Reopening under Sections 147 and 151 quashed for lack of prior sanction; additions based solely on investigation info

ITAT set aside the reassessment holding the reopening invalid for want of prior approval from the competent authority as mandated under the Act. Despite repeated requests, neither the AO nor CIT(A) produced any approval, and even the Revenue's written communication admitted that approval of the Pr.CIT was not available on record or ITBA. ITAT held that, in absence of valid sanction, the reopening was bad in law. On merits, ITAT further observed that the lower authorities failed to investigate the assessee's claim that the impugned shares were purchased in 2009 and made additions solely on investigation wing information. The assessee's appeal was allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reassessment proceedings initiated under sections 147 and 148A were invalid for want of a valid prior approval from the competent authority under section 151, and for non-production/non-sharing of such approval with the assessee and the Tribunal.

1.2 Whether, in the context of the addition under section 69A on account of alleged cash investment in shares, the lower authorities were obliged to verify the assessee's claim that the impugned shares had been purchased in an earlier year (2009) rather than in the year under consideration, instead of relying solely on Investigation Wing information.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment for want of approval under section 151

Interpretation and reasoning

2.1 The reassessment was initiated on the basis of information from the Investigation Wing alleging cash investment in shares routed through a particular company and accommodation entry providers. An order under section 148A(d) was passed stating that notice under section 148A(b) had been issued after obtaining prior approval of the competent authority dated 29.03.2022.

2.2 The assessee consistently and specifically sought a copy of the approval under section 151 and the material relied upon, both during assessment and in appellate proceedings. No such approval or material was furnished to the assessee.

2.3 Before the appellate authority and the Tribunal, the assessee reiterated the plea that no valid approval existed. The appellate authority did not direct production or sharing of the approval and proceeded on the assumption that reopening was valid.

2.4 Before the Tribunal, the departmental representative submitted in writing that the approval of the Principal Commissioner was not available on record or on the ITBA portal, and no copy of any "physical approval" referred to in communications was produced before the Bench. Thus, despite repeated opportunities, the Revenue failed to place on record any documentary evidence of the mandatory prior approval.

2.5 On these facts, the Tribunal held that in the absence of the approval having been produced either before the assessee or before the Tribunal, and in light of the specific admission that it was not on record/ITBA, it must be concluded that there was no valid approval of the competent authority.

Conclusions

2.6 The reassessment proceedings initiated under sections 147 and 148A, without proof of a valid prior approval under section 151, were held to be bad in law.

2.7 Ground on legality of reopening (ground no. 1) was allowed, and on this basis alone the assessment order was vitiated.

Issue 2: Duty to verify assessee's claim regarding year of share purchase and reliance solely on Investigation Wing information

Interpretation and reasoning

2.8 The assessee's case before the appellate authority and the Tribunal was that the impugned shares were purchased in 2009, i.e., much prior to the year under consideration. This contention went to the root of the addition under section 69A for assessment year 2018-19.

2.9 The appellate authority did not return any specific finding on this factual assertion of purchase in 2009 and confined itself to upholding the reopening and the addition on the ground that the assessee had not filed adequate evidence of the transaction.

2.10 The Tribunal observed that once the assessee had specifically pleaded that the shares had been purchased in 2009, it was incumbent upon the lower authorities to further investigate and verify this assertion rather than make an addition merely on the basis of Investigation Wing information and statements, without independent factual verification.

Conclusions

2.11 The Tribunal held that, even on the merits, the lower authorities ought to have examined and verified the assessee's plea of purchase in 2009 instead of relying solely on information from the Investigation Wing to sustain an addition under section 69A.

2.12 However, since the legal ground regarding invalid reopening was allowed and the reassessment itself was held void, adjudication of the remaining grounds on merits, including the addition under section 69A, was treated as academic.

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