Penalties under sections 271D, 271E and reassessment under sections 148, 151 held time-barred and void under TOLA

ITAT allowed the assessee's appeal. It held that penalties imposed u/s 271D and 271E for alleged violations of ss. 269SS and 269T were barred by limitation under s. 275, as the competent authority passed the penalty order on 11.03.2020, beyond both the financial year and six-month statutory periods from initiation, rendering the penalties unsustainable. ITAT further held that the reassessment notice u/s 148 dated 30.07.2022 for A.Y. 2016-17 was invalid and time-barred under the new regime read with TOLA, as it was issued beyond three years without obtaining mandatory approval from the CCIT/PCCIT as required under s. 151. Consequently, the reassessment proceedings and order were quashed as void ab initio.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether penalties imposed under sections 271D and 271E were barred by limitation under section 275(1)(c), where initiation of penalty was recorded in the reassessment order and the penalty orders were passed subsequently by the Joint Commissioner.

1.2 Whether the Revenue's quantum appeal was maintainable in view of the monetary limits prescribed by the prevailing CBDT Circular for filing appeals.

1.3 Whether the reassessment notice issued under section 148 for assessment year 2016-17, and the consequent reassessment order under section 143(3) read with section 147, were valid in law having regard to (i) the requirement of prior approval by the specified authority under section 151 (new regime), and (ii) the limitation prescribed under section 149 read with TOLA and the law laid down by the Supreme Court.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation for penalties under sections 271D and 271E (section 275(1)(c))

Legal framework

2.1 The Tribunal reproduced and applied section 275(1)(c), which prescribes that no order imposing penalty shall be passed "after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which action for imposition of penalty is initiated, whichever period expires later".

2.2 The Tribunal relied on the legal principle settled by the High Courts, including decisions in Rishikesh Buildcon (P.) Ltd., Mahesh Wood Products (P.) Ltd., JKD Capital & Finlease Ltd., Thapar Homes Ltd., and Narayani and Sons (P.) Ltd., that for penalties under sections 271D/271E, the "initiation" of penalty proceedings occurs when the Assessing Officer records satisfaction and directs initiation in the assessment order itself, and limitation under section 275(1)(c) runs from that point, not from the date of show-cause notice by the competent authority.

Interpretation and reasoning

2.3 The reassessment under section 143(3) read with section 147 was completed on 28/12/2018. In that order, the Assessing Officer recorded specific findings of acceptance of cash loans of Rs. 42.50 lakhs and repayment of Rs. 34.50 lakhs in cash, noted violation of sections 269SS and 269T, and expressly recorded satisfaction and "made a reference to the Range Head for initiation of penalty leviable under section 271D & 271E".

2.4 The Tribunal held that:

(a) "The proceedings" referred to in section 275(1)(c) are the assessment/reassessment proceedings in which the grounds for penalty are found and satisfaction is recorded;

(b) "In the course of which action for imposition of penalty has been initiated" refers to the point at which the Assessing Officer records satisfaction and directs initiation, not the later date when the Joint Commissioner issues the show-cause notice;

(c) In cases of penalties under sections 271D/271E, the Assessing Officer detects the violation during assessment and initiates action, though the power to impose penalty vests in the Joint Commissioner; this does not defer the "initiation" date for limitation purposes.

2.5 Applying section 275(1)(c), the Tribunal held that two alternative limitation periods arise:

(i) End of the financial year in which the assessment proceedings (in which penalty was initiated) were completed - i.e., 31/03/2019; and

(ii) Six months from the end of the month in which action for imposition of penalty was initiated - since initiation occurred in December 2018, this expired on 30/06/2019.

2.6 The Joint Commissioner issued the penalty orders on 11/03/2020, which fell beyond both limitation periods. The Tribunal, following the High Court rulings referred to, rejected the argument that the limitation should run from the date of show-cause notice issued by the Joint Commissioner.

