Reassessment under section 147 quashed due to invalid approval under section 151(ii) granted by wrong authority

ITAT Pune held that the reopening of assessment under section 147 was invalid due to improper approval under section 151(ii). The sanction for issuing notice was granted by the PCIT instead of the competent authorities specified in the provision, namely the Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General. As the approval was not in accordance with law, it was held to be invalid, thereby vitiating the entire reassessment proceedings. Consequently, the reassessment order was quashed and the assessee's ground challenging the validity of the reopening was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the order under section 148A(d) and the notice under section 148 issued for assessment year 2017-18, dated 26.07.2022, are invalid for want of sanction from the proper "specified authority" under section 151(ii) of the Income-tax Act, 1961, when more than three years had elapsed from the end of the relevant assessment year.

1.2 Whether the Appellate Tribunal can adjudicate the validity of reassessment proceedings on the ground of improper sanction under section 151, even though such ground was not raised before the lower authorities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Validity of reassessment proceedings for want of proper sanction under section 151(ii)

Legal framework

2.1 The Court referred to section 151 of the Act, as it stood at the relevant time, which defined "specified authority" for purposes of sections 148 and 148A as follows:

(i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less have elapsed from the end of the relevant assessment year; and

(ii) Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year.

Interpretation and reasoning

2.2 The notice under section 148 was issued on 26.07.2022 for assessment year 2017-18. The Court held that this was beyond three years from the end of the relevant assessment year, thereby attracting section 151(ii).

2.3 It was an admitted fact on record, as evident from the section 148 notice placed in the paper book, that prior approval for issuance of the notice was obtained from the Principal Commissioner of Income Tax (PCIT), Nashik.

2.4 The Court held that under section 151(ii), in cases where more than three years have elapsed from the end of the relevant assessment year, the competent authority to grant approval is only the Principal Chief Commissioner, Principal Director General, Chief Commissioner or Director General, and not the Principal Commissioner.

2.5 The Court applied the ratio of a co-ordinate Bench decision in the case involving identical facts, wherein it had been held that approval by a Principal Commissioner for a notice issued beyond three years, instead of approval by authorities specified in section 151(ii), renders the reassessment invalid. That decision itself had relied on High Court decisions holding that:

(a) section 151 mandates prior approval of the higher authority where more than three years have elapsed from the end of the relevant assessment year; and

(b) sanction must conform to the law as it stands on the date of sanction, and if obtained from an authority competent only under section 151(i) instead of section 151(ii), the notice and order are bad in law.

2.6 Following the above legal position and the co-ordinate Bench decision, the Court treated the approval granted by the PCIT as not being in accordance with section 151(ii) and hence not a valid "specified authority" approval.

Conclusions

2.7 Since the notice under section 148 for assessment year 2017-18 was issued after more than three years from the end of the assessment year, the competent authority under section 151(ii) was the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.

2.8 As the prior approval was admittedly granted only by the Principal Commissioner of Income Tax, such approval was held to be invalid and not in conformity with section 151(ii).

2.9 The improper approval under section 151 vitiated the entire reassessment proceedings. Consequently, the order under section 148A(d) and the notice under section 148, as well as the resulting reassessment, were quashed as not in accordance with law.

2.10 Ground relating to challenge to reassessment proceedings was allowed; other grounds on merits were dismissed as not pressed.

Issue 2 - Raising the ground of improper sanction for the first time before the Tribunal

Interpretation and reasoning

2.11 The Departmental Representative contended that the issue of improper approval under section 151 had not been raised before the Commissioner (Appeals) or the Assessing Officer and requested remand to the Commissioner (Appeals).

2.12 The Court, however, proceeded to examine the validity of the reassessment on the basis of the material already on record, including the section 148 notice and the admitted fact of approval by the PCIT, without remanding the matter.

2.13 The Court treated the question of validity of sanction under section 151 as a pure question of law going to the root of jurisdiction, capable of being adjudicated directly by the Tribunal on the existing record.

Conclusions

2.14 The Tribunal implicitly held that a jurisdictional challenge to reassessment proceedings, founded on the nature of sanction under section 151, can be raised and decided at the appellate stage even if not taken before the lower authorities.

2.15 On this basis, the Tribunal itself adjudicated the legal issue and quashed the reassessment without remand.

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