2025 (5) TMI 1947 - AT - Income Tax

Reassessment proceedings quashed due to sanction obtained from wrong authority under income tax law

Dalpat Baraiya C/o. M.S. Chhajed & Co. CA, Kamal Shanti. Versus Income Tax Officer Ward-3 (3) (1), Ahmedabad

The ITAT Ahmedabad quashed reassessment proceedings after finding that sanction for reopening was obtained from an incorrect Specified Authority. The ... Validity of reopening of assessment - sanction obtained for reopening of assessment from a wrong Specified Authority HELD THAT:- Since the Sanctioning Authority for reopening of assessment was obtained from a wrong Specified Authority, the entire reopening itself is bad in law and liable to be quashed. Further this issue is no more res-integra by the land mark decision of Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction u/s 148 to issue a reassessment notice. Also in the case of Holiday Developers (P.) Ltd. [2024 (8) TMI 286 - BOMBAY HIGH COURT] held that where more than three years had expired from the end of assessment year 2018-19, sanctioning authority u/s151(ii) should have been Principal Chief Commissioner and not Principal Commissioner and, thus, order u/s 148A(d) and notice under section 148 issued on basis of approval granted by Principal Commissioner were to be quashed and set aside. Delhi High Court in the case of Ashok Kumar Makhija [2024 (5) TMI 447 - DELHI HIGH COURT] held that where reopening of case was occurring after a lapse of more than three years, appropriate authority for issuance of notice under sections 148 and 148A(b) should be either Principal Chief Commissioner or Principal Director General; approval from principal CIT was not valid. Thus sanction obtained for reopening of assessment from a wrong Specified Authority is not sustainable in law, consequently the entire reassessment proceedings is liable to be quashed. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal in this appeal are:(a) Whether the reopening of the assessment under Section 147 of the Income Tax Act, 1961 (the Act) for the Assessment Year 2016-17 is valid when the approval for issuance of notice under Section 148 was granted by the Principal Commissioner of Income Tax (PCIT) instead of the Principal Chief Commissioner of Income Tax (PCCIT), given that the reopening was initiated beyond three years from the end of the relevant assessment yearRs.(b) Whether the reassessment proceedings initiated on the basis of such approval are legally sustainableRs.(c) Whether the claim of deduction under Section 54B of the Act, relating to reinvestment of capital gains in agricultural land, was rightly denied by the Commissioner of Income Tax (Appeals) (CIT(A)) on the ground that the land purchased was converted to non-agricultural use at the time of execution of the conveyance deedRs.(d) Whether the Assessing Officer (AO) violated principles of natural justice by making additions without providing sufficient and specific opportunity to the assesseeRs.(e) Whether the appellate authority erred in upholding the addition of long-term capital gains without allowing indexed cost, transfer cost, and reinvestment in landRs.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Validity of reopening of assessment and sanctioning authorityRelevant legal framework and precedents:The provisions of Sections 147, 148, 149, and 151 of the Income Tax Act, 1961 govern the reopening of assessments. Section 149 prescribes the time limits for issuance of notice under Section 148, distinguishing between cases within three years and beyond three years from the end of the relevant assessment year. Section 151 mandates that the issuance of notice under Section 148 is subject to prior approval from the specified authority. Clause (i) of Section 151 specifies that if three years or less have elapsed, the sanctioning authority can be the Principal Commissioner or Commissioner, whereas clause (ii) mandates that if more than three years have elapsed, the sanction must be obtained from higher authorities such as the Principal Chief Commissioner or Chief Commissioner.Several recent judicial pronouncements were relied upon by the assessee's counsel, including decisions from the Bombay High Court, Delhi High Court, and ITAT Mumbai and Raipur benches, which consistently held that approval for reopening beyond three years must be granted by the PCCIT or equivalent higher authority, not the PCIT.The landmark Supreme Court decision in Union of India vs. Rajeev Bansal (2024) was extensively cited, which clarified that Section 151 imposes a procedural check to prevent mechanical reopening and harassment of taxpayers. The Court emphasized that the specified authority for sanction correlates directly with the time elapsed since the end of the assessment year and that non-compliance with this requirement vitiates the reopening.Court's interpretation and reasoning:The Tribunal examined the facts and noted that the reopening notice was issued on 27-08-2022, which is more than three years from the end of the relevant assessment year 2016-17 (the three-year period ended on 31-03-2020). The approval for reopening was obtained from the PCIT on 23-08-2022, which is not the competent authority under Section 151(ii) for reopening beyond three years. The Tribunal reproduced the relevant portion of the Supreme Court's ruling, underscoring the requirement that sanction beyond three years must come from the PCCIT or Chief Commissioner.The Tribunal held that since the sanction was obtained from an incorrect authority, the entire reopening proceedings are invalid and liable to be quashed. The Tribunal also noted that this principle is no longer res-integra and is well-settled in law.Key evidence and findings:The approval