Sanction under s.151(i) instead of s.151(ii) for s.148/s.148A(d) notice vitiates s.147 reassessment; s.263 power limited

ITAT CHENNAI - AT allowed the appeal of the assessee, holding that sanction granted under s.151(i) instead of s.151(ii) for issuance of notice under s.148 and for order under s.148A(d) (after the three-year period) vitiated the entire reassessment under s.147. The PCIT, assuming revisionary jurisdiction under s.263, lacked power to set aside the non-est re-assessment order and direct the AO to pass a fresh assessment. The reassessment proceedings were therefore held invalid.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the validity of reassessment proceedings under Section 147/148 (including validity of sanction under Section 151 and service / procedural prerequisites under Section 148A) can be challenged in collateral/revision proceedings under Section 263 and in an appeal arising from such revisionary order.

2. Whether the notice under Section 148 and the order under Section 148A(d) dated 19.04.2022 were validly sanctioned under Section 151, having regard to the three-year cutoff and the identity of the competent authority (clauses (i) and (ii) of Section 151 as they stood at the relevant time).

3. Whether prior approval to issue a show-cause notice under Section 148A(b) obtained from the PCIT suffices as sanction under Section 151 for subsequently issuing the Section 148 notice and passing the order under Section 148A(d), or whether a fresh sanction is required at the stage of issuing the Section 148 notice.

4. Whether an amendment (Finance Act, 2023) inserting a proviso to Section 151 that affects computation of the three-year period can be given retrospective/clarificatory effect to validate a sanction granted prior to the effective date of that amendment.

5. Whether the Principal Commissioner's exercise of revisionary jurisdiction under Section 263 can set aside an assessment/reassessment order that is non est (void for want of jurisdiction) and thereafter direct the Assessing Officer to pass a fresh assessment.

ISSUE 1 - Challenging validity of reassessment in collateral/revision proceedings

Legal framework: Revision under Section 263 is collateral to assessment proceedings; ordinarily the validity of primary proceedings is to be challenged in appeals against those proceedings, but judicial principles relating to nullity and want of jurisdiction permit collateral attack where the primary order is void.

Precedent Treatment: The Court considered apex and High Court authorities distinguishing void (non est) orders from merely erroneous or irregular orders (e.g., principles in Kiran Singh, Balwant N. Viswamitra and related decisions) and Tribunal / High Court decisions holding that jurisdictional invalidity of reassessment can be raised in collateral proceedings.

Interpretation and reasoning: Where the primary assessment/reassessment order is inherently invalid for lack of jurisdiction or fundamental defect, it cannot serve as a foundation for collateral revision; the maxim sublato fundamento - if the foundation is removed, the superstructure falls - was applied. The Tribunal held that jurisdictional invalidity may be raised in appeal arising from a revision order because an invalid primary order cannot be validly revised.

Ratio vs. Obiter: Ratio - validity of reassessment that is void for want of jurisdiction can be challenged in proceedings under Section 263 and in appeals against revision; this is binding on the issue before the Tribunal. Observations on cases aligning with this view are treated as supporting ratio.

Conclusion: The Tribunal accepts that validity of reassessment proceedings can be examined in appeal against revisionary order under Section 263 where the reassessment is alleged to be non est.

ISSUE 2 - Competent authority under Section 151 and validity of sanction

Legal framework: Section 151 prescribes specified authority for sanction to issue notices under Section 148 / Section 148A; the competent authority depends on whether the notice/order is issued within or after three years from the end of the relevant assessment year (clauses (i) and (ii) as in force at relevant time).

Precedent Treatment: The Tribunal relied on decisions of the jurisdictional High Court and other tribunals (including Madras High Court in Core Logistic) holding that sanction by an improper authority vitiates reassessment proceedings.

Interpretation and reasoning: The Section 148A(d) order and the Section 148 notice were dated 19.04.2022. For A.Y. 2018-19, those actions occurred after expiry of three years from the end of the assessment year, therefore clause (ii) of Section 151 prescribed a higher authority (Principal Chief Commissioner / Principal Director General or equivalents) as competent. The sanction recorded from PCIT (authority under clause (i)) was therefore not the competent authority and vitiated the reassessment for want of proper sanction.

Ratio vs. Obiter: Ratio - if sanction for issuance of notice under Section 148 / order under Section 148A(d) is not accorded by the authority specified by Section 151(ii) where required, the reassessment proceedings are invalid (non est). This finding is dispositive in the case.

