2024 (12) TMI 114 - AT - Income Tax

Reopening assessment under Section 147 invalid without proper Section 151 approval from competent authority

ITAT Chandigarh held that reopening assessment under Section 147 was invalid due to lack of proper approval under Section 151. The notice issued on ... Validity of Reopening of assessment u/s 147 - lack of approval from the competent authority u/s 151 - notice beyond expiry of the period of four years - HELD THAT:- In the instant case, provision of sub-section (1) of Section 151 are applicable as the notice has been issued on 30/03/2021 after the expiry of period of four years from end of the relevant assessment year 2015-16 which expires on 31/03/2020, therefore, in such a case, the competent authority to grant the sanction u/s 151 is PCCIT, CCIT, Pr.CIT or Commissioner. In the instant case, it is an admitted and undisputed fact that the AO has sought sanction for issue of notice from the JCIT vide proposal dt. 30/03/2021 enclosing copy of the reasons so recorded and the approval has been granted by the JCIT Range-1, Ludhiana stating that she was satisfied with the reasons recorded by the AO that it is a fit case for issuance of notice u/s 148 of the Act on the same date. We therefore find that the approval from the competent authority as so prescribed before the issue of notice u/s 148 has not been obtained in the instant case and therefore, the very initiation of proceeding under section 147 stands vitiated. See EAST INDIA HOTELS LIMITED [1992 (2) TMI 12 - CALCUTTA HIGH COURT] and M/S. AMBIKA IRON AND STEEL PVT. LTD.[2022 (1) TMI 1291 - ORISSA HIGH COURT] Thus, given that the notice under section 148 has been issued after expiry of four years from the end of the relevant assessment year, the very initiation of the proceeding stands vitiated for want of specific sanction from the competent authority as so required under sub section (1) of Section 151 of the Act. Decided in favour of assessee. Issues Involved:1. Validity of the initiation of proceedings under Section 147 of the Income Tax Act, 1961.2. Disallowance of loss incurred in trading of currency derivatives.3. Alleged violation of principles of natural justice.Detailed Analysis:1. Validity of the Initiation of Proceedings under Section 147:The primary issue was whether the proceedings initiated under Section 147 of the Income Tax Act were valid. The assessee contended that the initiation was vitiated due to the lack of approval from the competent authority as required under Section 151 of the Act. The notice under Section 148 was issued on 30/03/2021, after the expiry of four years from the end of the relevant assessment year (2015-16), which ended on 31/03/2020. According to Section 151(1), in such cases, the sanction must be obtained from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. However, in this case, the approval was obtained from the Joint Commissioner of Income Tax (JCIT), which was not the competent authority. The Tribunal referred to various judicial precedents, including the decisions of the Hon'ble Allahabad High Court and the Hon'ble Orissa High Court, which emphasized that the lack of proper sanction from the competent authority renders the initiation of reassessment proceedings invalid. Consequently, the Tribunal found that the proceedings under Section 147 were vitiated and set aside the notice under Section 148, allowing the assessee's ground on this issue.2. Disallowance of Loss Incurred in Trading of Currency Derivatives:The second issue pertained to the disallowance of a loss amounting to Rs. 3,78,93,875/- claimed by the assessee in trading currency derivatives, which the Assessing Officer (AO) held to be fictitious. The AO contended that the transactions were speculative and aimed at bringing unaccounted income into books without paying taxes. However, since the Tribunal set aside the notice under Section 148 due to the lack of proper sanction, the merits of this disallowance became academic. As a result, the Tribunal did not delve into the substantive merits of the disallowance, and this issue was rendered infructuous.3. Alleged Violation of Principles of Natural Justice:The third issue raised by the assessee was that the order was passed in violation of the principles of natural justice, as the request for more time was denied, and the appeal was decided ex-parte. However, this ground was not pressed by the assessee during the course of the hearing. Consequently, the Tribunal dismissed this ground as not pressed.Conclusion:The appeal was partly allowed, with the Tribunal setting aside the notice under Section 148 due to the lack of proper sanction from the competent authority, rendering the other grounds academic or not pressed. The order was pronounced in open court on 29/11/2024.