2025 (10) TMI 1222 - AT - Income Tax

Reassessment notice beyond three years invalid for lack of mandatory prior sanction under s.151; appeal allowed

ITAT (Delhi - AT) held the reassessment notice for the relevant AY invalid because it was issued beyond three years without the mandatory prior approval ... Validity of reassessment proceedings - prior approval by the Principal Chief Commissioner or Principal Director General - HELD THAT:- In the present case the notice was issued on 19-07-2022 for the A.Y. 2016-17 from the prior approval of the Pr. Commissioner, without, the approval of the authority specified u/s 151 of the Act. The notice was issued beyond the period of three years from the end of the relevant assessment year, thus in term of section 151 of the Act the sanction was required to be approved by the Principal Chief Commissioner or Principal Director General or where there is no such authority, by Chief Commissioner or Director General. Appeal of the assessee allowed . ISSUES PRESENTED AND CONSIDERED 1. Whether reopening of assessment under section 147/notice under section 148 is invalid for want of competent sanction as required by amended section 151 where more than three years have lapsed from the end of the relevant assessment year. 2. Whether issuance of notice under section 148 after issuance of notice under section 148A(b)/order under section 148A(d) complies with the transitional regime introduced by the Finance Act, 2021 and applicable judicial pronouncements. 3. Whether reassessment proceedings initiated under section 147/148 can be sustained where procedural defects impinge on principles of natural justice (opportunity of hearing) and statutory formalities (e.g., absence of DIN on notice, compliance with section 151A). 4. Whether addition under section 69/69A treating long-term capital gain on sale of shares as unexplained cash/income is sustainable where the transaction occurred through proper banking channels and compliant stock-exchange procedures. 5. Whether demand notice under section 156 in the course of reassessment contravenes section 157A. ISSUE-WISE DETAILED ANALYSIS - 1. Competent sanction under amended section 151 for reopening beyond three years Legal framework: The statutory amendment to section 151 prescribes that where notices under section 148 are issued after more than three years from the end of the relevant assessment year, prior approval/sanction must be obtained from specified senior authorities (Principal Chief Commissioner/Principal Director General or, where not available, Chief Commissioner/Director General) before issuance of notice. Precedent Treatment: The Court followed higher judicial pronouncements that interpret the post-amendment sanction requirement as mandatory for validity of notices issued beyond the three-year period; such authorities have treated inappropriate lower-level sanction as vitiating the reopening. Interpretation and reasoning: The Tribunal examined the record and found sanction for issuance of the section 148 notice was granted by an authority (Pr. Commissioner) not specified by the amended section 151 for cases where more than three years had lapsed. The Tribunal held that statutory prescription of the identity/grade of sanctioning authority is jurisdictional and not a mere formality; where the statutory condition is not met, the consequent notice is without lawful authority and the assessment framed thereon is liable to be quashed. Ratio vs. Obiter: Ratio - the mandatory nature of obtaining sanction from the designated senior authority under amended section 151 for notices issued after three years is essential to jurisdiction to reopen; absence renders proceedings void. Obiter - none on this core point. Conclusions: Reopening was invalid for lack of competent sanction; assessment/order based on such reopening quashed. This ground was dispositive and allowed the appeal on legal grounds. ISSUE-WISE DETAILED ANALYSIS - 2. Validity and sequencing of notices under section 148A(b)/148A(d) and section 148 under the new reassessment regime Legal framework: The Finance Act, 2021 introduced stage-wise procedural safeguards (section 148A) and modified provisions governing issue of notices under section 148; transitional and sequencing requirements must be respected. Precedent Treatment: The Tribunal applied binding judicial guidance that the transitional regime and Supreme Court directions require compliance with section 148A procedures before issuance of a section 148 notice in cases falling under the new regime. Interpretation and reasoning: The Tribunal accepted that the department issued a section 148A(b) notice and subsequent section 148A(d) order before issuing section 148 notice; however, even if sequence complied, the issuance of the section 148 notice beyond three years triggered the higher sanction requirement under amended section 151. Compliance with section 148A does not remedy absence of statutory sanction required by section 151. Ratio vs. Obiter: Ratio - compliance with section 148A procedures does not obviate statutory sanction requirement under section 151 for late notices; sanction remains jurisdictional. Obiter - procedural chronology observations. Conclusions: Even with section 148A compliance, the reopening could not stand where the requisite higher-level sanction under amended section 151 was not obtained. ISSUE-WISE DETAILED ANALYSIS - 3. Procedural irregularities: opportunity of hearing, DIN on notices, and compliance with section 151A Legal framework: Principles of natural justice require an opportunity to be heard before adjudicatory action affecting rights is taken; statutory formalities (e.g., Digital/Document Identification Number where required, compliance with section 151A) maintain validity and transparency of proceedings. Precedent Treatment: The Tribunal noted the raised procedural objections but treated them as academic once the primary legal defect (invalid sanction) was established and outcome dispositive; Tribunal followed authority that jurisdictional defect renders subsidiary procedural objections moot but kept them open for adjudication. Interpretation and reasoning: The assessee alleged denial of hearing before the appellate authority and absence of DIN on the section 148 notice and non-compliance with section 151A. The Tribunal observed that once the reopening was quashed on the ground of invalid sanction, other procedural infirmities did not require adjudication for disposal. Nonetheless, the Tribunal acknowledged these are relevant in ordinary circumstances and would warrant consideration if the reopening were otherwise valid. Ratio vs. Obiter: Obiter - procedural defects (lack of DIN, alleged breach of natural justice, section 151A non-compliance) were left open and not decided on merits because of the dispositive sanction issue. Ratio - where reopening is void for lack of competent sanction, subsequent procedural irregularities need not be adjudicated to dispose of the appeal. Conclusions: Procedural grounds became academic; appeal allowed on sanction ground while leaving other procedural issues open. ISSUE-WISE DETAILED ANALYSIS - 4. Treating long-term capital gain as unexplained income under section 69/69A Legal framework: Section 69/69A permits addition of unexplained cash/income/backed assets where the assessee fails to satisfactorily account for sources; bona fide transactions supported by documentary and banking evidence and compliant with statutory/regulatory norms generally militate against characterisation as unexplained income. Precedent Treatment: The Tribunal did not decide this substantive taxability question because the appeal was allowed on the legal ground of invalid reopening; decisions on such facts-intensive issues were therefore not rendered and kept open. Interpretation and reasoning: The assessee contended the capital gains arose from sale of shares transacted through proper banking channels and in accordance with stock-exchange rules, and therefore could not be treated as unexplained cash under section 69/69A. The Assessing Officer treated the gain as unexplained and made addition; the appellate authority confirmed. The Tribunal refrained from adjudicating the contention in view of quashing the assessment on jurisdictional grounds. Ratio vs. Obiter: Obiter - factual/substantive challenge to addition under section 69/69A not decided. Ratio - not applicable on merits due to disposal on jurisdictional defect. Conclusions: Substantive challenge to treatment of LTCG as unexplained remains open for adjudication in future proceedings; no decision on merits in the present order. ISSUE-WISE DETAILED ANALYSIS - 5. Validity of demand notice under section 156 vis-à-vis section 157A Legal framework: Section 157A prescribes procedures related to recovery/adjustment of demand; issuance of a section 156 demand must comply with applicable recovery provisions and be consistent with statutory protections. Precedent Treatment: The Tribunal did not adjudicate this ground on its merits following disposal on the primary sanction ground and therefore left the issue open. Interpretation and reasoning: The assessee contended that issuance of demand under section 156 during reassessment contravened section 157A. Given the assessment was quashed for lack of competent sanction, the Tribunal did not examine whether the demand issuance was independent and valid. Ratio vs. Obiter: Obiter - issue left open; not decided. Ratio - not applicable. Conclusions: Question of compliance with section 157A in issuing demand under section 156 remains undecided and open for adjudication if proceedings are revived lawfully. DISPOSITION The Tribunal allowed the appeal on the legal ground that the reopening/notice under section 148 was invalid for lack of sanction from the authority specified by the amended section 151 where more than three years had lapsed, quashed the assessment/order, and left other grounds as academic and open for adjudication in appropriate proceedings.