Reassessment notice under section 148 invalid without proper sanction and below Rs. 50 lakh threshold

ITAT Mumbai held that reassessment proceedings initiated against a non-resident individual deriving income from other sources were invalid. The notice under section 148 was issued beyond three years without proper sanction from the Specified Authority as required under amended section 151. Additionally, the escaped income of Rs. 43.32 lakh was below the Rs. 50 lakh threshold required for reassessment beyond three years under section 149. Following Bombay HC precedent in Siemens Financial Services case, ITAT ruled the reassessment notice was void ab initio and time-barred, deciding in favor of the assessee.

---

---

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Jurisdictional authority for issuing notice under section 148.
3. Compliance with the amended provisions of sections 149 and 151.
4. Addition made under section 56(2)(vii)(b) of the Act.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under section 147, arguing that the notice under section 148 was issued after the expiry of three years from the end of the assessment year 2017-18. The assessee contended that as per section 149(1)(b), notice under section 148 can only be issued beyond three years if the income escapement is above Rs. 50 lakh. In this case, the alleged income escapement was Rs. 43,32,000, which is below the threshold.

The Tribunal noted that the original notice under section 148 was issued on 15/06/2021, after three years from the end of the relevant assessment year. The Hon'ble Supreme Court in Union of India v/s Ashish Agarwal held that notices issued under section 148 after 01/04/2021 should be treated as show cause notices under section 148A(b).

2. Jurisdictional Authority for Issuing Notice under Section 148:
The assessee argued that the approval for issuing the notice was obtained from the Principal Commissioner of Income Tax (PCIT), whereas it should have been obtained from the Principal Chief Commissioner or Principal Director General as per the amended section 151(ii) since more than three years had elapsed from the end of the relevant assessment year.

The Tribunal referred to the decision in Siemens Financial Services (P.) Ltd. v/s DCIT, where it was held that the approval should be obtained from the Principal Chief Commissioner or Principal Director General if more than three years have elapsed. The Tribunal found that the approval in the present case was not in conformity with the law as it was obtained from the PCIT.

3. Compliance with Amended Provisions of Sections 149 and 151:
The Tribunal examined the provisions of section 149, which stipulates that no notice under section 148 shall be issued if three years have elapsed unless the income escapement is Rs. 50 lakh or more. In the present case, the alleged income escapement was Rs. 43,32,000, which is below the threshold. Therefore, the notice issued under section 148 was found to be time-barred.

The Tribunal also noted that the sanction for issuing the notice was obtained from the PCIT instead of the Principal Chief Commissioner or Principal Director General, which is a mandatory requirement under section 151(ii) for cases where more than three years have elapsed.

4. Addition Made under Section 56(2)(vii)(b):
The assessee also challenged the addition made under section 56(2)(vii)(b) on the grounds that the Permanent Alternative Accommodation Agreement (PAA) had not been acted upon, as the assessee had neither surrendered his tenancy rights nor given possession of the existing premises. The Tribunal did not delve into the merits of this issue as it had already quashed the reassessment proceedings on jurisdictional grounds.

Conclusion:
The Tribunal quashed the notice issued under section 148 and the subsequent reassessment proceedings, including the final assessment order, on the grounds that the notice was time-barred and the approval was not obtained from the correct authority as mandated by the amended provisions of sections 149 and 151. Consequently, the appeal by the assessee was allowed. The other grounds raised by the assessee were rendered academic and were left open.

---