2025 (8) TMI 1646 - AT - Income Tax

Reassessment for AY 2016-17 held invalid: issued beyond three years and lacked sanction under section 151(ii)

Upneet Singh Arneja Versus ITO Ward- 45 (1) New Delhi

Upneet Singh Arneja Versus ITO Ward- 45 (1) New Delhi - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether a reassessment notice and consequential order issued after the expiry of three years from the end of the relevant assessment year is valid when prior approval was obtained from an authority lower than that prescribed by the amended section governing sanction for issuance of such notices (statutory competence of sanctioning authority under the substituted section 151/section 148 regime). 2. Whether confirmation of additions (section 68 additions based on bank-deposit/entry-provider material) by the appellate authority remains sustainable where the reassessment itself is challenged as vitiated for lack of proper sanction under the reassessment scheme, and the legal consequence of quashing the reassessment on other factual/contentions (natural justice, opportunity to rebut, reliance on statements collected without opportunity to cross-examine). ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of reassessment notices/orders issued beyond three years where prior approval was obtained from an authority not specified by the amended sanction provision Legal framework: The reassessment regime was amended with an effective date such that notices/orders issued after a specified date fall under the substituted provisions. The substituted provision prescribes that when reassessment action is initiated beyond three years from the end of the relevant assessment year, prior sanction/approval must be obtained from specified higher authorities (Principal Chief Commissioner/Principal Director General or, where those posts do not exist, Chief Commissioner/Director General). Precedent treatment: The Court treated binding higher-court guidance addressing transition between the old and new reassessment regimes and the correctness of prior approvals taken under the amended statutory scheme as directly on point. The reasoning follows higher-court conclusions that notices issued in the period governed by the substituted provisions require sanction from the statutorily specified authorities when the time limit for initiation has expired. Interpretation and reasoning: The Court examined the chronology: initial notice under the pre-amendment regime was issued before the effective date but subsequent procedural steps (show-cause under the amended regime, order under the new provision and a fresh notice) occurred after the substituted regime came into force and after expiry of three years. The Court held that once the substituted section governs the initiation of reassessment beyond three years, the statutory requirement as to the competent sanctioning authority becomes mandatory and jurisdictional. Approval obtained from a lower authority than that specified by the substituted provision does not satisfy the statutory requirement; such approval is therefore legally ineffectual to validate the reassessment initiation. Ratio vs. Obiter: Ratio - where reassessment is initiated after the three-year period and the substituted sanctioning provision applies, prior approval must be from the authority specified by that provision; approval by a lesser authority is invalid and vitiates the reassessment. The Court's explicit holding that the reassessment must be quashed on this statutory defect is binding within the case's facts. Observational remarks about transitional chronology and reliance on broader precedent are ancillary but supportive, and thus primarily ratio in the statutory-application context. Conclusion: The reassessment notice/order issued after the three-year period, which was sanctioned only by a Principal Commissioner (a lower authority than required by the substituted provision), was invalid. The reassessment was quashed for lack of competent sanction, and the appeal was allowed on this legal ground. Issue 2: Consequence for confirmed additions and related factual/due-process objections when reassessment is quashed for lack of proper sanction Legal framework: Additions made under section 68 (treating unexplained credits/loans/deposits as taxable income unless the assessee satisfactorily explains source) are subject to the validity of the reassessment action under which they are sustained. Principles of natural justice require opportunity to confront/rebut material relied upon by the revenue, including statements or material collected in search/investigation. Precedent treatment: The Court acknowledged prior authorities holding that if reassessment is void for lack of statutory sanction, consequential assessment action and additions founded on such reassessment cannot stand. The Court also referenced established principles that adverse inferences drawn from material collected without affording the assessee an opportunity to rebut may be impermissible, but treated those contentions as factual and dependent on merits. Interpretation and reasoning: Given the disposal on the legal defect of sanction, the Court considered the downstream contentions (treatment of unexplained deposits, substitution of invoked sections by authorities, denial of opportunity to confront witnesses or material) as not requiring adjudication in light of the primary legal invalidation. The Court therefore did not decide on the substantive correctness of the section 68 addition or on alleged breaches of natural-justice connected to evidentiary matters, leaving those issues open as academic for future determination if reassessment is validly initiated. Ratio vs. Obiter: Ratio - quashing of the reassessment for lack of statutory sanction necessarily renders appellate consideration of consequential additions academic and not determinative. Obiter - any observations about natural-justice breaches or evidentiary sufficiency without a valid reassessment are incidental and not relied upon as the basis for allowing the appeal. Conclusion: Because the reassessment was invalidated for want of proper statutory sanction, the confirmed addition under section 68 (and related grievances regarding substitution of statutory sections and alleged denial of opportunity to rebut evidence) were not adjudicated on merits and remain academic; the appeal was allowed on the legal ground of invalid sanction and the assessment order was quashed. Cross-references and consequential rulings The Court expressly followed controlling higher-court guidance on the applicability of the substituted reassessment provisions and the mandatory identity of the sanctioning authority for actions beyond three years, and applied that principle to invalidate the reassessment. In consequence, all other grounds raised concerning evidentiary sufficiency, natural-justice complaints, and substantive additions were left open for adjudication if reassessment is validly re-initiated in accordance with statutory prescription.