Section 148 notice invalid due to improper approval procedures under new regime following Rajeev Bansal decision

The ITAT Jaipur held that the section 148 notice was invalid due to improper approval procedures under the new regime. Following the SC's decision in Rajeev Bansal's case, prior approval under section 151 was required for notices issued after 1-04-2021. Although the AO obtained sanction from JCIT Range-4 Jaipur for the section 148 notice, the competent authority for section 148A(d) approval was Pr.CIT-2 Jaipur, creating procedural invalidity. Additionally, the tribunal upheld that reopening assessment for bogus share transactions constituted a change of opinion, as the AO had previously examined all materials during original assessment proceedings and taken a conclusive view.

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The core legal questions considered in the judgment are:

1. Whether the reassessment proceedings initiated under section 147 read with sections 144 and 144B of the Income Tax Act, 1961 ("the Act") were valid, given that the issue of capital gain on sale of shares of a particular company was already examined and accepted in the original assessment under section 143(3).

2. Whether the reopening of assessment constituted a mere change of opinion by the Assessing Officer, which is impermissible under the law.

3. Whether the reassessment notice issued under section 148 of the Act was valid, particularly with regard to the requirement of obtaining prior sanction under section 151 of the Act from the competent authority.

4. Whether the delay in filing cross-objections by the assessee against the impugned order was liable to be condoned.

Issue-wise Detailed Analysis

1. Validity of Reassessment Proceedings under Section 147 read with Sections 144 and 144B

The relevant legal framework includes sections 147, 148, 143(3), 144, and 144B of the Income Tax Act, 1961. Section 147 permits reopening of assessment if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. Section 148 provides for issuance of notice for reassessment. Sections 144 and 144B relate to best judgment assessment and reassessment procedure respectively.

Precedents relied upon include the Supreme Court decisions in CIT v. Kelvinator of India Ltd., Calcutta Discount Co. Ltd. v. ITO, Assistant Commissioner of Income-tax v. Infinity.com Financial Securities Ltd., Gemini Leather Stores v. ITO, and ACIT v. Marico Ltd., which establish that reassessment cannot be initiated merely on a change of opinion and must be based on tangible new material or failure to disclose material facts.

The Court noted that the original scrutiny assessment under section 143(3) was completed on 11.12.2018 after the Assessing Officer issued eight detailed notices seeking information about the capital gains from sale of shares of the company in question. The assessee had furnished comprehensive replies along with documentary evidence such as demat account statements, broker notes, bank statements, share certificates, and scheme of amalgamation documents. The Assessing Officer, after due application of mind, accepted the returned income without any addition or disallowance.

The reassessment proceedings initiated later were based on the same material that had been considered during the original assessment. The Court emphasized that reopening on the basis of reconsideration of the same material amounts to a prohibited change of opinion. The Court observed that there was no new tangible material to justify reopening, and the reassessment order was effectively a review of the original order, which is not permissible under the Act.

The Court further examined the submissions of the assessee that all relevant facts were fully and truly disclosed during the original assessment, and the Assessing Officer had taken a conclusive view on the matter. The Court agreed with the principle that once primary facts are disclosed, it is for the Assessing Officer to draw inferences, and reassessment cannot be used to revisit those conclusions.

Competing arguments from the department, which contended that the reassessment was justified based on findings of rigged share prices and bogus transactions, were rejected on the ground that these issues had already been examined and no fresh material was available to reopen the case.

Conclusion: The Court held that the reassessment proceedings were invalid as they amounted to a mere change of opinion without any new material. The reopening was quashed, and the additions made in the reassessment were deleted.

2. Validity of Notice under Section 148 and Requirement of Sanction under Section 151

The legal framework involves section 148 (notice for reassessment) and section 151 (sanction for issue of notice) of the Act, along with the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 (TOLA). The Court also referred to recent Supreme Court decisions in Union of India v. Ashish Agarwal and Union of India v. Rajeev Bansal, which clarified the requirements for sanction and time limits for issuing reassessment notices under the old and new regimes.

The Court noted that the reassessment notice was initially issued on 22.4.2021 after obtaining sanction from the Joint Commissioner of Income Tax (JCIT). A fresh notice was issued on 25.5.2022 to comply with Supreme Court directions. However, the sanction for passing the order under section 148A(d) was obtained from the Principal Commissioner of Income Tax (Pr.CIT), Jaipur, which was the competent authority under the new regime for notices issued beyond three years from the end of the relevant assessment year.

The Court observed that the prior approval under section 151 is a mandatory precondition for the Assessing Officer to assume jurisdiction to issue a notice under section 148. The Court held that the approval obtained was from the Principal Commissioner rather than the Principal Chief Commissioner or equivalent authority, as required for notices issued after three years. This rendered the notice under section 148 invalid.

The department's reliance on the Ashish Agarwal and Rajeev Bansal decisions was considered, but the Court distinguished the facts, emphasizing the strict requirement of sanction from the appropriate authority as per the elapsed time since the end of the assessment year.

Conclusion: The Court held that the notice under section 148 was invalid for want of proper sanction under section 151 and, consequently, the reassessment order was liable to be set aside on this legal ground.

3. Condonation of Delay in Filing Cross-Objections

The legal provision under section 253(4) of the Act requires cross-objections to be filed within 30 days of receipt of notice of appeal. The assessee filed cross-objections with a delay of 86 days, but the Registry initially reported only 11 days of delay due to an error in calculation.

The Court analyzed the dates of issuance and receipt of notice and found that the Registry's report was incorrect. The delay was explained by the assessee's engagement of new counsel and a bona fide belief that cross-objections were not necessary to raise a legal ground challenging the validity of the reassessment notice.

Precedents cited included Collector, Land Acquisition v. Mst. Katiji, GMG Engineering Industries v. Issa Green Power Solution, and ITO v. Meghalaya Bonded Warehouse, supporting the principle that delay can be condoned for sufficient cause and bona fide reasons.

The Court found the explanation satisfactory and condoned the delay in filing cross-objections, allowing the assessee to raise the legal ground concerning the validity of the reassessment notice.

Conclusion: Delay in filing cross-objections was condoned in the interest of justice.

Significant Holdings

"When the primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled on change of opinion to commence proceedings for reassessment."

"Reopening of assessment based on the very same material with a view to take another view is impermissible and amounts to a mere change of opinion."

"The Assessing Officer cannot reopen the assessment to change an erroneous conclusion once reached at, if there is no new tangible material."

"Grant of sanction by the appropriate authority under section 151 is a precondition for the Assessing Officer to assume jurisdiction under section 148 to issue a reassessment notice."

"A reassessment notice issued without complying with the preconditions of sanction under section 151 is invalid and affects the jurisdiction of the Assessing Officer."

"Delay in filing cross-objections may be condoned if there is a bona fide reason and no prejudice is caused to the other party."

The Court finally determined that the reassessment proceedings and order dated 17.05.2023 were invalid and deserved to be quashed, the reassessment notice under section 148 was invalid for want of proper sanction, and the delay in filing cross-objections was condoned. Consequently, the appeal filed by the department was dismissed, and the cross-objections filed by the assessee were allowed.

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