2024 (10) TMI 1652 - AT - Income Tax

Reopening of assessment beyond a period of three years - Mandation to get approval of the specified authority u/s. 151 of the new law - HELD THAT - As in the present case before us for A.Y. 2017-18 wherein notice u/s. 148 of the Act was issued on 30.06.2022 i.e. beyond a period of three years from the end of the assessment year the A.O. was statutorily obligated to have obtained the approval from either of the authorities specified u/s. 151(ii) of the extant law viz. Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General Chief Commissioner or Director General. However as the A.O. had obtained the approval from the Pr. Commissioner of Income Tax i.e. an authority who was not vested with any jurisdiction as per the mandate of Section 151 of the Act (as made available on the statute w.e.f 01.04.2021) therefore the assessment so framed by him u/s. 147 r.w.s. 144 r.w.s. 144B being devoid and bereft of valid assumption of jurisdiction is liable to be quashed. Accordingly we quash the assessment framed by the A.O u/s. 147 r.w.s. 144 r.w.s. 144B of the Act - Decided in favour of assessee.

Summary

The core legal questions considered in this appeal revolve around the validity and legality of reassessment proceedings initiated under the Income-tax Act, 1961, particularly focusing on the following issues:

1. Whether the addition of Rs. 53,59,000/- on account of unexplained credits in the bank account of the assessee, treated as unexplained investment under section 69 read with section 115BBE of the Act, was justified and legally sustainable.

2. Whether the reassessment proceedings initiated under section 147 read with sections 144 and 144B of the Act, and the consequent assessment order dated 11.05.2023, were valid, given that no notice under section 143(2) was issued by the Assessing Officer (A.O.).

3. Whether the initiation of reassessment proceedings was illegal and invalid due to the purported non-compliance with the approval requirement under section 151 of the Act, which mandates prior approval from a specified authority before issuing a notice under section 148.

4. Whether the assessee was denied due and proper opportunity of hearing during the appellate proceedings before the Commissioner of Income-Tax (Appeals) (CIT(A)).

Issue 1: Legitimacy of Addition on Account of Unexplained Credits under Section 69 r.w.s 115BBE

The legal framework for unexplained credits is set out in section 69 of the Income-tax Act, which allows the A.O. to treat unexplained investments or credits as income if the assessee fails to satisfactorily explain the source of such credits. Section 115BBE further imposes a special tax rate on such unexplained income.

The A.O. found credit entries totaling Rs. 66.10 lakhs in the assessee's bank account for the assessment year 2017-18, of which Rs. 12.51 lakhs was declared as brokerage income by the assessee. The balance Rs. 53.59 lakhs was claimed to be sourced from loans and advances, but the assessee failed to produce any documentary evidence to substantiate this claim.

In the absence of such evidence, the A.O. invoked section 69 r.w.s. 115BBE to treat the unexplained credits as income and made an addition of Rs. 53.59 lakhs. The CIT(A) upheld this addition, noting that the assessee failed to participate effectively in the appellate proceedings or provide any submissions to counter the addition. The Tribunal referenced a precedent that an appeal requires effective pursuit, not merely filing.

The Court's reasoning emphasized that the burden lies on the assessee to explain the source of credits. Failure to do so justifies the addition under the statutory provisions. The lack of any substantive rebuttal or evidence from the assessee led to confirmation of the addition.

Competing arguments that the addition was baseless and arbitrary were rejected due to the absence of supporting evidence from the assessee and the statutory mandate under section 69.

The conclusion was that the addition of Rs. 53.59 lakhs as unexplained investment was legally sustainable and rightly confirmed.

Issue 2: Validity of Reassessment Proceedings Without Issuance of Notice under Section 143(2)

Section 143(2) requires the A.O. to issue a notice to the assessee before making an assessment or reassessment based on the return filed. The assessee contended that although a valid return of income was filed in response to the notice under section 148, no notice under section 143(2) was issued, rendering the reassessment order void.

The A.O. justified the non-issuance of notice under section 143(2) on the ground that the return filed was not verified. The assessee countered this by producing evidence from the e-filing portal showing the return was received by the Central Processing Centre (CPC), Bengaluru, thereby challenging the A.O.'s assertion.