Conclusions

2.7 The penalty orders dated 11/03/2020 under sections 271D and 271E were held to be barred by limitation under section 275(1)(c), and the penalties were quashed.

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Issue 2: Maintainability of Revenue's appeal in view of CBDT monetary limits

Interpretation and reasoning

2.8 In one Revenue appeal, the disputed addition was Rs. 55,00,000/-, and the corresponding tax effect was Rs. 43,76,213/-, which is below the monetary threshold of Rs. 60,00,000/- prescribed for filing appeals by CBDT Circular No. 09/2024 dated 17/09/2024.

2.9 The Tribunal also noted that no exception clause to the Circular was applicable in the case.

Conclusions

2.10 The Revenue's appeal was dismissed as not maintainable on the ground of low tax effect, in terms of the applicable CBDT Circular.

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Issue 3: Validity of reassessment notice under section 148 and reassessment for A.Y. 2016-17 (sections 148, 148A, 149, 151 - new regime - and TOLA)

Legal framework

3.1 The Tribunal examined the amended scheme of reassessment under sections 148, 148A, 149 and 151 (new regime effective from 01/04/2021), including:

(a) Section 151 (new regime) specifying different "specified authorities" for prior approval depending on (i) the size of escaped income (above/below Rs. 50 lakhs), and (ii) whether more than three years have elapsed from the end of the relevant assessment year;

(b) The requirement that grant of sanction by the specified authority is a precondition for the Assessing Officer to assume jurisdiction under section 148;

(c) The link between time limits and the jurisdiction of the authority to grant sanction.

3.2 The Tribunal relied on the Supreme Court's decision in Union of India v. Rajeev Bansal & Others, which, in paras 75, 76, 81, 110-114, elucidated:

(a) After 01/04/2021, prior approval must be obtained from the appropriate authorities specified under section 151 of the new regime, and where alleged income escaping assessment exceeds Rs. 50 lakhs and more than three years have elapsed, approval must be from the Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General;

(b) Grant of sanction is a jurisdictional precondition for issuance of notice under section 148 and for passing order under section 148A(d);

(c) The time limits under section 149(1) (new regime) read with TOLA apply to reassessment notices issued under the new regime in pursuance of the deemed notices arising from Ashish Agarwal; the "clock" of limitation is stopped between the date of the original (old law) section 148 notice and the supply of material and opportunity under section 148A(b), and resumes thereafter; and

(d) All reassessment notices issued beyond the surviving time under the Act read with TOLA are time barred and invalid.

3.3 The Tribunal also noted that the Supreme Court had held that while certain approvals under section 148A(a) and 148A(b) were waived in Ashish Agarwal, the requirement of obtaining sanction under section 151 for orders under section 148A(d) and notices under section 148 remained mandatory.

Chronology and factual matrix

3.4 For A.Y. 2016-17, the Tribunal recorded the following material dates:

(a) No notice under section 148 was issued up to 31/03/2021;

(b) A first notice under section 148 (old law) was issued on 30/06/2021 with approval of the Range authority;

(c) Pursuant to Ashish Agarwal, a notice under section 148A(b) was issued on 30/05/2022;

(d) No reply was filed by the assessee up to 13/06/2022 (expiry of two-week reply period);

(e) Order under section 148A(d) was passed on 30/07/2022 with prior approval of the "specified authority" but without mentioning which of the two higher authorities; and

(f) A final notice under section 148 (new regime) was issued on 30/07/2022 with prior approval of the PCIT-2, Mumbai, as specified in the notice itself.

(A) Defect in sanction under section 151 (new regime)

Interpretation and reasoning

3.5 The Tribunal held that for A.Y. 2016-17, more than three years had elapsed from the end of the relevant assessment year (31/03/2017) when the fresh notice under section 148 was issued on 30/07/2022, and the alleged income escaping assessment exceeded Rs. 50,00,000/-.

