Income tax reassessment reopened for bank cash deposits, but bogus purchase disallowance added beyond s148A reasons; quashed.

Reassessment initiated after three years was challenged on the ground of invalid assumption of jurisdiction and scope of additions. The Tribunal held that the reopening was recorded as being for verifying cash withdrawals and deposits in a bank account, which the assessee explained and the AO verified; however, the AO made an addition by disallowing alleged bogus purchases that were not part of the reasons communicated in the notice issued under s 148A(b) or the order under s 148A(d), rendering the reassessment action legally unsustainable. The Tribunal further upheld that mandatory sanction was taken from an incompetent authority (PCIT instead of CCIT/Pr. CCIT), vitiating jurisdiction. Revenue's appeal was dismissed and the disallowance was deleted.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the reassessment jurisdiction was validly assumed when the notice under section 148 was issued after three years from the end of the relevant assessment year, but sanction/approval was taken from an authority not contemplated by section 151 as applied by the Court.

(ii) Whether the reassessment initiation suffered from fatal defects where (a) the reasons stated in the notice under section 148A(b) and the order under section 148A(d) were materially inconsistent, and (b) the order under section 148A(d) was passed before expiry of the time granted to respond, amounting to violation of natural justice.

(iii) Whether the reassessment culminated in an addition/disallowance on an issue (bogus purchases) that was not the stated basis in the section 148A(b) notice or section 148A(d) order, thereby undermining the reassessment proceedings as conducted.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Validity of sanction/approval under section 151 for issuing notice under section 148 beyond three years

Legal framework (as discussed/applied): The Court applied section 151 to hold that where notice under section 148 is issued after three years from the end of the relevant assessment year, approval must be taken from the higher specified authority (not the authority from whom approval was actually taken in the case).

Interpretation and reasoning: The Court noted that the relevant assessment year was 2018-19 and the notice under section 148 was issued on 05.04.2022, i.e., after three years from the end of that assessment year. On these facts, the Court held that section 151 required sanction from the specified higher authority (Pr. CCIT/Pr. DGIT/CCIT/DGIT). Since approval was obtained from PCIT, the Court agreed with the appellate finding that the sanction was not from the appropriate authority and that this defect went to the root of jurisdiction.

Conclusion: Assumption of jurisdiction for reassessment was held invalid because the notice under section 148 was issued without obtaining proper sanction from the appropriate authority required under section 151 in the circumstances.

Issue (ii): Inconsistency between section 148A(b) notice and section 148A(d) order; and passing section 148A(d) order before reply due date (natural justice)

Legal framework (as discussed/applied): The Court examined compliance with the statutory process under sections 148A(b) and 148A(d) and applied principles of natural justice in relation to the opportunity granted to respond.

Interpretation and reasoning: The Court found that the reasons communicated in the notice under section 148A(b) and the reasons recorded in the order under section 148A(d) were "totally different." The notice under section 148A(b) referred to one set of allegations, whereas the order under section 148A(d) proceeded on different information (cash withdrawals/deposits). The Court also found that the order under section 148A(d) was passed on 05.04.2022 even though time to respond had been granted up to 07.04.2022, thus the statutory order was made before the response time expired, which the Court treated as violation of natural justice. The Court held that such defects defeat the purpose of reassessment and reflected "irreparable mistakes" in the process.

Conclusion: The Court affirmed that the reassessment initiation was vitiated by (a) material mismatch between the stated reasons at the notice stage and the reasons in the statutory order, and (b) denial of the full opportunity to respond because the section 148A(d) order was passed before expiry of the granted time.

Issue (iii): Disallowance in reassessment on grounds not forming the basis of reopening

Legal framework (as discussed/applied): The Court assessed the linkage between the recorded/communicated basis for reopening and the additions ultimately made in the reassessment order.

Interpretation and reasoning: The Court observed that the reopening was to verify cash withdrawals and cash deposits, and the reassessment order itself recorded that the assessee's response was considered and the cash deposit/withdrawal was verified. Despite this, the reassessment culminated in disallowance of substantial purchases as "bogus," which the Court found was not the reason communicated in the section 148A(b) notice or reflected in the section 148A(d) order. This disconnect reinforced the Court's view that the reassessment proceedings, as conducted, could not be sustained.

Conclusion: The Court upheld deletion of the disallowance because it arose from reassessment proceedings whose jurisdictional foundation and stated reasons did not support the action taken; consequently, the appellate direction to delete the disallowance was maintained and the challenge to that relief was rejected.

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