2025 (10) TMI 695 - AT - Income Tax

Reassessment notice under s.148 invalid where s.151 sanction lacked independent, valid communication and approval was superseded

ITAT Delhi-AT held the reassessment notice invalid ab initio. The AO recorded two different reasons for reopening and obtained two separate s.151 ... Reopening of assessment by issuing two different reasons to believe - no valid sanction/ approval of the specified authority u/s 151 - allegation of 'rubber stamp' reasons in present case are based on borrowed satisfaction and are without independent application of mind - HELD THAT:- We find merit in arguments of the Ld. AR that there are two separate reasons recorded by the AO for reopening of the assessment. Both proposals for reopening of the assessment have been sent, one through online and another manually, to the Ld. PCIT for approval under section 151 of the Act. Both reasoning recorded by the AO for reopening of the assessment differ as pointed out by the Ld. AR . CIT-DR failed to bring any material on the record to contradict the Ld. AR's submission that there are two different reasoning recorded by the AO for reopening the assessment which have been separately approved under section 151 of the Act. We, therefore, have taken note of the fact that there are two separate reasoning recorded by the AO for reopening of the assessment, which have been also approved independently and separately by the Ld. PCIT. In case first approval under section 151 of the Act granted by the Ld. PCIT is valid then the subsequent approval will become invalid and vice-versa. Which approval out of the above-mentioned two is valid in the eyes of law? - The first approval does not bear the signature including digital signature of the Ld. PCIT though it has been done with the help RSA Token issued by the Income Tax Department to the concerned officer. The RSA Token is used by the Officer concerned in person. We are unable to understand the reasoning on which the subsequent approval has been granted, under section 151 of the Act, by the Ld. PCIT. Normally, the Ld. PCIT would not grant subsequent approval under section 151 of the Act unless some inconsistency/illegality/mistake had not been noticed by him in the earlier approval under section 151 of the Act by the Ld. PCIT. We, therefore, are of the considered view that the subsequent approval overrides the initial approval granted, online, under section 151 of the Act by the Ld. PCIT as the initial approval contains incorrect forwarding of the Range Head, factual discrepancies mentioned above in para 4.3 and digitally unsigned by the Ld. PCIT (though approved by RSA Token). Therefore, we hold that the subsequent approval granted, communicated manually, under section 151 of the Act has to prevail upon the initial approval granted, online, under section 151 of the Act. Since the subsequent approval granted under section 151 of the Act has been communicated manually on 30.03.2019 after the issuance of notice under section 148 of the Act; therefore, the notice issued under section 148 of the Act is held invalid and ab-initio void. ISSUES PRESENTED AND CONSIDERED 1. Whether reopening of assessment under section 148 in the absence of a valid prior approval under section 151 is vitiated where two different sets of reasons were recorded/communicated to the approving authority and the final communicated approval was dated after issuance of the notice under section 148. 2. Whether the presence of two divergent 'reasons to believe' (manual and electronic) and apparent mechanical/borrowed approvals negates the AO's independent satisfaction and the jurisdictional foundation of proceedings under section 147. 3. Whether, as a consequence of invalid assumption of jurisdiction, the consequential reassessment and appellate orders must be quashed; and whether merits of additions (amount added under section 68) require adjudication in view of the jurisdictional conclusion. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity and timing of approval under section 151 vis-à-vis issuance of notice under section 148 Legal framework: Section 148 empowers issuance of notice where AO has reason to believe income has escaped assessment; section 151 requires prior approval of the specified authority (Pr. CIT/PCIT) before issuance of such notice where conditions in section 147 are attracted; the approval must be obtained before notice is issued. Precedent treatment: Parties relied on authorities addressing validity of approval and sequencing of approval/notice (including decisions of higher courts and tribunal authorities). The Tribunal considered those precedents in context but based decision strictly on the record of approvals and their dates. Interpretation and reasoning: The AO recorded two different sets of reasons (manual dated 22.03.2019 and electronic dated 23.03.2019) and sought approval by both modes. The online (initial) approval lacked the approving officer's digital signature in the material before the Tribunal and contained factual discrepancies (incorrect forwarding/range head reference, differing quantum and statutory reference). A subsequent manual approval, communicated by a letter dated 30.03.2019, was on its face superseding but was delivered after the notice under section 148 had been issued on 29.03.2019. The Tribunal examined the chronology and material inconsistencies and held that