceeded Rs.50 lakh. It accepted the position established in Rajeev Bansal that TOLA did not apply where the six-year limitation was not within the TOLA period, hence the department could not treat the earlier s.148 notice as s.148A(b) in such cases. Further, even assuming Ashish Agarwal procedures were followed, the s.151 approval requirement for s.148A(d) and s.148 persisted.

Ratio vs. Obiter: Ratio - Ashish Agarwal's procedural directions do not eliminate the statutory s.151 approval requirement; TOLA applicability is circumscribed and cannot be invoked where six-year time limit did not fall between the TOLA dates. Obiter - procedural nuances of CBDT Instruction as applied to faceless/NFAC mechanisms (not decided on merits by Tribunal here).

Conclusion: The Tribunal upheld the CIT(A)'s approach in quashing the proceedings for defective authority approval and held that reliance on Ashish Agarwal/CBDT Instruction could not cure the s.151 defect; where TOLA was inapplicable as per Rajeev Bansal, the deeming to s.148A(b) was also not legally available.

Issue 3 - Permissibility of additions not forming part of recorded reasons for reopening (roving enquiry; Explanation 3 and limits)

Legal framework: Explanation 3 to s.147/related provisions permits assessment of issues that come to AO's notice during reassessment proceedings even if not part of recorded reasons, but a valid notice is a prerequisite; Juxaposition with case law holding that invalid notice vitiates the entire reassessment and prohibits roving inquiries.

Precedent treatment: Jurisdictional High Court (B.P. Poddar) and others held that if the foundational notice is invalid, the AO cannot mount a roving enquiry into issues not in the reasons for reopening.

Interpretation and reasoning: The Tribunal noted that reasons recorded in s.148A(d) did not survive after CIT(A) deleted the stated reasons; the Rs.75.60 crore addition was not among the reasons for reopening. Following precedent, a valid notice is the foundation; absent that, the AO lacked power to assess other issues that were not the basis for reopening.

Ratio vs. Obiter: Ratio - where the notice/order under s.148A(d) is invalid, any subsequent additions based on issues not forming part of the stated reasons for reopening are unsustainable. Obiter - scope of Explanation 3 depends on existence of valid notice.

Conclusion: The addition of Rs.75.60 crores - being outside the reasons for reopening and founded on an invalid notice - was illegal; the reassessment on that head could not stand.

Issue 4 - Addition under s.68 (fictitious trading profits) and double taxation argument

Legal framework: Section 68 pertains to unexplained cash credits; general principle that same income cannot be taxed twice; AO must verify whether contested amount was already offered to tax.

Precedent treatment: Established principle that duplication of tax on same income is impermissible and AO must compare information with assessee's records.

Interpretation and reasoning: Tribunal accepted assessee's contention that the amount alleged to be fictitious profits may already have been offered to tax (full profit of Rs.16,64,106 offered and taxed); directed AO to verify the assessee's chart against departmental information and delete the addition if already taxed.

Ratio vs. Obiter: Ratio - no income can be taxed twice; AO must verify overlap with taxed amounts before sustaining s.68 addition. Obiter - factual verification required; decision left for AO compliance.

Conclusion: Addition of Rs.13,68,850 under s.68 set aside for statistical/verification purpose; AO directed to delete if the amount was already offered to tax.

Issue 5 - Merits and procedural infirmities in making addition under s.69A (alleged accommodation loans of Rs.75.60 crores)

Legal framework: Section 69A applies only where the assessee is owner of money, bullion, jewellery or other valuables and cannot explain sources. Where amount is a loan/borrowed sum, s.69A is not the appropriate head. Principles of natural justice require disclosure of material relied upon, reasonable time and opportunity to respond, and, if necessary, opportunity to cross-examine witnesses.

Precedent treatment: Jurisdictional High Court (Girdhar Gopal Dalmia) invalidated reopenings based on DDIT reports that used terms like "potential"/"possible" and lacked particulars; courts have condemned reassessments based on vague/probabilistic investigative reports and on mere "borrowed satisfaction" of investigation wing without AO's independent application of mind.

Interpretation and reasoning: Tribunal found that (i) s.69A could not be invoked where assessee was alleged borrower rather than owner; (ii) investigation material used vague language ("potential", "probable", "possible") and did not contain particulars; (iii) AO failed to provide full details and adequate time and denied requested cross-examination; and (iv) AO relied on investigation wing's satisfaction without independent application of mind. These procedural and substantive defects made the addition unsustainable.

Ratio vs. Obiter: Ratio - addition under s.69A cannot be sustained where the assessee is only an alleged borrower (not owner), where the basis is vague/probabilistic investigative material lacking particulars, and where principles of natural justice (disclosure, time, cross-examination) are breached. Obiter - emphasis that AO must independently apply mind to investigation reports.

Conclusion: Addition of Rs.75.60 crores under s.69A was quashed on merit and for procedural infirmities; the Tribunal upheld the CIT(A) order on this ground.

Overall Disposition - Cross-References and Final Outcome

Cross-references: Issues 1-3 are interlinked (s.151 approval, Ashish Agarwal/Rajeev Bansal/TOLA applicability, and scope to assess other issues); Issues 4-5 concern substantive and procedural sustainability of additions and depend, in part, on the validity of the reopening under Issues 1-3.

Final conclusion: The Tribunal dismissed the revenue's appeal and upheld the quashing of the order under s.148A(d), the notice under s.148 (defective approval), and the deletions of the additions on both legal and merits grounds, with directions for verification on the s.68 point if necessary and recognition that revenue retains liberty to act as per law if it wishes to initiate fresh proceedings correctly.

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