2025 (9) TMI 775 - AT - Income Tax

Reopening assessment under section 147 after three years invalid where section 151(ii) approval given by lacking jurisdiction

ITAT held that reopening of assessment under section 147 initiated after three years was invalid because approval under section 151(ii) (new regime) was ... Reopening of assessment u/s 147 - limitation period - Unexplained credit u/s 68 - limitation under TOLA read with provisions of section 151 under new regime - HELD THAT:- In the present case because the reopening has been initiated after 3 years, therefore, clause(ii) of section 151 shall apply. We, thus, find substance in the contention of the AR that the approval granted u/s 151(ii) (new regime) was untenably granted by the PCIT, who do not have jurisdiction to do so, in a case wherein the process of reopening has been triggered beyond 3 years from the end of the relevant assessment year. The contention of the revenue, placing reliance on the judgment in the case of Ashish Agrawal [2022 (5) TMI 240 - SUPREME COURT] along with CBDT's office memorandum dated 20.02.2023, that in present case the prescribed authority is Principal CIT-I, Raipur and the approval was validly granted by the specified authority, found to be misplaced or misconstrued, as the directions by the Hon'ble Apex Court are clear, which are further clarified, that the provisions of amended section 151 shall be applied in the cases in which the revenue has availed the benefit of extended time limit under TOLA and had proceeded for reopening assessment under the provisions of new regime. We, thus, are unable to persuade and concur with the response of the AO, as per their report dated 24.05.2024. We are of the considered view that the impugned assessment order framed u/s 147 r.w.s.144 r.w.s. 144B of the Act dated 10.03.2023 passed by the AO is liable to be struck down, being invalid for the want of valid assumption of jurisdiction on account of approval u/s 151 by an authority, who is not vested with jurisdiction to grant such approval or other than the specified authority under clause (ii) of section 151(new regime). Consequently, the assessment u/s 147 r.w.s. 144B of the Act dated 10.03.2023, stands quashed. Since the impugned assessment u/s 147 r.w.s. 144B has been quashed by us, as the AO was lacking valid assumption of jurisdiction to issue notice u/s 148 of the Act, dehors valid sanction u/s 151(ii) (new regime), as elaborated and discussed hereinabove, therefore, the appeal of the revenue in support of the orders of revenue authorities has become infructuous, consequently, the same has been rendered as dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether additions of Rs. 1,47,64,966 and Rs. 16,89,353 treated as unexplained credits under section 68 of the Income-tax Act, 1961 were sustainable on the material on record. 2. Whether the reopening of assessment (notice under section 148 and order under section 148A(d)) dated after the lapse of three years from the end of the relevant assessment year was valid in view of the requirement of prior approval by the authority specified under section 151 (as amended with effect from 01.04.2021). 3. Whether issuance of order/notice by the jurisdictional AO instead of faceless units (NFAC) under the e-Assessment / Faceless Reassessment Scheme affected the validity of the proceedings. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legitimacy of additions under section 68 (unexplained credits) Legal framework: Addition under section 68 can be made where credits in books are unexplained; the burden initially lies on the assessee to explain identity, genuineness and creditworthiness, and thereafter on the AO to displace the explanation. Precedent treatment: Reliance placed on authorities holding that where assessee discharges initial onus by production of purchase invoices, bank payments, VAT records, confirmations and other contemporaneous documents, additions should not be sustained (followed jurisprudence exemplified by Supreme Court and High Court authorities cited before the appellate authority). Interpretation and reasoning: The assessee produced financial statements, VAT returns, ledgers, confirmations from buyers, invoices with transportation details and evidence of banking channel payments; VAT was paid and TDS accounted for; sample invoices and shipping reflected in bank statements; stock registers and audited accounts were available. The AO's case rested primarily on information from survey statements against third parties and made no independent enquiries to disprove the transactions; AO did not reject books, recast results, nor impugn the nature of assessee's sales. On these facts the appellate authority (CIT(A)) concluded AO failed to discharge the onus of establishing that credits were bogus. Ratio vs. Obiter: Ratio - where assessee produces contemporaneous documentary evidence demonstrating identity and genuineness and payments through banking channels, AO must undertake positive disproof before invoking section 68; absent such disproof additions under section 68 cannot be sustained. Obiter - references to comparative values from Krishi Vigyan Kendra and observations about state-specific electricity/free irrigation were applied to explain agricultural income facts. Conclusions: The appellate authority rightly deleted additions of Rs. 1,47,64,966 (bogus purchase credits) and Rs. 16,89,353 (agricultural income treated as unexplained credit) on the facts: documentary and accounting evidence furnished by the assessee discharged initial onus and AO failed to rebut genuineness. These deletions were accepted by the Tribunal as part of the facts, but the Tribunal's final decision proceeds on a distinct jurisdictional ground (see Issue 2). Issue 2 - Validity of sanction under section 151 (specified authority) and consequent validity of notice under section 148/assessment under section 147 