letter dated 23-08-2022 from PCIT was on record, and the timeline clearly showed the reopening was beyond three years. The Tribunal also noted the absence of any contrary sanction from the PCCIT or Chief Commissioner.Application of law to facts:The Tribunal applied the statutory provisions and judicial precedents to the facts, concluding that the reopening notice issued without valid sanction from the competent authority was void ab initio.Treatment of competing arguments:The Revenue did not contest the fact that the sanction was granted by the PCIT and admitted this fact. No substantive legal argument was advanced to justify the validity of the sanction from the PCIT beyond the three-year period.Conclusions:The Tribunal concluded that the reopening of assessment was bad in law due to invalid sanction and quashed the reassessment proceedings.Issue (c): Denial of deduction under Section 54B for reinvestment in agricultural landRelevant legal framework and precedents:Section 54B of the Income Tax Act provides exemption from capital gains tax if the capital gains arising from transfer of agricultural land are reinvested in purchasing other agricultural land within a specified period. The exemption is contingent on the nature of the reinvested land being agricultural.Court's interpretation and reasoning:The CIT(A) upheld the AO's addition on the ground that the land purchased by the assessee was converted to non-agricultural use at the time of execution of the conveyance deed. The CIT(A) observed that the assessee failed to produce corroborative evidence to substantiate the claim that the land remained agricultural in nature. Mere narration without documentary proof was held insufficient to discharge the onus of proof.Key evidence and findings:The assessee admitted capital gains in the return of income but claimed deduction under Section 54B based on reinvestment in agricultural land. However, the conveyance deed showed conversion of the land to non-agricultural purpose. No supporting documents or evidence were filed to counter this fact.Application of law to facts:Since the land was converted to non-agricultural use at the time of purchase, the conditions of Section 54B were not met, and the deduction was rightly denied.Treatment of competing arguments:The assessee's submission was limited to narrative statements without documentary proof, which was rejected by the CIT(A) and not challenged successfully before the Tribunal.Conclusions:The denial of deduction under Section 54B was upheld on the ground that the reinvested land was non-agricultural in nature.Issue (d): Violation of principles of natural justiceRelevant legal framework:Principles of natural justice require that an assessee be given adequate and specific opportunity to respond to allegations before adverse additions are made.Court's interpretation and reasoning:The assessee contended that the AO made additions without giving sufficient and specific opportunity. However, the Tribunal noted that the assessee failed to respond to various notices and the final show cause notice issued by the AO. The lack of response from the assessee undermined the claim of violation of natural justice.Key evidence and findings:Records showed non-response by the assessee to notices issued during reassessment proceedings.Application of law to facts:Given the assessee's failure to engage with the proceedings, the Tribunal found no merit in the contention of violation of natural justice.Treatment of competing arguments:The assessee's argument was rejected due to absence of evidence of denial of opportunity.Conclusions:No violation of natural justice was found.Issue (e): Validity of addition of capital gains and disallowance of indexed cost, transfer cost, and reinvestment claimRelevant legal framework:Capital gains computation requires allowance for indexed cost of acquisition and transfer expenses. Section 54B provides exemption on reinvestment in agricultural land.Court's interpretation and reasoning:The CIT(A) upheld the AO's addition of Rs. 1,21,00,000/- (1/4th share of sale consideration) as income, rejecting the claim for indexed cost and reinvestment exemption. The Tribunal did not interfere with this finding as the reopening itself was quashed on jurisdictional grounds.Key evidence and findings:Absence of evidence supporting the claim of reinvestment in agricultural land and indexed cost adjustments.Application of law to facts:The Tribunal did not delve into the merits of this issue in detail due to the quashing of reassessment proceedings.Treatment of competing arguments:The assessee's grounds challenging these additions were noted but ultimately rendered moot by the jurisdictional issue.Conclusions:No interference was made regarding the addition since the reassessment was quashed.3. SIGNIFICANT HOLDINGS'Since the Sanctioning Authority for reopening of assessment was obtained from a wrong Specified Authority, the entire reopening itself is bad in law and liable to be quashed.''Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under Section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments.''The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under Section 151 of the new regime.''The denial of deduction u/s 54B was upheld on the ground that the land in question was converted into non-agricultural purpose at the time of execution of conveyance deed.'Final determination: The appeal was allowed on the ground that the reopening of assessment was invalid due to sanction obtained from an incompetent authority, resulting in quashing of the reassessment proceedings. Other grounds relating to substantive additions and natural justice were not decided on merit due to the jurisdictional defect.