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2025 (2) TMI 1179 - AT - Income TaxValidity of reopening of assessment - Notice issued period of four years - sanction accorded by Specified authority or not? - HELD THAT - As w.e.f. 01.04.2021 the Principal Chief Commissioner or the Principal Director General is the competent authority for giving sanction if more than 3 years have elapsed from the end of the relevant assessment year. Since in the instant case the notice u/s 148 of the Act has been issued on 13.04.2022 which is beyond the period of three years from the end of the relevant assessment year therefore the competent authority who should have given sanction for reopening proceedings is the Principal Chief Commissioner / Principal Director General. However in the instant case the same has been approved by the PCIT-1 Pune. Therefore such approval being not in accordance with law is invalid and consequently the entire re-assessment proceedings are vitiated. We therefore quash the re-assessment proceedings. Appeal filed by the assessee is allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in these appeals are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of reassessment proceedings initiated under section 147 and issuance of notice under section 148 instead of section 153C Relevant legal framework and precedents: Section 147 of the Act permits reopening of assessment if income has escaped assessment. Section 148 mandates issuance of notice for reopening. Section 153C applies where income is found during search in the case of a third party. The question arises whether reopening can be done under section 147/148 on information derived from search on a third party without invoking section 153C. Court's interpretation and reasoning: The Tribunal noted that the reassessment was triggered based on information relating to long term capital gains received from shares of Kushal Tradelinks Ltd., which was subject to a search and seizure action under section 132 of the Act. The assessee contended that since the information originated from a search on a third party, notice should have been issued under section 153C rather than section 148. Key evidence and findings: The Assessing Officer reopened the assessment under section 147 and issued notice under section 148. The reassessment was based on information received from the Investigation Wing post search on Kushal group. The Tribunal referred to the decision of the Hon'ble Delhi High Court in Pr.CIT vs. Naveen Kumar Gupta, which upheld that reopening under section 147 on information from search on a third party is permissible. Application of law to facts: The Tribunal accepted the Revenue's argument that reopening under section 147 on information from a third party search is valid and that notice under section 148 was properly issued. The assessee's contention that section 153C should have been invoked was not upheld. Treatment of competing arguments: The assessee's argument was considered but rejected based on judicial precedent. The Tribunal found no infirmity in reopening under section 147 on such information. Conclusion: The reassessment proceedings initiated under section 147 and notice under section 148 were valid on this ground. Issue 2: Validity of approval obtained under section 151 for issuance of notice under section 148 Relevant legal framework and precedents: Section 151 of the Act specifies the authority competent to grant approval for issuance of notice under section 148. If the notice is issued within three years from the end of the relevant assessment year, approval must be from Principal Commissioner or Commissioner. If beyond three years, approval must be from Principal Chief Commissioner or Chief Commissioner. The proviso to section 151 allowing extended time was inserted w.e.f. 01.04.2023 and is not applicable retrospectively. Court's interpretation and reasoning: The Tribunal examined the date of issuance of notice under section 148 (13.04.2022) and the relevant assessment year (2018-19). More than three years had elapsed from the end of the assessment year to the date of notice issuance. Therefore, approval for reopening should have been obtained from the Principal Chief Commissioner (PCCIT) or equivalent authority, as per section 151(ii). The approval was, however, obtained from the Principal Commissioner of Income Tax (PCIT), Pune-1, which is incorrect authority for sanction beyond three years. The Tribunal relied on the decision of the Mumbai Bench of the Tribunal in Davos International Fund vs. ACIT, which followed the Bombay High Court ruling in Vodafone Idea Limited vs. DCIT. The High Court held that sanction from an incorrect authority renders the notice under section 148 invalid and the reassessment liable to be quashed. Key evidence and findings: The approval order under section 148A(d) showed approval from PCIT, Pune-1, dated 13.04.2022. The Tribunal noted that the proviso to section 151 extending the time limit was not applicable as it came into effect only from 01.04.2023. Application of law to facts: Since the notice was issued beyond three years, the approval from PCIT was invalid. The reassessment proceedings were therefore vitiated and liable to be quashed. Treatment of competing arguments: The Revenue contended that the approval was valid and the reopening was within three years considering the extended time under proviso to section 149. The Tribunal rejected this, holding the proviso not applicable for the assessment year in question. Conclusion: The reassessment proceedings were invalid due to lack of approval from the correct authority as mandated by section 151 and were quashed. Issue 3: Merits of the addition rejecting exemption under section 10(38) Relevant legal framework and precedents: Section 10(38) exempts long term capital gains arising from transfer of equity shares subject to Securities Transaction Tax. Section 69A and section 115BBE deal with unexplained investments and income from undisclosed sources, attracting higher tax rates. Court's interpretation and reasoning: The Assessing Officer rejected the assessee's claim of exemption under section 10(38) on the ground that the shares of Kushal Tradelinks Ltd. were used for price rigging and bogus accommodation entries, as established in the search action. The entire sale proceeds were added under section 69A read with section 115BBE. The Ld. CIT(A) / NFAC upheld the addition, holding that the assessee failed to provide satisfactory explanation and supporting evidence to substantiate the claim of exemption. Key evidence and findings: The search and seizure report and investigation findings indicated manipulation and bogus transactions. The assessee's explanations were rejected as not credible. Application of law to facts: The Assessing Officer and appellate authority applied the provisions to facts and found the exemption claim untenable. Treatment of competing arguments: The assessee submitted details and explanations to substantiate exemption, but these were not accepted. The Revenue's stand was supported by evidence from the search and investigation. Conclusion: The addition on merits was upheld by the CIT(A) / NFAC. However, since the reassessment proceedings were quashed on the preliminary issue of invalid approval, the Tribunal did not adjudicate this ground further, deeming it academic. 3. SIGNIFICANT HOLDINGS The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt from the decision in Davos International Fund (cited with approval): "... the notice issued by the AO under section 148 without obtaining approval from correct appropriate authority is invalid and the assessment done under section 147 r.w.s. 144(13) of the Act is liable to be quashed." Core principles established include:
Final determinations on each issue:
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