Legal framework: Section 151 (as amended effective 01.04.2021) prescribes the 'specified authority' whose prior approval is required for issuance of notice under section 148/for orders under section 148A: (i) Principal Commissioner/Commissioner etc. if three years or less have elapsed from end of relevant AY; (ii) Principal Chief Commissioner/Principal Director General or, where none, Chief Commissioner/Director General if more than three years have elapsed. Ashish Agarwal (and subsequent Supreme Court clarifications as analysed in Rajeev Bansal) govern interplay of TOLA extensions and the new regime, including computation of surviving time and application of amended section 151 to notices reissued or deemed under the Ashish Agarwal legal fiction. Precedent treatment (followed/distinguished): The Tribunal applied the principles established in the Supreme Court's Ashish Agarwal judgment and its later explication (as in Rajeev Bansal) that where reopening is initiated after the three-year threshold (considering TOLA extensions and legal fiction), the approval must be by the higher specified authorities under section 151(ii). High Court decisions (including decisions following Siemens/Cipla reasoning) have quashed notices where approval was granted by an authority not empowered under amended section 151(ii). The Revenue's reliance on CBDT Office Memorandum and internal reports asserting concurrent jurisdiction of JAO/NFAC and administrative practice was considered but not followed where it conflicts with the statutory requirement and judicial rulings on the competence of the sanctioning authority. Interpretation and reasoning: Facts showed the first notice under the old regime was dated within extended TOLA period; following Ashish Agarwal the matter became subject to the new regime and, when proceedings resumed, the order under section 148A(d) and notice under section 148 were issued after the three-year period had expired. The approval for reopening in this case was granted by a Principal Commissioner (Pr. CIT), i.e. an authority falling under clause (i) of section 151, whereas clause (ii) applied because more than three years had elapsed. The Tribunal held that the requirement of prior sanction by the authority specified in section 151(ii) is jurisdictional; sanction by an authority not so specified renders the notice/assumption of jurisdiction invalid. The Tribunal rejected the contention that CBDT OM or faceless scheme practice could validate an otherwise statutorily defective sanction where the statute prescribes a particular authority for approval. Ratio vs. Obiter: Ratio - where reopening is initiated beyond the three-year period from end of relevant AY under the new regime, prior approval must be obtained from the authorities specified in section 151(ii); failure to obtain such valid approval renders the section 148 notice and consequent assessment under section 147 void for want of jurisdiction. Obiter - discussion of concurrent jurisdiction under section 151A and administrative OM considerations, and analysis of practical sequencing under the Faceless Reassessment Scheme, were noted but do not override the statutory prescription or binding Supreme Court precedents. Conclusions: The approval recorded in the file by an authority not empowered under section 151(ii) was invalid; therefore the notice under section 148 and the assessment framed under section 147 read with section 144B lacked valid assumption of jurisdiction and were quashed. The Tribunal therefore set aside the assessment on this jurisdictional ground. Issue 3 - Effect of faceless assessment scheme / jurisdiction of jurisdictional AO vs NFAC Legal framework: Section 151A empowers the Central Government to frame a faceless scheme; the e-Assessment / Faceless Reassessment Scheme (notification dated 29.03.2022) prescribes procedures for automated allocation and faceless conduct of reassessment and issuance of notices to the extent provided in section 144B. Precedent treatment: Administrative guidance and some High Court orders have upheld concurrent jurisdiction or practical necessity for JAO to issue notices in certain circumstances; CBDT OM and AO reports emphasised concurrent jurisdiction and administrative allocation. However, these administrative instruments cannot override statutory mandates concerning sanctioning authority under section 151 or the jurisdictional consequences of non-compliance with section 151(ii) where applicable. Interpretation and reasoning: The Tribunal acknowledged contentions about concurrent jurisdiction and the scheme's operation but held that compliance with statutory preconditions (including correct sanctioning authority under section 151(ii)) is mandatory. The faceless scheme and OM do not validate a sanction when the statute prescribes a particular class of sanctioning authority for cases falling beyond the three-year period. Ratio vs. Obiter: Ratio - administrative scheme/OM cannot cure lack of statutory sanction required by amended section 151; jurisdictional defects remain fatal. Obiter - aspects of automated allocation, randomisation, and administrative convenience under the faceless scheme were discussed but not allowed to supplant statutory requirements. Conclusions: The faceless scheme does not obviate the statutory need for correct specified-authority sanction under section 151(ii) where more than three years have elapsed; jurisdictional non-compliance rendered the proceedings invalid irrespective of scheme/OM arguments. Final Disposition and Consequence The assessment framed under section 147 read with section 144B (dated 10.03.2023) was quashed for want of valid sanction under section 151(ii) (new regime) when reopening occurred beyond three years from the end of the relevant AY; as the assessment was quashed on this jurisdictional ground, the Revenue's appeal against deletions became infructuous and was dismissed.