2025 (8) TMI 1099 - AT - Income Tax

Notice under s.148 quashed as invalid where sanction was granted by unauthorized PCIT; s.151 requires Principal CCIT/CIT sanction

Jar Pictures LLP Versus DCIT Central Circle 6 (1), Mumbai

Jar Pictures LLP Versus DCIT Central Circle 6 (1), Mumbai - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether a notice under section 148 issued after the expiry of three years from the end of the relevant assessment year is valid when prior approval/sanction was granted by the Principal Commissioner of Income Tax (PCIT) instead of the Principal Chief Commissioner/Chief Commissioner as required by section 151 (as applicable w.e.f. 01/04/2021)? 2. Whether prior sanction under section 151 is a jurisdictional and mandatory precondition at the stages of section 148A(a), section 148A(d) and section 148 (reassessment notice), so that non-compliance with the specified authority requirement vitiates the reassessment proceedings? 3. Whether issuance of an initial section 148A(a) notice within three years (but final section 148 notice after three years) can cure a defective sanction where the final notice was approved by an authority not specified for notices issued beyond three years? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of sanction by PCIT for notice under section 148 issued after three years Legal framework: Section 151 (as applicable between 01/04/2021 and 01/09/2024) prescribes the specified authority required to grant prior approval/sanction for issuance of notices under section 148 and stages under section 148A. The new regime differentiates authorities by whether the notice is issued within three years or more than three years from the end of the relevant assessment year; notices issued after three years require sanction by higher authorities (Principal Chief Commissioner/Chief Commissioner or equivalents). Precedent Treatment: The Court followed and relied upon the Supreme Court's exposition that section 151's conditions are mandatory and that grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148. The decision applied the principles set out in the Supreme Court judgment interpreting the post-2021 regime. Interpretation and reasoning: The Court observed that the relevant assessment year's three-year period expired on 31/03/2022 and the final notice under section 148 was issued on 06/04/2022 (i.e., after three years). Under section 151 the authority competent to sanction a notice issued after the three-year threshold is the Principal Chief Commissioner/Chief Commissioner (or equivalent). The sanction in the instant matter was given by the PCIT (Principal Commissioner), who lacks jurisdiction to sanction notices issued beyond three years. The Court treated the statutory specification of the authority as directly linked to the time when the notice is issued and held that the power to assume jurisdiction under section 148 is contingent upon obtaining prior sanction from the authority specified for that time-period. Ratio vs. Obiter: Ratio - the Court's holding that sanction by an authority not specified for notices issued after three years renders the notice invalid is a binding principle within the scope of the case; the reasoning is based on mandatory statutory requirement and on Supreme Court authority. Conclusions: Sanction by PCIT for a notice issued after three years was invalid; the notice under section 148 dated 06/04/2022 was quashed as invalid for want of appropriate sanction from the Principal Chief Commissioner/Chief Commissioner. Issue 2 - Mandatory nature of prior sanction at stages under section 148A and section 148 Legal framework: Under the Finance Act 2021 amendments and section 151 as then applicable, prior approval/sanction had to be obtained at specified stages: (a) section 148A(a) - to conduct enquiry; (b) section 148A(b) - to issue show cause (note: subsequently deleted by Finance Act 2022); (c) section 148A(d) - to determine whether it is a fit case to issue notice under section 148; and (d) section 148 - to issue the reassessment notice. Section 151 prescribes which authority may grant sanction depending on whether the notice is within or beyond three years. Precedent Treatment: The Court relied on the Supreme Court's articulation that grant of sanction by the appropriate authority is a precondition for the Assessing Officer to assume jurisdiction under section 148, and that non-compliance with the strict time/authority limits affects jurisdiction. Interpretation and reasoning: The Court noted that both the order under section 148A(d) and the final notice under section 148 were issued with prior approval of PCIT, whereas for notices issued after three years the approval of the Principal Chief Commissioner/Chief Commissioner was required. The Court emphasized that the statutory scheme contemplates sanction at the specified stages and by the specified authority and that failure to obtain sanction from the correct authority at these stages precludes the Assessing Officer from acquiring jurisdiction to proceed. Ratio vs. Obiter: Ratio - holding that prior sanction by the specified authority at the prescribed stages is mandatory and jurisdictional; non-compliance vitiates the proceedings. Conclusions: Because both the section 148A(d) order and the section 148 notice received sanction only from PCIT (an incorrect authority for proceedings initiated after three years), the Assessing Officer had no jurisdiction to proceed and the reassessment was invalid. Issue 3 - Effect of earlier section 148A(a) notice issued within three years when final section 148 notice issued after three years without appropriate sanction Legal framework: Section 151 links the competent sanctioning authority to the time when the notice under section 148 is issued. The post-2021 regime does not prescribe a time limit for the specified authority to grant sanction but ties the authority's competence to the time threshold. Precedent Treatment: The Court treated the Supreme Court's reasoning as decisive that the specified authority requirement is time-dependent and mandatory. Interpretation and reasoning: The Revenue's contention that an initial section 148A(a) notice was issued within three years (11/03/2022) and that the subsequent proceedings constituted a continuation of the same notice was considered. The Court rejected this contention because the decisive act for jurisdiction is the issuance of the final section 148 notice (and the order under section 148A(d)), both of which occurred after the three-year cut-off and therefore required sanction by the higher authority. The Court held that an earlier valid act within the three-year period does not validate a later notice issued after three years without requisite higher sanction. Ratio vs. Obiter: Ratio - a notice or procedural act taken within the three-year period cannot save a later section 148 notice issued after three years if the later notice lacks sanction from the authority specified for notices issued after three years. Conclusions: The fact that section 148A(a) was served within three years did not cure the defect in sanction for the final section 148 notice issued after three years; the final notice required sanction by Principal Chief Commissioner/Chief Commissioner and absence of such sanction rendered the notice invalid. Relief and Outcome Because the sanction for the section 148A(d) order and the section 148 notice was granted by an authority not empowered to sanction notices issued after the three-year period, the Court held that the Assessing Officer lacked jurisdiction under section 148. Consequently, the notice dated 06/04/2022 under section 148 was quashed as invalid and the reassessment order was set aside. The appeal was allowed on these legal grounds.