Notice under Section 148 for AY 2017-18 held invalid for being issued after three years without required approval

ITAT MUMBAI held that a notice under section 148 issued for AY 2017-18 was invalid because it was issued beyond the three-year period and required prior approval from the specified authority (Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General) under the amended law read with TOLA, which extended the approval deadline to 30.06.2021. Approval was instead obtained from a Principal Commissioner, which did not meet statutory requirements; consequently the sanction was defective, the notice under section 148 was quashed, and the appeal was allowed in favour of the assessee.

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1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses the following core issues:

• Whether the notice issued under Section 148 of the Income-tax Act, 1961, was valid, considering the procedural requirements for obtaining prior approval from the specified authority under the amended Section 151.
• Whether the jurisdiction to issue the notice under Section 148 lay with the Jurisdictional Assessing Officer (JAO) or the Faceless Assessing Officer (FAO) under the faceless regime.
• Whether the reassessment proceedings initiated and the subsequent order passed were valid, given the alleged procedural lapses in obtaining the necessary approvals.
• Whether the disallowance of purchases by the CIT(A) was justified, considering the allegations of bogus purchases and cash transactions in the grey market.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Notice under Section 148

• Relevant Legal Framework and Precedents: The case refers to the amended provisions of Section 148 and Section 151 of the Income-tax Act, as well as the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The Supreme Court's decisions in Ashish Agrawal and Rajeev Bansal provide guidance on the procedural requirements for issuing notices and obtaining approvals.
• Court's Interpretation and Reasoning: The court emphasized the procedural necessity of obtaining prior approval from the specified authority under Section 151 of the new regime. It highlighted that the Principal Chief Commissioner or equivalent authority's approval was required when more than three years had elapsed since the end of the relevant assessment year.
• Key Evidence and Findings: The notice under Section 148 was issued beyond the three-year period, and the approval was obtained from the Principal Commissioner instead of the higher authority required by law.
• Application of Law to Facts: Based on the facts, the court found that the notice was issued without the proper approval, rendering it invalid and bad in law.
• Treatment of Competing Arguments: The court rejected the Revenue's argument that the approval obtained was sufficient under the amended provisions, emphasizing the hierarchical requirement for approval.
• Conclusions: The notice under Section 148 was quashed due to the lack of proper sanction from the specified authority, as required by the amended legal framework.

Issue 2: Jurisdiction to Issue Notice

• Relevant Legal Framework and Precedents: The faceless regime under Section 144B and the requirements for issuing notices under the amended Section 148 were considered.
• Court's Interpretation and Reasoning: The court noted the procedural error in issuing the notice by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer, as mandated under the faceless regime.
• Key Evidence and Findings: The notice was manually signed by the Jurisdictional Assessing Officer, contrary to the faceless regime's requirements.
• Application of Law to Facts: The court found that the notice was issued by an authority lacking jurisdiction, further invalidating the notice.
• Treatment of Competing Arguments: The court did not find merit in the Revenue's justification for the jurisdictional error.
• Conclusions: The notice was invalid due to jurisdictional errors, reinforcing the decision to quash the notice.

Issue 3: Validity of Reassessment Proceedings and Order

• Relevant Legal Framework and Precedents: The procedural compliance requirements under Sections 148A and 151 were central to this issue.
• Court's Interpretation and Reasoning: The court reiterated the necessity of obtaining valid approval before proceeding with reassessment, which was not adhered to in this case.
• Key Evidence and Findings: The reassessment order was based on an invalid notice, lacking the required approval.
• Application of Law to Facts: The court applied the legal framework to conclude that the reassessment proceedings and order were void ab initio.
• Treatment of Competing Arguments: The court dismissed the Revenue's arguments regarding the merits of the reassessment, focusing on the procedural lapses.
• Conclusions: The reassessment proceedings and order were quashed due to procedural non-compliance.

Issue 4: Disallowance of Purchases

• Relevant Legal Framework and Precedents: The provisions of Section 40A(3) concerning cash transactions and the treatment of bogus purchases were relevant.
• Court's Interpretation and Reasoning: The court did not delve into the merits of the disallowance due to the procedural quashing of the reassessment order.
• Key Evidence and Findings: The CIT(A) had limited the disallowance to 1%, but the court did not address this due to the procedural focus.
• Application of Law to Facts: The procedural invalidity of the notice precluded the need to address this issue substantively.
• Treatment of Competing Arguments: The court did not engage with arguments on the merits of the disallowance, given the procedural outcome.
• Conclusions: The issue became academic due to the quashing of the reassessment proceedings.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The prior approval must be obtained from the appropriate authorities specified under Section 151 of the new regime."
• Core Principles Established: The necessity of obtaining proper sanction from the specified authority under the amended Section 151 is crucial for the validity of notices under Section 148.
• Final Determinations on Each Issue: The notice under Section 148 was quashed due to procedural non-compliance, rendering the reassessment proceedings and subsequent order invalid. The appeal of the Revenue was dismissed, and the cross-objection of the assessee was allowed.

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