2025 (8) TMI 1322 - HC - Income Tax

Reassessment and notice under s.148 void for lack of s.151(ii) sanction when beyond three years; assessment quashed.

Ramesh Bachulal Mehta Versus Income Tax Officer Ward-27 (3) (1), Mumbai & Ors.

HC held the reassessment order dated 13.07.2022 under s.148A(d) and the consequential notice under s.148 void for lack of requisite sanction under ... Reopening of assessment u/s 147 - no appropriate prior approval/sanction mandated u/s 151 - order passed beyond three years from the end of the relevant Assessment Year HELD THAT:- In the case of Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] the Hon'ble Supreme Court waived off the requirement of obtaining prior approval under section 148A(a) and Section 148A(b) of the Act only. Therefore, the AO was required to obtain prior approval of the 'Specified Authority' according to Section 151 of the new regime before passing an order under Section 148A(d) or for issuing a notice under Section 148. Under new regime, if income escaping assessment is more than Rupees 50 lakhs, a reassessment notice could be issued after the expiry of three years from the end of the relevant assessment year only after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Section 151(ii) of the substituted provisions prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance with the provisions of section 151 vitiates the jurisdiction of the Assessing Officer to issue a notice under section 148. Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice. In the present case the period of three years from the end of the Assessment Year 2016-17 fell for completion on 31st March 2020. Since the expiry date fell during the time period of 20th March 2020 and 31st March 2021 contemplated under Section 3(1) of Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (for short “TOLA”), the authority specified under Section 151(i) of the new regime could have granted sanction till 30th June 2021. On perusal of the order, dated 13.07.2022, passed under Section 148A(d) of the Act, we find that the aforesaid order was passed after taking approval from Principal Commissioner of Income Tax (Respondent No. 2). Since the aforesaid order was passed after the expiry of three years from the end of the Assessment Year 2016-17, as per the substituted provisions of re-assessment, the authority specified under Section 151(ii) of the Act (i.e. Principal Chief Commissioner or Chief Commissioner) was required to grant approval. Accordingly, we conclude that in the present case the approval has been obtained from the authority specified under Section 151(i) of the new regime instead of the authority specified under Section 151(ii) of the new regime. Thus, accordingly hold that the order dated 13.07.2022 passed u/s 148A(d) of the Act and the consequential notice issued under section 148 are bad in law for being violative of the provisions of Section 151(ii) of the Act. Hence they are required to be quashed and set aside. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an order under Section 148A(d) passed after the expiry of three years from the end of the relevant assessment year, and after obtaining approval from an authority specified under Section 151(i) instead of the higher authority specified under Section 151(ii), is valid and vitiates the jurisdiction to issue a subsequent notice under Section 148. 2. Whether the prior-approval requirements under the substituted reassessment regime (Finance Act, 2021) - specifically the need for sanction under Section 151 at stages under Sections 148A(d) and 148 - remain mandatory notwithstanding the Court's earlier directions treating pre-existing Section 148 notices as Section 148A(b) show-cause notices in consequence of Ashish Agarwal. 3. Whether the temporal extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) affects which specified authority under Section 151 may validly grant sanction when the three-year period falls within the TOLA window. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Section 148A(d) order and consequent Section 148 notice where approval was obtained from authority under Section 151(i) though Section 151(ii) was applicable Legal framework: The substituted reassessment regime (Finance Act, 2021) prescribes that sanction of the specified authority under Section 151 is a precondition for assuming jurisdiction to issue reassessment notices under Section 148. Section 151(i) applies where three years or less have elapsed from the end of the relevant assessment year; Section 151(ii) prescribes higher authorities where more than three years have elapsed. Section 148A(d) requires an order deciding whether a notice under Section 148 should be issued. Precedent treatment: The Court applied and followed the reasoning in the Supreme Court decision in Rajeev Bansal, which explicated the linkage between time-limits and the level of authority under Section 151 and reiterated that non-compliance with Section 151 affects the Assessing Officer's jurisdiction. The decision in Ashish Agarwal was also considered for its directions treating prior Section 148 notices as Section 148A(b) show-cause notices but was distinguished to the extent it waived only certain prior-approval requirements. Interpretation and reasoning: The Court examined the timing: the three-year period for the relevant assessment year expired before the order under Section 148A(d) was passed. Under the substituted regime, when more than three years have elapsed, prior approval must be from the authorities listed in Section 151(ii). The impugned order recorded approval from an authority falling under Section 151(i) (Principal Commissioner), not the higher authority mandated by Section 151(ii). The Court treated grant of sanction by the appropriate authority