Conclusion: The sanction from PCIT was not the competent sanction required by Section 151(ii) for the notices/orders dated 19.04.2022; hence the reassessment proceedings are void for want of proper sanction.

ISSUE 3 - Whether prior approval to issue Section 148A(b) show-cause notice suffices as sanction for subsequent Section 148 notice

Legal framework: Section 148A procedure gives the taxpayer an opportunity to respond before issuance of a Section 148 notice; Section 148 (as amended) requires prior approval of specified authority to issue the Section 148 notice.

Precedent Treatment: The Tribunal examined statutory scheme and legislative intent behind Section 148A and Section 151 rather than relying on a single precedent to conflate initial approval with final sanction.

Interpretation and reasoning: A prior approval to issue the Section 148A(b) show-cause notice is given at the stage of proposing reassessment; if, after considering the taxpayer's response, the AO decides to proceed, a fresh sanction is required at that later stage because otherwise the protective purpose of Section 148A (the taxpayer's chance to demonstrate why reassessment should be dropped) would be defeated. Therefore the initial approval for issuance of Section 148A(b) cannot be treated as a blanket sanction for issuing the Section 148 notice or for passing Section 148A(d) order.

Ratio vs. Obiter: Ratio - separate sanction is required when the AO, after considering responses, decides to issue the Section 148 notice; the preliminary sanction for the show-cause stage does not substitute for the sanction required under Section 151 for issuing the Section 148 notice.

Conclusion: The approval obtained for issuance of the Section 148A(b) notice did not obviate the need for a fresh competent sanction for the Section 148 notice; absence of that sanction vitiates the reassessment.

ISSUE 4 - Effect of Finance Act, 2023 amendment to Section 151 (proviso) - retrospective/clarificatory applicability

Legal framework: Finance Act, 2023 inserted a proviso to Section 151 specifying computation of the three-year period by taking into account exclusion/extension under specified provisos to Section 149(1); the amendment took effect from 01.04.2023.

Precedent Treatment: The Tribunal rejected the Department's plea to treat the amendment as clarificatory/retrospective, and declined reliance on an authority suggesting retrospective effect where legislative text and the effective date do not support it.

Interpretation and reasoning: The amendment expressly took effect from 01.04.2023; the notice/sanction in the present case were recorded on 19.04.2022. The AO and sanctioning authority could not have relied on an amendment that did not exist at the time; statutory language and legislative notes do not permit retrospective application to validate earlier invalid sanction. The Tribunal therefore disallowed retroactive validation.

Ratio vs. Obiter: Ratio - an amendment expressly effective from a later date cannot be applied retrospectively to validate sanction given prior to its effective date absent clear legislative intent; consequently the Finance Act, 2023 amendment did not cure the invalid sanction in this case.

Conclusion: The Finance Act, 2023 amendment cannot be given retrospective effect to validate the sanction dated 19.04.2022; it does not cure the jurisdictional defect.

ISSUE 5 - Legality of Section 263 revision of a non est reassessment and the consequence of directing fresh assessment

Legal framework: Section 263 empowers the Commissioner to revise an order if it is erroneous and prejudicial to the interests of revenue; but revision presupposes a valid primary order that can be corrected.

Precedent Treatment: Relying on established jurisprudence, the Tribunal treated attempts to revise an order that is void for want of jurisdiction as impermissible because an invalid order cannot be the subject of valid revisionary action.

Interpretation and reasoning: Where reassessment is void (non est) due to lack of competent sanction, the Commissioner could not lawfully exercise Section 263 to set aside that non est order and instruct a fresh assessment because that would amount to revising a non-existent valid substrate and indirectly extending limitation and jurisdiction that statute prescribes. The Tribunal held that the PCIT could not set aside the invalid reassessment under Section 263 and could not direct AO to pass a fresh assessment based on the invalid order.

Ratio vs. Obiter: Ratio - Section 263 cannot be used to revise an assessment order which is void ab initio for want of jurisdiction; any revision predicated on such a non est order is itself without jurisdiction.

Conclusion: The PCIT's exercise of revisionary jurisdiction to set aside the reassessment order of 20.11.2023 (which the Tribunal found void for want of proper sanction) was impermissible; the revision order is quashed and the appeal is allowed.

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