Section 151 reassessment invalid due to improper approval from wrong authority notice quashed

ITAT Mumbai held that reassessment proceedings initiated after three years from the relevant assessment year were invalid due to improper approval under section 151(i). The approval dated 28.07.2022 for issuing notice under section 148A was obtained from Pr. Commissioner of Income Tax, Mumbai, which was not the specified authority required under section 151(ii). Consequently, the notice under section 148 and subsequent assessment order under section 147 were quashed as void-ab-initio. Decision favored the assessee.

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ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment are:

1. The validity of the approval granted under section 151 of the Income Tax Act, 1961, for the reopening of the assessment for the Assessment Year (AY) 2017-18.

2. The legitimacy of the addition of Rs. 2,15,30,000/- under section 69C of the Act, related to alleged accommodation entries.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Approval under Section 151 of the Income Tax Act

Relevant Legal Framework and Precedents:

The legal framework under section 151 of the Income Tax Act mandates that for reopening an assessment beyond three years from the end of the relevant assessment year, approval must be obtained from a higher authority, specifically the Principal Chief Commissioner or Principal Director General, or in their absence, the Chief Commissioner or Director General.

Court's Interpretation and Reasoning:

The Tribunal observed that the assessment for AY 2017-18 was reopened after more than three years had elapsed. Therefore, according to section 151(ii), the approval should have been obtained from the specified higher authority. However, the approval was erroneously obtained from the Principal Commissioner of Income Tax, Mumbai, which is not in compliance with the statutory requirements.

Key Evidence and Findings:

The Tribunal noted that the approval was granted by the wrong authority, rendering the notice issued under section 148A and the subsequent assessment order void ab initio.

Application of Law to Facts:

The Tribunal applied the statutory requirements of section 151(ii) to the facts, determining that the approval was invalid as it was not obtained from the correct authority.

Treatment of Competing Arguments:

The Tribunal considered the Assessee's argument regarding the invalidity of the approval and found it to be consistent with the statutory requirements and recent judicial precedents.

Conclusions:

The Tribunal concluded that the approval under section 151 was invalid, leading to the quashing of the notice under section 148 and the assessment order under section 147.

2. Legitimacy of Addition under Section 69C

Relevant Legal Framework and Precedents:

Section 69C deals with unexplained expenditure, where the source of such expenditure is not satisfactorily explained by the taxpayer. The Tribunal referenced the decision of the Hon'ble Supreme Court in PCIT Vs. Tejua Rohitkumar Kapadia, which established criteria for determining the genuineness of purchases.

Court's Interpretation and Reasoning:

The Tribunal evaluated the evidence provided by the Assessee, including purchase bills, ledger confirmations, and banking transactions, which supported the genuineness of the transactions.

Key Evidence and Findings:

The Tribunal found that the Assessee had provided adequate documentation to substantiate the purchases, including confirmations from the supplier and evidence of payment through banking channels. There was no evidence to suggest that the purchase consideration had been returned to the Assessee in cash.

Application of Law to Facts:

The Tribunal applied the principles from the Supreme Court's decision, noting that the purchases were supported by bills, payments were made by account payee cheques, and the supplier confirmed the transactions. Therefore, the purchases could not be deemed bogus.

Treatment of Competing Arguments:

The Tribunal considered the Revenue's position but found the Assessee's evidence and the precedent from the Supreme Court to be more persuasive.

Conclusions:

The Tribunal concluded that the addition under section 69C was unjustified and deleted the addition made by the Assessing Officer.

SIGNIFICANT HOLDINGS

The Tribunal's significant holdings are as follows:

"The notice dated 28.07.2022 issued u/s 148 of the Act and in consequence to the said notice, the assessment order dated 28.03.2023 u/s 147 of the Act, is quashed being void-ab-initio."

This establishes the principle that approval for reopening assessments must strictly adhere to the statutory authority requirements under section 151.

"The impugned purchases cannot be considered to be bogus and the addition of Rs. 2,15,30,000/- made by the AO is accordingly deleted."

This reinforces the principle that purchases supported by adequate documentation and banking transactions cannot be deemed bogus without substantive evidence to the contrary.

The Tribunal allowed the Assessee's petition under rule 27 of the Rules, quashing the reopening of the proceedings and the assessment order, and dismissed the Revenue's appeal as infructuous.

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