2025 (2) TMI 1287 - AT - Income Tax

Reassessment quashed due to invalid section 148 notice lacking proper section 151(ii) approval for AY 2016-17

The ITAT set aside the reassessment on the ground of invalid notice under section 148. The notice for AY 2016-17 was issued on 29.07.2022, i.e., beyond ... Validity of reopening of assessement for want of valid approval - Competent authority to accord approval - as argued AO has not obtained the approval of the specified authority u/s. 151 hence the assessment order is bad in law - HELD THAT:- Prior approval u/s 148A(a) and 148(b) were waived, however, the prior approval of the specified authority according to section 151 of the new regime was not waived before passing an order u/s. 148A(d) or issuing a notices u/s. 148 of the Act on or after 01.04.2021 in terms of the decision of Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] As the notice u/s. 148 was issued on 29.07.2022 after obtaining the prior approval accorded by the PCIT-8, Mumbai, on 25.07.2022 of the said notice. Three years have elapsed from the end of the relevant assessment year 2016-17 on 31.03.2020. According to section 151(ii) of the Act, under new regime, the approval should have been obtained either from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General as specified authority, which is not so obtained in the case in hand. We, accordingly hold that the notice u/s. 148 of the Act is invalid, hence the consequent assessment u/s. 147 of the Act is quashed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the reassessment notice issued under section 148 for the relevant assessment year, after 01.04.2021 and pursuant to the directions in Ashish Agarwal, was valid in law in the absence of prior approval from the correct 'specified authority' under section 151 of the Income-tax Act, 1961, as amended by the Finance Act, 2021. 1.2 Consequentially, whether the reassessment order passed under section 147 read with section 144C(13), based on such notice, was sustainable in law. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of notice under section 148 in the absence of approval from the correct specified authority under section 151 (new regime) Legal framework 2.1 The Tribunal noted that the issue arises out of an additional ground raising a pure question of law and, applying the principle laid down by the Supreme Court in National Thermal Power Co. Ltd. v. CIT, held that it has jurisdiction to admit and decide such a ground as it has a bearing on the tax liability. 2.2 The Tribunal referred in detail to the judgment of the Supreme Court in Union of India & Ors. v. Rajeev Bansal, wherein the Court: (i) analysed section 151 in both the old and new regimes; (ii) clarified that sanction by the 'specified authority' is a jurisdictional precondition for issue of notice under section 148; (iii) explained the interaction of section 151 (new regime) with TOLA; and (iv) interpreted the effect of the earlier decision in Union of India v. Ashish Agarwal. 2.3 Under the new regime (post Finance Act, 2021), as reproduced and relied upon by the Tribunal, section 151 provides that the specified authority for purposes of sections 148 and 148A shall be: (i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less have elapsed from the end of the relevant assessment year; and (ii) Principal Chief Commissioner or Principal Director General or, where there is none, Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year. 2.4 The Tribunal relied upon the Supreme Court's exposition in Rajeev Bansal that: (a) section 151 links the category/level of specified authority to the time elapsed from the end of the relevant assessment year; (b) grant of sanction by the appropriate specified authority is a condition precedent to the Assessing Officer's jurisdiction to issue a reassessment notice under section 148; (c) in Ashish Agarwal, the Supreme Court, while exercising powers under Article 142, waived prior approval only for proceedings under sections 148A(a) and 148A(b) (including the treating of old section 148 notices as deemed section 148A(b) notices), but expressly did not waive the requirement of prior approval of the specified authority for orders under section 148A(d) and for notices under section 148 under the new regime; and (d) therefore, for notices issued on or after 01.04.2021 in terms of Ashish Agarwal, prior approval under section 151 of the new regime is mandatorily required before passing an order under section 148A(d) and before issuing a notice under section 148, and must be from the correct specified authority depending on whether more than three years have elapsed. Interpretation and reasoning 2.5 The Tribunal recorded that for the assessment year 2016-17, the impugned notice under section 148 was issued on 29.07.2022, after an order under section 148A(d) and after 01.04.2021, in pursuance of the directions in Ashish Agarwal. 2.6 On facts, as evident from the assessee's paper book (page 39), the Tribunal found that: (i) the notice under section 148 dated 29.07.2022 for A.Y. 2016-17 was issued only after obtaining purported prior approval accorded by the Principal Commissioner of Income Tax-8, Mumbai, on 25.07.2022; and (ii) this was expressly mentioned in para 3 of the notice, with reference number pr.CIT-8/148 Approval/2022-23. 2.7 The Tribunal then determined the applicable category of 'specified authority' under section 151 (new regime) based on the time elapsed from the end of the relevant assessment year. It held that for A.Y. 2016-17, more than three years had elapsed from the end of the relevant assessment year on 31.03.2020. 2.8 Applying section 151(ii) of the new regime, the Tribunal held that, in such a case (more than three years having elapsed), the only competent 'specified authority' for purposes of sanction under sections 148 and 148A(d) would be the Principal Chief Commissioner or Principal Director General or, where there is none, the Chief Commissioner or Director General. 2.9 The Tribunal observed that the approval in the present case had been obtained only from the Principal Commissioner (PCIT-8, Mumbai), who does not fall within the category of specified authority under section 151(ii) for cases where more than three years have elapsed from the end of the relevant assessment year. 2.10 Reading the Supreme Court's directions in Ashish Agarwal in light of Rajeev Bansal, the Tribunal held that while approvals under sections 148A(a) and 148A(b) could be treated as waived, there was no waiver of the mandatory requirement of prior approval from the correct specified authority under section 151 (new regime) for: (i) passing an order under section 148A(d); and (ii) issuing the notice under section 148, for notices issued on or after 01.04.2021. 2.11 As the jurisdictional precondition of valid prior approval from the correct specified authority was not satisfied, the Tribunal treated the defect as going to the root of jurisdiction and not as a mere procedural irregularity. Conclusions 2.12 The Tribunal held that, since more than three years had elapsed from the end of A.Y. 2016-17, only the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General could have validly granted sanction under section 151(ii) for issuing notice under section 148. 2.13 It held that sanction obtained from the Principal Commissioner of Income Tax-8, Mumbai, was not from the correct specified authority and therefore did not satisfy the jurisdictional requirement under section 151 of the new regime. 2.14 Consequently, the notice issued under section 148 dated 29.07.2022 was declared invalid in law, and the subsequent reassessment order passed under section 147 read with section 144C(13) was quashed as being without jurisdiction. 2.15 In view of this finding, the Tribunal held that all other legal and factual grounds raised by the assessee became merely academic and did not require adjudication. 2.16 The appeal was allowed on this jurisdictional ground alone.