Reassessment for AY 2018-19 quashed for invalid sanction u/s151; s.148 notice and proceedings set aside

ITAT Pune allowed the assessee's appeal, holding the reassessment proceedings for A.Y. 2018-19 invalid due to lack of proper sanction under s.151 of the Income-tax Act. The Tribunal noted that the notice under s.148 and order under s.148A(d) had been approved by the Principal Commissioner, whereas the statute mandated approval of the Principal Chief Commissioner or Chief Commissioner for the relevant assessment year. This jurisdictional defect vitiated the assumption of jurisdiction to reopen the assessment. Consequently, the notice issued under s.148 and all consequent reassessment proceedings were quashed, and the original assessment stood restored.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reassessment proceedings initiated under sections 147, 148 and 148A for assessment year 2018-19 were vitiated for want of valid sanction under section 151 of the Income-tax Act, 1961.

1.2 Consequentially, whether other grounds on merits of assessment and alleged violation of principles of natural justice required adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reassessment proceedings for AY 2018-19 in view of sanction under section 151

Legal framework

2.1 The Tribunal reproduced section 151 of the Act as applicable to the relevant period, noting that the "specified authority" for purposes of sections 148 and 148A is:

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

(ii) Principal Chief Commissioner / Principal Director General or, where not available, Chief Commissioner / Director General, if more than three years have elapsed from the end of the relevant assessment year.

2.2 The Tribunal referred to and relied upon the judgment of the jurisdictional High Court in "Vodafone Idea Limited v. DCIT" (Writ Petition No. 2768 of 2022, order dated 06.02.2024), wherein for AY 2018-19, notices and order under sections 148 and 148A(d) issued on 07.04.2022, sanctioned by the Principal Commissioner, were held invalid for want of sanction by the Principal Chief Commissioner / Chief Commissioner as required under section 151(ii). It was also noted that the proviso to section 151 was inserted with effect from 01.04.2023 and was inapplicable to AY 2018-19 proceedings initiated in 2022.

Interpretation and reasoning

2.3 The Tribunal examined the paper book and recorded a specific finding that:

(a) The notice under section 148 for AY 2018-19 dated 12.04.2022 was approved by the Principal Commissioner of Income Tax, Pune-3.

(b) The order under section 148A(d) for AY 2018-19 dated 12.04.2022 was also approved by the Principal Commissioner of Income Tax.

2.4 It was noted that these facts were supported by information obtained by the assessee under the Right to Information Act, which formed part of the paper book, and that the Revenue did not rebut these factual assertions.

2.5 The Tribunal compared the facts of the present case with those in the jurisdictional High Court decision. In both matters, for AY 2018-19, the notices and orders under sections 148 and 148A(d) issued in April 2022 were sanctioned by a Principal Commissioner, although more than three years had elapsed from the end of the relevant assessment year.

2.6 Applying section 151, the Tribunal held that, since more than three years had elapsed from the end of AY 2018-19 at the time of issuance of the notice under section 148 and the order under section 148A(d), the required "specified authority" for sanction was the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax, and not the Principal Commissioner.

2.7 Respectfully following the binding ratio of the jurisdictional High Court in "Vodafone Idea Limited", the Tribunal concluded that the sanction granted by the Principal Commissioner was invalid and, consequently, the notice under section 148 and the order under section 148A(d) were bad in law.

Conclusions

2.8 The Tribunal held that, for AY 2018-19, the approval/sanction for issuance of notice under section 148 and passing the order under section 148A(d) ought to have been accorded by the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax as mandated by section 151(ii), since more than three years had elapsed from the end of the relevant assessment year.

2.9 As the impugned notice under section 148 and order under section 148A(d) were admittedly approved only by the Principal Commissioner, the Tribunal declared the notice under section 148 as invalid and quashed it. The legal ground challenging the validity of reassessment proceedings was allowed.

Issue 2: Necessity to adjudicate remaining grounds on merits and on natural justice

Interpretation and reasoning

2.10 Having quashed the notice under section 148 on the foundational jurisdictional ground of invalid sanction, the Tribunal considered the effect on other grounds raised by the assessee, including those relating to:

(a) Ex-parte disposal of the appeal and alleged violation of principles of natural justice;

(b) Sustenance of additions based on estimated net profit rate;

(c) Other connected merits of the assessment and appellate orders.

2.11 The Tribunal reasoned that, once the reassessment proceedings themselves stood vitiated on account of invalid jurisdiction under section 147 read with sections 148, 148A and 151, the remaining grounds became merely academic and did not require adjudication.

Conclusions

2.12 All other grounds of appeal, including those on merits of additions and alleged procedural and natural justice violations, were treated as academic and dismissed as unadjudicated.

2.13 The appeal was thus partly allowed, solely on the legal issue relating to invalid sanction and consequent illegality of the notice under section 148 and the reassessment proceedings based thereon.

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