Reassessment notice u/s 148 quashed for invalid sanction under s.151(ii), making entire AY 2017-18 proceedings void

ITAT Ahmedabad-AT held that the reassessment notice issued u/s 148 for AY 2017-18, beyond three years from the end of the relevant year, was invalid as mandatory sanction under s.151(ii) was obtained from PCIT instead of the competent authority, i.e., Principal CCIT/Principal DGIT/CCIT/DGIT. Since the Revenue did not dispute the incorrect sanctioning authority, the Tribunal held the approval, notice u/s 148, and all consequent proceedings, including the reassessment order u/s 147, to be void ab initio and quashed them. All substantive grounds on merits were treated as academic.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the sanction for issue of notice under section 148 for assessment years where more than three years had elapsed from the end of the relevant assessment year, having been granted by the Principal Commissioner of Income-tax instead of the statutorily mandated higher authority under section 151, rendered the notice and consequent reassessment proceedings invalid.

1.2 Consequentially, whether the additions made in reassessment and the Revenue's grounds on merits, as well as the assessee's grounds on quantum, survived for adjudication after holding the reassessment to be invalid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of sanction and notice under section 148 when more than three years had elapsed - applicability of section 151

Legal framework

2.1 The Court reproduced and relied upon section 151 of the Act, which mandates that:

(i) Under section 151(1), where notice under section 148 is proposed to be issued after four years from the end of the relevant assessment year, sanction must be accorded by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

(ii) Under section 151(2), in other cases, where the Assessing Officer is below the rank of Joint Commissioner, sanction must be accorded by the Joint Commissioner.

(iii) For these purposes, the specified authority, once satisfied on the reasons recorded by the Assessing Officer, need not issue the notice itself.

2.2 The Court referred specifically to clause (ii) of section 151, which, as applicable to the facts, required that where more than three years had elapsed from the end of the relevant assessment year, the "specified authority" for granting sanction to issue notice under section 148 must be the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, and not the Principal Commissioner.

Interpretation and reasoning

2.3 The Court noted from the record that:

* For assessment year 2017-18, notice under section 148 was issued on 31.07.2022.

* For assessment year 2018-19, notice under section 148 was issued on 10.04.2022.

* Both notices were issued beyond three years from the end of the respective assessment years.

* The prior approval for issuing the notices was obtained from the Principal Commissioner of Income-tax, Ahmedabad-3.

2.4 The Court held that, in view of clause (ii) of section 151, once more than three years had elapsed from the end of the relevant assessment year, only the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General could act as the "specified authority" for granting sanction to issue notice under section 148.

2.5 The Court specifically observed that, for assessment year 2017-18, three years from the end of that year had expired on 31.03.2022, whereas the notice under section 148 was issued on 31.07.2022, clearly beyond the three-year period; hence, the sanction of the Principal Commissioner was contrary to the statutory mandate.

2.6 It was recorded that this factual position regarding the authority granting sanction and the lapse of more than three years was not disputed by the Revenue.

2.7 On that basis, the Court held that the approval accorded by the Principal Commissioner of Income-tax was not in accordance with section 151 and therefore invalid in law.

Conclusions

2.8 The Court concluded that the sanction granted by the Principal Commissioner of Income-tax for issue of notices under section 148, in circumstances where more than three years had elapsed from the end of the relevant assessment years, was contrary to section 151 and hence invalid.

2.9 Consequently, the notices issued under section 148 and all subsequent proceedings, including reassessments framed under section 147 for the relevant assessment years, were held to be void ab initio and treated as null and void.

2.10 On this ground, the Cross-objections of the assessee challenging the validity of the reassessment proceedings were allowed.

Issue 2: Survival of additions and grounds on merits after quashing reassessment

Interpretation and reasoning

2.11 Once the reassessment proceedings were held to be void ab initio due to invalid sanction and notice under section 148, the Court held that the very foundation of the assessment stood quashed.

2.12 In that view, the Court considered that the issues raised by the Revenue on merits regarding additions (including those relating to alleged accommodation entries) and the assessee's grounds regarding the quantum of addition/disallowance no longer required adjudication.

Conclusions

2.13 The Court held that, with the reassessment proceedings quashed as invalid, all issues on merits, both in the Revenue's appeals and the assessee's remaining grounds in the Cross-objections, had become purely academic and were not adjudicated.

2.14 The Cross-objections of the assessee were allowed on the jurisdictional/validity ground, and the Revenue's appeals were dismissed.

---