However, the Court refrained from adjudicating this issue on merits due to the final decision on the jurisdictional question under section 151 (discussed below), which rendered the reassessment order invalid in any event.

Issue 3: Legality of Initiation of Reassessment Proceedings Without Proper Approval under Section 151

The crux of the appeal centered on whether the A.O. had valid jurisdiction to initiate reassessment proceedings under section 147 read with section 148, particularly regarding compliance with section 151, which mandates prior approval from a specified authority before issuing a notice under section 148 when more than three years have elapsed from the end of the relevant assessment year.

Post the Finance Act, 2021 amendments effective from 01.04.2021, the specified authority for approval in cases where more than three years have elapsed is limited to the Principal Chief Commissioner or Principal Director General or, where these posts do not exist, the Chief Commissioner or Director General. The A.O. in this case obtained approval from the Principal Commissioner of Income Tax, an authority not empowered under the amended section 151.

The Court extensively analyzed the statutory provisions of sections 147 to 151, including the newly introduced section 148A, which prescribes a detailed procedure for reassessment notices, including enquiry, show cause notice, and prior approval requirements. It also considered the authoritative Supreme Court judgment in Union of India & Ors. v. Ashish Agrawal, which clarified the procedural safeguards and the necessity of strict compliance with the amended provisions.

The Court observed that the approval obtained from an unauthorized officer (Principal Commissioner instead of Principal Chief Commissioner or equivalent) was a jurisdictional defect. This defect was fatal to the reassessment proceedings, rendering the assessment order void ab initio.

The Court also noted the CBDT Instruction No. 01/2022, which directs compliance with the Supreme Court judgment and prescribes the procedure for issuance of reassessment notices under the new regime.

Consequently, the Court quashed the reassessment order dated 11.05.2023 for want of valid assumption of jurisdiction due to non-compliance with section 151.

Issue 4: Denial of Due and Proper Opportunity of Hearing

The assessee alleged that the CIT(A) dismissed the appeal without providing due and proper opportunity of hearing. However, the CIT(A) record showed that multiple notices were issued to the assessee, requesting submissions, but the assessee failed to participate or respond. The CIT(A) relied on judicial precedent that an appeal requires effective pursuit, not mere filing.

The Court found no merit in this ground, as the assessee had ample opportunity to present its case but chose not to engage.

Significant Holdings and Core Principles Established:

1. The addition of unexplained credits under section 69 r.w.s. 115BBE is justified where the assessee fails to satisfactorily explain the source of such credits. Mere filing of an appeal without effective participation does not preclude confirmation of such addition.

2. The reassessment proceedings under sections 147 and 148 of the Income-tax Act must strictly comply with the procedural safeguards introduced by the Finance Act, 2021, including obtaining prior approval from the specified authority under section 151, which varies depending on the elapsed time since the end of the relevant assessment year.

3. Approval from an unauthorized authority under section 151 is a jurisdictional defect that vitiates the reassessment proceedings, rendering the assessment order void ab initio.

4. The failure to issue a notice under section 143(2) may affect the validity of the assessment; however, where jurisdictional defects exist, the Court may refrain from adjudicating such issues.

5. The procedural requirements under section 148A, including enquiry and show cause notices, are integral to the reassessment process and must be complied with as per the Supreme Court's authoritative pronouncement.

6. The Court adhered to the principle that reassessment proceedings are remedial and benevolent in nature but must be initiated in strict compliance with statutory provisions to protect the rights of the assessee and ensure proper tax administration.

Final Determinations:

- The addition of Rs. 53,59,000/- as unexplained investment was upheld.

- The reassessment order dated 11.05.2023 was quashed due to invalid assumption of jurisdiction, as the A.O. failed to obtain prior approval from the correct specified authority under section 151.

- The issue regarding the absence of notice under section 143(2) was left open, as the jurisdictional defect was decisive.

- The allegation of denial of opportunity of hearing was rejected due to the assessee's non-participation despite multiple notices.

- The appeal was allowed in part by quashing the reassessment order but confirming the addition on merits.