as a jurisdictional precondition; obtaining sanction from an incorrect level therefore failed to confer jurisdiction to pass Section 148A(d) order or to issue a Section 148 notice. Ratio vs. Obiter: Ratio - Non-compliance with the level-of-authority requirement in Section 151(ii) where it is applicable vitiates the Assessing Officer's jurisdiction and renders the Section 148A(d) order and consequent Section 148 notice void. Obiter - none of the Court's key findings on this point were framed as non-binding commentary; they tracked the binding Supreme Court pronouncements. Conclusions: The Section 148A(d) order and consequential Section 148 notice are invalid for having been preceded by approval from an authority specified under Section 151(i) when Section 151(ii) applied; such non-compliance vitiates jurisdiction and requires quashing of the order and notice. Issue 2: Scope of waiver effected by earlier directions treating pre-existing Section 148 notices as Section 148A(b) show-cause notices and the continuing requirement of sanction under Section 151 for Sections 148A(d) and 148 Legal framework: Ashish Agarwal directed that pre-existing Section 148 notices be treated as Section 148A(b) show-cause notices and relaxed certain pre-approval requirements under the transitional circumstances. However, the substituted law explicitly requires prior sanction under Section 151 for actions at multiple stages, including Sections 148A(d) and 148. Precedent treatment: The Court followed Rajeev Bansal's clarification that while Ashish Agarwal waived the need for prior approval under Sections 148A(a) and 148A(b), it did not dispense with the requirement of approval for Section 148A(d) or Section 148. Rajeev Bansal was applied to hold that those later-stage approvals remain mandatory under Section 151. Interpretation and reasoning: The Court accepted the distinction drawn in Rajeev Bansal: the earlier waiver was limited to initial enquiry and show-cause stages (148A(a) and (b)), but did not extend to the order under 148A(d) or to the issuance of a Section 148 notice. Thus, assessing officers must obtain the appropriate sanction under Section 151 before passing orders under 148A(d) or issuing notices under 148, in accordance with the time-linked specified authorities. Ratio vs. Obiter: Ratio - The requirement of prior sanction under Section 151 for Section 148A(d) and for issuing notices under Section 148 persists notwithstanding the earlier waiver for Sections 148A(a) and 148A(b); failure to obtain appropriate sanction invalidates subsequent action. Obiter - explanatory remarks about the scope of Ashish Agarwal's exercise of Article 142 were referenced from Rajeev Bansal but do not alter the binding ratio. Conclusions: The Assessing Officer must obtain sanction from the authority specified under Section 151 before passing orders under Section 148A(d) or issuing notices under Section 148; Ashish Agarwal's waiver does not relieve these requirements. Issue 3: Application of TOLA extension to determine applicable sanctioning authority under Section 151 where the three-year period fell within TOLA dates Legal framework: TOLA extended certain statutory time-limits for actions falling between 20 March 2020 and 31 March 2021. Rajeev Bansal explained how TOLA affects the deadline for the authority specified under Section 151(i) to grant sanction: where the three-year limit falls within the TOLA period, the approving authority under Section 151(i) has an extended window (until 30 June 2021 in the illustration) to grant sanction; beyond that extended date, higher authorities under Section 151(ii) must be involved if sanction is granted later. Precedent treatment: The Court followed and applied the illustration and analysis in Rajeev Bansal concerning TOLA's temporal effect on the permissible sanctioning authority. Interpretation and reasoning: The Court found the three-year period for the relevant assessment year fell within the TOLA window and that the extended permissive period for Section 151(i) authorities expired on 30 June 2021. The impugned Section 148A(d) order was passed on 13 July 2022, well beyond the extended date; consequently, sanction by an authority under Section 151(i) was no longer competent and the sanction should have been granted by authorities listed under Section 151(ii). Ratio vs. Obiter: Ratio - TOLA's temporal extension does not authorize a Section 151(i) authority to grant sanction beyond the finite extended date (e.g., 30 June 2021 in the illustration); where sanction is granted after that date, the authority under Section 151(ii) must be the sanctioning authority. Obiter - general legislative intent behind TOLA (relief to Revenue during COVID) was noted but did not affect the mandatory linkage between time and authority. Conclusions: Application of TOLA did not validate the post-30 June 2021 approval by a Section 151(i) authority; the approval was therefore ineffective and the subsequent action invalid for lack of proper sanction. Cross-References and Overall Conclusion 1. The Court's holdings on Issues 1-3 are interdependent: the mandatory character of Section 151 sanction (Issue 2) and the temporal linkage governed by TOLA (Issue 3) together determine which authority must sanction under Section 151; failure on either count vitiates jurisdiction (Issue 1). 2. Applying the above, the Court concluded that the Section 148A(d) order and consequential Section 148 notice issued after the relevant three-year/TOLA window and on the basis of approval from an authority specified under Section 151(i) (instead of Section 151(ii)) are bad in law and are quashed. The decision follows and applies the reasoning in Rajeev Bansal and distinguishes the limited waiver in Ashish Agarwal to the earlier procedural stages only.