Reassessment notice under section 148 quashed due to invalid approval from wrong authority beyond limitation period

The ITAT Mumbai quashed a reassessment proceeding initiated by the AO under section 148 of the Income Tax Act. The tribunal found that the notice issued on 04.04.2022 was beyond the three-year limitation period, requiring approval from the Principal Chief Commissioner under section 151(ii). However, the approval was obtained from CIT(IT) instead of the correct authority. Following the Vodafone Idea case precedent, the tribunal held that the notice issued without proper approval from the appropriate authority was invalid, rendering the subsequent assessment under sections 147 and 144(13) liable to be quashed. The case was decided in favor of the assessee.

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ISSUES:

• Whether the initiation of reassessment proceedings under section 147 by issuance of notice under section 148 without prior approval from the correct specified authority as required under section 151(ii) is valid when the notice is issued beyond three years from the end of the relevant assessment year.
• Whether the proviso to section 149(1) excluding the time allowed to the assessee under section 148A(b) for computing the period of limitation for issuance of notice under section 148 applies retrospectively to AY 2018-19.
• Validity of the order passed under section 148A(d) and notice issued under section 148 when approval is obtained from Commissioner of Income Tax instead of Principal Chief Commissioner of Income Tax where the notice is issued after three years.

RULINGS / HOLDINGS:

• The notice issued under section 148 dated 04.04.2022 without obtaining approval from the correct authority as specified under section 151(ii) is invalid and the reassessment order passed under section 147 read with section 144C(13) is liable to be quashed.
• The proviso to section 149(1) which excludes the time allowed under section 148A(b) from the computation of limitation period for issuance of notice under section 148 was inserted with effect from 01.04.2023 and is not applicable retrospectively to AY 2018-19.
• Since the notice under section 148 was issued beyond three years from the end of the relevant assessment year without approval from the Principal Chief Commissioner of Income Tax as required under section 151(ii), the approval obtained from the Commissioner of Income Tax (International Tax) is not valid.

RATIONALE:

• The Court applied the statutory provisions of sections 147, 148, 148A, 149, and 151 of the Income-tax Act, focusing on the authority required to sanction reassessment notices and the computation of limitation periods.
• Section 151(ii) mandates that if more than three years have elapsed from the end of the relevant assessment year, the approval for issuance of notice under section 148 must be obtained from the Principal Chief Commissioner of Income Tax or equivalent higher authority.
• The proviso to section 149(1), which excludes the time allowed to the assessee under section 148A(b) from limitation computation, was introduced only from 01.04.2023 and therefore does not apply to AY 2018-19, making the notice issued on 04.04.2022 beyond the three-year period.
• The Court relied on binding precedents from the Hon'ble Bombay High Court, including decisions in Vodafone Idea Ltd and Siemens Financial Services Pvt. Ltd., which held that sanctioning authority's approval must comply strictly with section 151 and that retrospective application of the proviso to section 149 is impermissible.
• The Court followed the principle that non-compliance with mandatory statutory approval requirements renders the reassessment notice and consequent assessment invalid.

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