3.6 Applying section 151 (new regime) as interpreted in Rajeev Bansal, the Tribunal held that in such a case:

(a) A reassessment notice after three years can be issued only after obtaining prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General; and

(b) Sanction by a PCIT does not meet the statutory requirement in these circumstances.

3.7 Since the impugned notice dated 30/07/2022 under section 148 specifically recited sanction only from the PCIT-2, Mumbai, and there was no approval from PCCIT/CCIT/PDGIT/DGIT, the Tribunal concluded that the mandatory jurisdictional precondition of sanction by the proper "specified authority" was not satisfied.

Conclusions on sanction

3.8 The Tribunal held that:

(a) The notice under section 148 dated 30/07/2022 was issued without valid prior approval from the competent authority mandated by section 151 (new regime);

(b) Non-compliance with section 151 affects the Assessing Officer's jurisdiction to issue notice under section 148; and

(c) On this ground alone, the notice and the entire reassessment proceedings were invalid and void ab initio.

(B) Limitation under section 149 read with TOLA and Rajeev Bansal

Interpretation and reasoning

3.9 The Tribunal then independently examined the bar of limitation in light of section 149 (as amended by Finance Act 2021), TOLA, and the Supreme Court's decision in Rajeev Bansal.

3.10 Based on the statutory scheme and the Supreme Court's exposition, the Tribunal noted:

(a) For A.Y. 2016-17 under the old law (six-year limit), the last date to issue a notice under section 148 was 30/06/2021, extended by TOLA, which coincided with the date of the original (old regime) notice issued on 30/06/2021;

(b) By virtue of the legal fiction in Ashish Agarwal, the original notice became a deemed section 148A(b) show-cause notice under the new regime, and the "clock" of limitation stood stopped from 30/06/2021 until the date when material was supplied and the period for reply expired (taken as 13/06/2022);

(c) For this case, no unexpired portion of the limitation period remained as on 30/06/2021 (i.e., "time left" under old law was NIL);

(d) Under the fourth proviso to section 149(1) and Rajeev Bansal, a minimum of seven days from the end of the reply period (13/06/2022) could be available, and at most up to 30/06/2022, for issuance of a valid notice under section 148.

3.11 The Tribunal accepted the computation that, even granting the extended window, the outer possible limit to issue a valid notice under section 148 would be not later than 20/06/2022, or at the very most 30/06/2022. Since the actual notice under section 148 (new regime) was issued on 30/07/2022, it was beyond the surviving permissible period as per the statutory scheme and the directions in Rajeev Bansal.

3.12 The Tribunal referred to the Supreme Court's conclusion that:

(a) To assume jurisdiction to issue a notice under section 148 in respect of relevant assessment years, the Assessing Officer must (i) issue notices within the period prescribed under section 149(1) (new regime) read with TOLA, and (ii) obtain prior approval from the authority specified under section 151;

(b) A notice issued without complying with these preconditions is invalid and time barred; and

(c) All notices issued beyond the surviving period of limitation are liable to be set aside.

Conclusions on limitation

3.13 On the basis of the statutory timelines and the Supreme Court's directions, the Tribunal held that the impugned section 148 notice dated 30/07/2022 for A.Y. 2016-17 was issued beyond the surviving limitation under section 149 read with TOLA and Rajeev Bansal, and was therefore time barred.

Overall conclusions on Issue 3

3.14 The Tribunal concluded that the impugned reassessment notice under section 148 for A.Y. 2016-17 failed on both jurisdictional counts:

(i) absence of valid sanction by the proper "specified authority" under section 151 (new regime); and

(ii) issuance beyond the permissible time limit under section 149(1) (new regime) read with TOLA as interpreted in Rajeev Bansal.

3.15 Consequently, the reassessment proceedings and the assessment order under section 143(3) read with section 147 were held void ab initio and quashed, and the Revenue's appeal on the quantum addition under section 69A was dismissed.

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