2025 (6) TMI 561 - AT - Income Tax

Reassessment proceedings quashed due to lack of proper sanction authority under section 147

Mr. Ajay Sadashiv Bhagat Versus ITO, Ward 7 (3), Pune

ITAT Pune allowed the assessee's appeal, quashing reassessment proceedings under section 147. The court held that reopening assessment after three years ... Reopening of assessment u/s 147 - competent authority for sanctioning the issue of notice u/s 148 - as alleged no proper sanction as required under section 151 - Undisclosed income on account of unexplained investment in purchase of immovable property - HELD THAT:- Where the reopening of assessment is made within a period of three years, the competent authority for sanctioning the issue of notice u/s 148 is the Principal Commissioner or Principal Director or Commissioner or Director. If three or more years have elapsed, then the competent authority for sanctioning the issue of notice u/s 148 is the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, the Chief Commissioner or Director General. However, in the instant case a perusal of the notice issued by the Assessing Officer shows that he has obtained the necessary satisfaction of Range 7, Pune. On a pointed query raised by the Bench to the Ld. DR regarding the head of Range 7, Pune, he fairly conceded that there is no Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General of Range 7, Pune and it is headed either by the Joint Commissioner or the Additional Commissioner. Under these circumstances, since the approval for issue of notice has been given by a JCIT / Addl CIT instead of the PCCIT or PCIT, therefore, we hold that the re-assessment proceedings being not in accordance with law have to be quashed. We, therefore, quash the re-assessment proceedings and the additional ground raised by the assessee is accordingly allowed. Unexplained investment in purchase of immovable property - It is an admitted fact that the assessee is only a power of attorney holder and the name of the purchases mentioned in the sale deeds are M/s. Malpani Estates in 7 cases and Giriraj Enterprises in one case. The name and PAN of the purchaser has been clearly mentioned in the sale deed. It was also categorically stated in the certificate that Mr. Ajay Sadashiv Bhagat i.e. the assessee is merely a power of attorney holder for M/s. Malpani Estates appointed for purchase and registration of the documents only. They have also certified that the PAN of Mr. Ajay Sadashiv Bhagat is not reflected in any of the documents executed or registered in their names. Under these circumstances, when M/s. Malpani Estates and Giriraj Enterprises are clearly and categorically certifying that the lands in question are purchased by them by paying money from their bank accounts and such lands have been reflected in their balance sheets and the assessee’s name is entered only as power of attorney holder without his PAN number, therefore, no addition could have been made in the hands of the assessee. We, therefore, hold that the Ld. CIT(A) / NFAC was not justified in sustaining the addition made by the Assessing Officer. Assessee appeal allowed. 1. ISSUES PRESENTED and CONSIDERED- Whether the addition of Rs. 15,48,78,869/- as unexplained investment in immovable property purchase in the hands of the assessee is justified, given that the assessee claims to be only a power of attorney holder and not the actual purchaser.- Whether the Assessing Officer was justified in reopening the assessment under section 147 of the Income Tax Act, 1961, and issuing notice under section 148, without proper sanction as required under section 151 of the Act.- Whether the assessee's failure to file return and comply with notices under sections 142(1) and 148 justifies the addition under section 144 of the Act.- Whether the CIT(A) erred in upholding the Assessing Officer's additions without properly appreciating the submissions and evidence furnished by the assessee.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Reopening of Assessment and Issuance of Notice under Section 148Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act empowers the Assessing Officer to reopen an assessment if there is reason to believe that income chargeable to tax has escaped assessment. Section 148 mandates issuance of notice for such reassessment. Section 151 prescribes the specified authority competent to sanction the issue of notice under section 148 or 148A, depending on whether the reopening is within or beyond three years from the end of the relevant assessment year.According to section 151, if more than three years have elapsed from the end of the relevant assessment year, the sanctioning authority must be the Principal Chief Commissioner or Principal Director General or, in their absence, the Chief Commissioner or Director General.Precedents such as National Thermal Power Co. Ltd. v. CIT and Jute Corporation of India Ltd