Notice and order under sections 148/148A(b) quashed for exceeding three-year limit and wrong sanction under amended section 151

ITAT, Mumbai held the notice under section 148 and order under section 148A(b) invalid and quashed because they were issued beyond the three-year limitation and without requisite prior approval from the specified authority under amended section 151. Approval obtained from a Principal Commissioner was held insufficient where the law required sanction by Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General for notices issued after the three-year period. Appeal of the assessee allowed.

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The core legal issues considered by the Tribunal include:

1. Whether the delay of 236 days in filing the appeal before the Commissioner of Income Tax (Appeals) (CIT(A)) should be condoned.

2. The validity and jurisdictional correctness of the reopening notice issued under section 148 of the Income-tax Act, 1961 (the Act) for the Assessment Year (AY) 2017-18, particularly in light of the new reassessment regime effective from 01.04.2021.

3. Whether the approval for reopening proceedings was validly obtained under the correct provisions and from the appropriate authority as prescribed under section 151 of the Act.

4. The legality of the addition made under section 56(2)(vii)(b) of the Act without reference to a Valuation Officer (DVO).

5. Whether the assessing officer provided the assessee with a proper opportunity of being heard during the reassessment proceedings.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing Appeal:

Legal Framework and Precedents: Section 249(3) of the Act empowers the CIT(A) to admit an appeal after the prescribed period if satisfied that there was a "sufficient cause" for delay. The term "sufficient cause" is to be interpreted liberally as per various Supreme Court decisions, including Collector Land Acquisition v. Mst. Katiji and N. Balakrishnan v. M. Krishnamurthy. The courts have emphasized that delay should not be mechanically rejected but examined with a pragmatic and justice-oriented approach, especially when the delay is not deliberate or mala fide.

Court's Reasoning and Findings: The Tribunal examined the facts explaining the delay: the assessee's limited education, engagement in furniture contract work, medical problems faced by the assessee and his child, and reliance on a tax practitioner who was unavailable due to medical issues. These explanations were supported by affidavits and medical records.

Application of Law to Facts: Considering the above, the Tribunal held that the delay was not deliberate or due to negligence but arose from genuine difficulties. The principle that "every day's delay must be explained" does not require a pedantic approach, and substantial justice should prevail over technicalities.

Conclusion: The Tribunal condoned the delay of 236 days and directed the CIT(A) to admit the appeal for adjudication on merits.

2. Validity of Reopening Notice under Section 148:

Legal Framework and Precedents: The reassessment provisions under sections 147 to 151 of the Act were amended effective 01.04.2021, introducing a new regime with stricter timelines and approval requirements. The Supreme Court's decision in Union of India v. Ashish Agarwal clarified that notices issued under the old regime after 01.04.2021 are to be treated as show cause notices under section 148A(b) of the new regime, and the old proceedings are liable to be closed. The subsequent Supreme Court ruling in Union of India v. Rajeev Bansal further elucidated the applicability of the new regime's time limits and approval authorities, emphasizing that reopening notices issued beyond three years from the end of the relevant assessment year are invalid unless sanctioned by higher authorities as per section 151(1)(ii).

Court's Interpretation and Reasoning: The Tribunal noted that the initial reopening notice dated 30.06.2021 was issued under the old regime and was subsequently closed following the Ashish Agarwal decision, as confirmed by the Department's letter dated 17.01.2023. The Department then issued a show cause notice under section 148A(b) and passed an order under section 148A(d) on 29.07.2022, followed by a fresh notice under section 148 on the same date, under the new regime.

The Tribunal observed that the last notice under section 148 was issued on 29.07.2022, which is beyond three years from the end of AY 2017-18 (i.e., beyond 31.03.2021). The alleged escaped income was Rs. 26,05,000, which is below the Rs. 50 lakh threshold prescribed under the new regime for extended time limits. The approval for reopening was obtained from the Principal Commissioner of Income Tax (PCIT)-19, Mumbai, which is not the appropriate authority under section 151(1)(ii) of the new regime for cases beyond three years; the approval should have been from higher authorities such as the Principal Chief Commissioner or Chief Commissioner.

Key Evidence: The Department's closure letter, the notices and orders under sections 148, 148A(b), and 148A(d), and the approval letter from PCIT-19, Mumbai.

Application of Law to Facts: The Tribunal held that the reopening notice issued on 29.07.2022 was invalid and bad in law due to non-compliance with the mandatory time limits and improper sanctioning authority under the new regime. The Tribunal relied heavily on the Supreme Court's rulings in Ashish Agarwal and Rajeev Bansal, which clarified the retrospective application of the new regime and the necessity of obtaining prior approval from the specified authorities within prescribed timelines.

Treatment of Competing Arguments: The Department's argument that the reopening was valid under the old regime was negated by the closure of the old proceedings and the subsequent issuance of notices under the new regime. The Tribunal rejected any attempt to extend the time limits beyond those prescribed by the new regime and Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), which only extended timelines up to 30.06.2021.

Conclusion: The reopening notice dated 29.07.2022 was quashed as invalid, and consequently, the reassessment order passed thereunder was also quashed.

3. Approval for Reopening under Section 151:

Legal Framework: Section 151 of the Act prescribes the authorities competent to grant approval for issuance of reassessment notices under section 148. The new regime specifies a higher level of authority for approvals if the notice is issued beyond three years from the end of the relevant assessment year.

Court's Reasoning: Since the notice was issued beyond three years, approval was required from the Principal Chief Commissioner or Chief Commissioner, not from the Principal Commissioner as was obtained. The Tribunal found this to be a jurisdictional defect rendering the notice invalid.

Conclusion: The approval obtained was from an incorrect authority, and thus the sanction was invalid, vitiating the reopening notice.

4. Addition under Section 56(2)(vii)(b) without Reference to DVO:

Legal Framework: Section 56(2)(vii)(b) deals with income arising from certain transactions involving immovable property where the consideration is less than the stamp duty value. Normally, such additions require reference to a Valuation Officer (DVO) to ascertain the correct market value.

Court's Treatment: The assessee contended that the addition of Rs. 26,05,000 was made without referring the matter to the DVO. However, since the reopening and reassessment were quashed on jurisdictional grounds, the Tribunal did not adjudicate on this substantive issue.

5. Opportunity of Being Heard:

The assessee alleged denial of proper opportunity of hearing. The Tribunal did not deal with this issue on merits, as the reassessment proceedings were quashed on jurisdictional grounds.

Significant Holdings:

"Section 249(3) contemplates that the CIT(A) may admit an appeal after expiry of the relevant period if satisfied that there was a 'sufficient cause' for not presenting it within that period. The expression 'sufficient cause' is to be used liberally so as to advance substantial justice."

"The reopening notice issued under section 148 of the Income-tax Act after the expiry of three years from the end of the relevant assessment year is invalid if the prior approval for such reopening is not obtained from the specified higher authorities as prescribed under section 151(1)(ii) of the Act."

"The new reassessment regime effective from 01.04.2021 applies retrospectively to past assessment years, and notices issued under the old regime after that date are to be treated as show cause notices under section 148A(b) of the new regime, with the old proceedings being closed."

"The approval obtained from Principal Commissioner instead of Principal Chief Commissioner or Chief Commissioner for reopening beyond three years is a jurisdictional defect rendering the notice invalid."

"Since the reopening notice dated 29.07.2022 is invalid and bad in law, the reassessment order passed thereunder is also quashed without going into the merits of the additions made."

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