only an approval communicated to the AO prior to issuance of the notice can sustain the jurisdiction to issue a section 148 notice. Ratio vs. Obiter: Ratio - where the only valid communicated approval on record was subsequent to issuance of the section 148 notice, the notice is invalid ab initio and the reassessment lacks jurisdiction. Obiter - observations that an approving authority would normally not grant a subsequent approval unless inconsistencies were noticed; comments on digital signature practice and RSA token usage were explanatory rather than necessary for the decision. Conclusions: The Tribunal concluded the effective approval relied upon by the Department was communicated after issuance of the notice; accordingly the notice under section 148 and consequential assumption of jurisdiction under section 147 are void ab initio. The Tribunal quashed both the reassessment and the appellate order which flowed from that reassessment as without jurisdiction. Issue 2 - Effect of two divergent reasons to believe and mechanical/borrowed satisfaction Legal framework: Reopening must rest on contemporaneous, intelligible reasons to believe recorded by the AO reflecting independent application of mind; reasons cannot be altered, changed or supplemented to confer validity where none existed at the time of issuing notice; approval under section 151 must reflect satisfaction with the recorded reasons. Precedent treatment: The Tribunal noted submissions relying on authorities that rubber-stamp or borrowed satisfaction and failure to dispose objections point to invalid reopening; while such precedents were cited, the Tribunal resolved the case on the narrower ground of invalid approval/timing and therefore treated other arguments as academic. Interpretation and reasoning: The AO had recorded inconsistent particulars across the two reason-sets (different escaped-quantums Rs. 60 lakh v. Rs. 80 lakh, differing invocation of Explanation clauses to section 147, inclusion/exclusion of reference to section 133(6) enquiries). These material divergences, coupled with an apparent mechanical forwarding note by the Range Head and an online approval lacking the explicit digital signatory evidence in the record, pointed to non-uniformity and potential non-application of mind. However, the Tribunal found that determination of those defects was unnecessary once the approval relied upon was held to be post-dated to the notice; thus defects in reasons were not finally adjudicated on merit. Ratio vs. Obiter: Obiter - the Tribunal remarked that presence of two different reasons and forwarding anomalies undermines confidence in the process and signals potential borrowed satisfaction; but since decision rested on timing of approval, findings on the substantive validity of the reason-recording were left open. Conclusions: The Tribunal recorded that while the two divergent reasons and indications of mechanical approval are material and could have independently invalidated reopening, those issues were not decided on merits because the notice/approval chronology alone sufficed to invalidate the reassessment. The Tribunal held other contentions academic in view of the jurisdictional nullity. Issue 3 - Consequence for consequential assessment additions and appellate consideration Legal framework: If assumption of jurisdiction is invalid, consequential reassessment and any additions made under section 68 in the reassessment cannot sustain; appellate orders confirming such additions likewise fall with the jurisdictional vice. Precedent treatment: The Tribunal acknowledged authorities addressing merits of additions (creditworthiness, identity, genuineness under section 68) but did not adjudicate those issues because jurisdiction was lacking. Interpretation and reasoning: Having found the notice under section 148 void ab initio for absence of valid prior approval communicated to AO, the Tribunal held that the reassessment order (and CIT(A)'s order affirming the addition) were without jurisdiction and therefore quashed. The Tribunal expressly left merits of the Rs. 55,00,000 addition to be decided, if necessary, in proceedings not vitiated by the jurisdictional flaw. Ratio vs. Obiter: Ratio - invalid assumption of jurisdiction necessitates quashing of consequential assessment/additions and appellate confirmation thereof. Obiter - comments that other procedural defects (non-disposal of objections, denial of cross-examination, timing of 143(2) notice) were not decided. Conclusions: The Tribunal allowed the appeal on jurisdictional grounds, declared the section 148 notice and consequent orders void ab initio and quashed the assessment and appellate orders; issues on the merits of additions remain open and were not adjudicated. Cross-references and ancillary findings 1. The Tribunal cross-referenced the analysis of timing and content of reasons to believe with the question of approval under section 151 and held that when multiple inconsistent reason-sheets exist, the effective communicated approval must pre-exist the notice; otherwise the notice is invalid. 2. Procedural and substantive objections raised by the assessee (including reliance on authorities addressing disposal of objections, GKN procedure, and necessity of confrontation/cross-examination) were recorded but not decided as they were rendered academic by the primary finding of jurisdictional invalidity.