v. CIT establish that the validity of reassessment proceedings depends on compliance with these procedural requirements.Court's Interpretation and Reasoning: The notice under section 148 was issued on 26.03.2021 for assessment year 2015-16, which is more than three years after the end of the relevant assessment year. The sanction for issuance of notice was obtained from Range 7, Pune, headed by either Joint Commissioner or Additional Commissioner, which is not the competent authority under section 151 for sanctioning notice beyond three years.The Department conceded that no Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General exists for Range 7, Pune. Therefore, the sanction was invalid and the reassessment proceedings were held to be without jurisdiction and void ab initio.Conclusions: The reopening of assessment and issuance of notice under section 148 was not in accordance with law due to lack of proper sanction as mandated by section 151. Consequently, the reassessment proceedings were quashed.Issue 2: Addition of Rs. 15,48,78,869/- as Unexplained Investment in Immovable PropertyRelevant Legal Framework and Precedents: Under the Income Tax Act, unexplained investments or unexplained cash credits can be added to the income of the assessee if the source of investment is not satisfactorily explained. However, the burden lies on the Assessing Officer to establish that the assessee made the investment personally.Precedents emphasize that mere presence of name in documents as a power of attorney holder does not amount to ownership or investment by the holder.Key Evidence and Findings: The assessee did not file the return but responded to notices under section 142(1) and submitted detailed replies and documents. The sale deeds clearly showed that the purchasers were M/s. Malpani Estates and Giriraj Enterprises, with the assessee named only as a power of attorney holder. The PAN of the purchasers was mentioned, but the assessee's PAN was not reflected in any documents.The partners of M/s. Malpani Estates certified that the properties were purchased by the firms, the payments were made from their bank accounts, and the transactions were recorded in their books of accounts. The assessee was merely authorized to execute the purchase and registration formalities on behalf of the firms.Court's Interpretation and Reasoning: The Court observed that the Assessing Officer and the CIT(A) failed to apply their mind to the fact that the assessee was only a power of attorney holder and did not make any investment himself. The mere fact that the assessee's name appeared in the sale deeds as power of attorney holder does not translate into ownership or unexplained investment.Given the clear evidence that the firms purchased the properties, accounted for them in their books, and made payments from their bank accounts, the addition in the hands of the assessee was unwarranted.Treatment of Competing Arguments: The Department argued that the assessee was an important person and addition was justified in absence of cogent evidence. The Court rejected this, emphasizing the documentary evidence and certifications submitted by the assessee and the firms.Application of Law to Facts: Since the properties were purchased by the firms and the assessee was only a power of attorney holder, no addition could be made in the hands of the assessee as unexplained investment.Conclusions: The addition of Rs. 15,48,78,869/- was not justified and was accordingly deleted.Issue 3: Addition of Salary and Interest IncomeThe Assessing Officer added Rs. 3,01,411/- as salary income and Rs. 15,220/- as income from other sources based on TDS information. There was no contest on this addition and it was accepted.3. SIGNIFICANT HOLDINGS- 'Since the approval for issue of notice has been given by a JCIT / Addl CIT instead of the PCCIT or PCIT, therefore, we hold that the re-assessment proceedings being not in accordance with law have to be quashed.'- 'When M/s. Malpani Estates and Giriraj Enterprises are clearly and categorically certifying that the lands in question are purchased by them by paying money from their bank accounts and such lands have been reflected in their balance sheets and the assessee's name is entered only as power of attorney holder without his PAN number, therefore, no addition could have been made in the hands of the assessee.'- The Court established the core principle that procedural compliance in sanctioning reassessment notices is mandatory and non-compliance renders proceedings void ab initio.- It also reaffirmed that a power of attorney holder cannot be treated as the owner or investor in property transactions merely on the basis of execution of documents.- The final determination was to quash the reassessment proceedings for lack of proper sanction and to delete the addition of Rs. 15,48,78,869/- made as unexplained investment in the hands of the assessee.