2024 (11) TMI 1029 - AT - Income Tax

Reassessment notices under section 148 quashed as time-barred, withdrawal of section 10(23C)(vi) approval invalid due to jurisdictional issues

ITAT Patna held that reassessment notices issued under section 148 for AY 2018-19, 2019-20, and 2020-21 were time-barred by limitation. The tribunal ... Validity of reassessment proceedings - as alleged notices were time barred by limitation - Withdrawal of approval u/s 10(23C) - lapses found during the course of survey conducted on the assessee as well as during search and seizure operation u/s 132 and survey u/s 133A on the founder of the society, wherein the assessee-Society Founder was found to have been indulging in syphoning off the money of the society - HELD THAT:- As relying on Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT]. Assessing Officer was required to issue the reassessment notice under section 148 of the new regime within the time limit surviving under the Income Tax Act read with TOLA. In this context, the assessee’s contentions is worth merit that the notices issued under section 148 of the Act under the new regime dated 21.07.2022 for A.Y. 2018-19, on 22.07.2022 for A.Y. 2019-20 and dated 26.07.2022 for A.Y. 2020-21 were clearly barred by limitation. As on the date of reference, there was no valid proceeding pending before the ld. Assessing Officer, whereas for making any reference to the ld. PCIT by the ld. Assessing Officer during a pending proceeding is sine quo non, which were not there in the instant cases as these notices were clearly time barred by limitation. Therefore, on this count, we are inclined to quash the orders passed by the ld. PCIT withdrawing the approval under section 10(23C)(vi) of the Act. Second proviso to section 143(3) of the Act was brought on the Statute Book w.e.f. 1st April, 2022 and is accordingly applicable for A.Y. 2022-23 onwards -We observe that the AO is vested with the power to make reference during the course of pending proceedings before him but in the instant case a reference was made by the ld. AO under 2nd proviso to section 143(3) of the Act, which was not applicable to the assessments under consideration and thus the reference is also invalid and, therefore, the consequent orders passed by the ld. PCIT under section 10(23C)(vi) of the Act withdrawing the approval for all these assessment years are invalid and accordingly quashed. The ld. Case of the assessee finds support from the decision of Lakhmi Chand Charitable Society [2024 (8) TMI 1297 - ITAT DELHI] wherein similar issue has been decided by the Coordinate Bench. Reference was made in terms of 2nd proviso to section 143(3) to ld. PCIT (Central), Patna to whom the ld. Assessing Officer was subordinate - We are of the opinion that it is not permissible under the Act and is invalid. Rather it was the ld. Commissioner (Exemption) having territorial jurisdiction as specified in Column 4 of the Notifications Nos. 52/2014 and 53/2014 both dated 22nd October, 2014, who was the appropriate authority to approve or withdraw the approval. Even on this account, the ld. PCIT’s jurisdiction is invalid and not sustainable in the eyes of law. Decided in favour of assessee. Issues Involved:1. Validity of withdrawal of approval under section 10(23C)(vi) of the Income Tax Act for Assessment Years 2018-19 to 2021-22.2. Applicability of the second proviso to section 143(3) of the Income Tax Act.3. Validity of reassessment notices issued under section 148 of the Income Tax Act.4. Jurisdiction of the Principal Commissioner of Income Tax (PCIT) in withdrawing approval.Issue-wise Detailed Analysis:1. Validity of Withdrawal of Approval under Section 10(23C)(vi):The appeals contested the withdrawal of approval granted to the assessee-society under section 10(23C)(vi) of the Income Tax Act for the assessment years 2018-19 to 2021-22. The PCIT (Central), Patna withdrew this approval based on findings from a survey and search operations that indicated the society's funds were being siphoned off for personal use by its founder. The assessee argued that the withdrawal was arbitrary and not in accordance with the provisions of the Act, asserting that all receipts were duly recorded in the books of account. The Tribunal found that the withdrawal was not justified as the reassessment notices, upon which the withdrawal was based, were time-barred and thus invalid.2. Applicability of the Second Proviso to Section 143(3):The second proviso to section 143(3) of the Income Tax Act, effective from April 1, 2022, was cited by the PCIT as the basis for withdrawing the approval. The assessee argued that this proviso was not applicable to the assessment years in question, which were prior to its effective date. The Tribunal agreed, noting that the proviso could not be applied retrospectively to the assessment years 2018-19 to 2021-22. Consequently, the reference made by the Assessing Officer under this proviso was deemed invalid, rendering the withdrawal of approval by the PCIT unsustainable.3. Validity of Reassessment Notices under Section 148:The reassessment notices issued under section 148 of the Act were challenged as being time-barred. Following the Supreme Court's decision in the case of Union of India vs. Ashish Agarwal, it was established that the notices issued under the old regime were deemed invalid, and fresh notices under the amended provisions were required. The Tribunal found that the new notices were issued beyond the permissible time limit, as clarified in the Supreme Court's subsequent judgment in Rajeev Bansal and Others. This delay rendered the reassessment notices invalid, and thus, no valid proceedings were pending before the Assessing Officer to justify the reference to the PCIT.4. Jurisdiction of the PCIT in Withdrawing Approval:The Tribunal examined whether the PCIT (Central), Patna had the jurisdiction to withdraw the approval under section 10(23C)(vi). It was concluded that the appropriate authority for such matters was the Commissioner (Exemption) as per the notifications specifying territorial jurisdiction. The reference to the PCIT (Central) was therefore deemed impermissible and invalid. This lack of jurisdiction further invalidated the orders passed by the PCIT withdrawing the approval.Conclusion:The Tribunal quashed the orders passed by the PCIT, Patna, withdrawing the approval under section 10(23C)(vi) of the Income Tax Act, as the actions were not in consonance with the legal provisions. The appeals were allowed, emphasizing the necessity of adhering to statutory timelines and jurisdictional mandates.