2025 (11) TMI 1845 - AT - Income Tax

ITAT quashes reassessment as notice beyond three years lacked proper sanction under Sections 148, 148A(d) and 151

ITAT Jaipur held that the reassessment notice issued u/s 148 and the order u/s 148A(d) were invalid as the mandatory sanction under the new regime u/s 151 ... Reopening of assessment u/s 147 - Sanction of the specified authority - scope of new regime - TOLA - HELD THAT:- As under new regime the order u/s 148A(d) and notice u/s 148 after expiry of three years was required to be issued with the sanction obtained from PCCI/ PDGIT/ CCIT/ DGIT as against which the same has been issued with the sanction of PCIT and the same is not in accordance with the provisions of section 151 of the new regime. Further, we have also gone through the judgement of Kusum Healthcare P Ltd. [2025 (3) TMI 658 - DELHI HIGH COURT] wherein the issue was also about sanctioning authority for issuing notice u/s 148 held Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act merely extended the period within which action could have been initiated and which would have otherwise and ordinarily been governed and regulated by sections 148 and 149 of the Act. If the contention of the respondents were to be accepted it would amount to us virtually ignoring the date when reassessment is proposed to be initiated and the same being indelibly tied to the end of the relevant assessment year. Once it is conceded that the notice came to be issued four or three years after the end of the relevant assessment year, the approval granted by the Joint Commissioner of Income-tax would not be compliant with the scheme of section 151. We thus find ourselves unable to sustain the grant of approval by the Joint Commissioner of Income-tax Approval for issuance of notice u/s 148 was required to be taken as per time gap between the Assessment Year and time when this notice was to be issued and TOLA did not amend the hierarchy set up under section 151. Hence in this judgement also the Hon’ble Delhi High Court opined that sanction for notice u/s 148 was required to be taken from authority specified under amended section 151 as per time gap existing between the assessment year and time of issue of notice. Thus, following the judgments of the Hon’ble Supreme Court in the case of Rajeev Bansal [2024 (10) TMI 264 - SUPREME COURT (LB)] and Ashish Agarwal [2022 (5) TMI 240 - SUPREME COURT] and the judgments of the Hon’ble High Courts and the Tribunal, discussed herein above, we quash the notice issued under section 148 of the IT Act, 1961, as bad in law and accordingly the consequential assessment order is hereby quashed. Assessee appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the reassessment proceedings initiated under section 148 for the relevant assessment year, pursuant to an order under section 148A(d), were void for want of valid prior sanction from the 'specified authority' as mandated by section 151 of the Income Tax Act, 1961, under the post-Finance Act 2021 regime. 1.2 Consequent upon the answer to Issue 1.1, whether the resultant reassessment order and additions made thereunder could legally survive. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1.1 - Validity of reassessment proceedings for want of proper sanction under section 151 (a) Legal framework discussed 2.1 The Court examined sections 147, 148, 148A and, in particular, section 151 of the Income Tax Act as substituted by the Finance Act 2021 ('new regime'). 2.2 Section 151 (new regime) was reproduced and considered, which prescribes the 'specified authority' for purposes of sections 148 and 148A as: (i) Principal Commissioner/Principal Director/Commissioner/Director where three years or less have elapsed from the end of the relevant assessment year; and (ii) Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General where more than three years have elapsed. 2.3 The Court discussed and relied on the interpretation of this regime by the Supreme Court in the decisions in Ashish Agarwal and Rajeev Bansal, including the holding that: (i) After 01.04.2021, prior approval must be obtained from the authority prescribed under section 151 of the new regime for orders under section 148A(d) and for notices under section 148; (ii) The requirement of prior approval was waived only for sections 148A(a) and 148A(b) in terms of Ashish Agarwal, but not for section 148A(d) and section 148; and (iii) The classification of approving authorities in section 151 is linked to the time elapsed from the end of the relevant assessment year, and non-compliance affects jurisdiction. 2.4 The Court also noted and relied on the principle that the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) only relaxes/extends time limits; it does not alter the hierarchy or distribution of powers for approval under section 151. (b) Interpretation and reasoning 2.5 It was undisputed that, for the assessment year in question, the notice under section 148 dated 26.07.2022 and the order under section 148A(d) were both issued after more than three years had elapsed from the end of the relevant assessment year. 2.6 The record showed that the Assessing Officer obtained prior approval from the Principal Commissioner (PCIT) before issuing the order under section 148A(d) and the consequent notice under section 148. 2.7 Applying section 151 (new regime), read with the Supreme Court's exposition in Rajeev Bansal, the Court held that where more than three years have elapsed from the end of the relevant assessment year, approval must mandatorily be obtained from one of the higher authorities listed in section 151(ii), i.e. Principal Chief Commissioner / Principal Director General / Chief Commissioner / Director General. 2.8 The Court emphasized that, in terms of Rajeev Bansal and subsequent High Court and Tribunal decisions cited and followed, the 'specified authority' is determined solely by the time gap between the end of the assessment year and the date of issuance of the notice; TOLA can only extend the period within which the competent authority may act but cannot substitute a lower authority for the authority fixed in section 151(ii). 2.9 Relying, inter alia, on: (i) The Supreme Court's clarification that for notices under section 148 issued on or after 01.04.2021 pursuant to Ashish Agarwal, prior sanction under section 151 of the new regime is compulsory for section 148A(d) and section 148; (ii) The Delhi High Court's decision (Kusum Healthcare) holding that TOLA does not amend the approval hierarchy prescribed in section 151 and that the competent authority is determined by the time elapsed; and (iii) Coordinate Bench decisions in similar factual settings (including RSD Containers Pvt. Ltd. and Late Shri Jitendra Nagar), where notices under section 148 issued beyond three years with only PCIT approval were held invalid, the Court concluded that the approval in the present case was obtained from an authority not vested with jurisdiction under section 151(ii). 2.10 Since the approval obtained was from the Principal Commissioner instead of the Principal Chief Commissioner / Principal Director General / Chief Commissioner / Director General, the statutory precondition for assumption of jurisdiction under section 148 was not fulfilled. (c) Conclusions on Issue 1.1 2.11 The Court held that the order under section 148A(d) and the notice under section 148, issued after more than three years from the end of the relevant assessment year, were vitiated for want of prior sanction from the correct 'specified authority' under section 151(ii). 2.12 Consequently, the initiation of reassessment proceedings was held to be without jurisdiction and the notice under section 148 was quashed as bad in law. Issue 1.2 - Effect on reassessment order and additions (a) Reasoning 2.13 The Court noted that once the foundational notice under section 148 and the order under section 148A(d) are invalid for want of jurisdiction, all consequential proceedings and orders, including the reassessment order passed under section 147 read with section 143(3)/144B, are rendered unsustainable. 2.14 In view of the jurisdictional defect, the Court found it unnecessary to examine or adjudicate other grounds on merits, including the disallowance of claimed long term capital gains under section 10(38) and the addition for alleged commission. (b) Conclusions on Issue 1.2 2.15 The Court quashed the reassessment order passed under section 147 read with section 143(3)/144B, together with all additions made therein. 2.16 As the reassessment itself was annulled on the jurisdictional ground, the remaining grounds of appeal were not adjudicated.