2025 (5) TMI 815 - AT - Income Tax

Reopening of assessment u/s 147 - period of limitation - specified authority to issue notice - HELD THAT - In terms of section 149(1)(b) of the Act no notice u/s. 148 of the Act shall be issued for the relevant assessment year if three years have elapsed from the end of the relevant assessment year unless the case falls under clause (b) and as per clause (b) no notice u/s. 148 of the Act shall be issued for the relevant assessment year if three years but not ten years have elapsed from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment amount or likely to escape assessment amounting to Rs. 50 lakhs or more. Where three years have elapsed no notice u/s. 148 of the Act can be issued unless the income chargeable to tax has escaped assessment or likely to escape assessment amounting to Rs. 50 lakhs or more. In the instant case it is also an admitted fact that the quantum of escaped income as per the AO is Rs. 32, 92, 746/- which is clearly below the threshold of Rs. 50 lakhs and therefore in such a scenario the AO could have issued the notice only within the stipulated period of three years from the end of the relevant assessment year which has not happened in the instant case. Therefore we find merit in the contentions advanced by the Ld. AR that the jurisdictional requirement in terms of time limit for issuance of notice u/s. 148 of the Act as so prescribed u/s. 149 of the Act has not been satisfied in the instant case and therefore the notice so issued deserves to be set aside. Further from the reading of section 151(ii) of the Act it is evident that in a case where more than three years have elapsed from the end of the relevant assessment year the specified authority for the purposes of grant of prior approval is Principal Chief Commissioner or Principal Director General Chief Commissioner or Director General. As against that in the instant case the approval has been sought and granted by the Principal Commissioner of Income Tax who is not the specified authority as so provided in section 151(ii) of the Act. Thus notice so issued u/s. 148 of the Act in violation of provisions of section 149 as well as section 151(ii) of the Act cannot be sustained in the eyes of law and the same is thus set-aside. Assessee appeal allowed.

Summary

The core legal questions considered in this judgment pertain primarily to the validity of reopening assessment proceedings under the Income Tax Act, 1961, specifically concerning the procedural and jurisdictional requirements for issuing notices under section 148, the authority required to sanction such notices under section 151, and the threshold of escaped income under section 149. Additionally, issues related to the applicability of section 56(2)(vii)(b) regarding income from immovable property transactions and procedural compliance under faceless assessment provisions were raised but rendered academic due to the jurisdictional findings.

The first principal issue concerns whether the reopening of the assessment for AY 2017-18 under section 147 was valid, given that the notice under section 148 and the order under section 148A(d) were issued beyond three years from the end of the relevant assessment year and whether the quantum of alleged escaped income met the statutory threshold of Rs. 50,00,000 as prescribed under section 149(1)(b). The assessee contended that the escaped income was below Rs. 50 lakh, thus invalidating the reopening beyond three years.

Secondly, the question arose whether the Assessing Officer had obtained the requisite prior approval from the correct specified authority as mandated by section 151(ii) when the notice was issued beyond three years from the end of the relevant assessment year. The assessee argued that the approval was obtained from the Principal Commissioner of Income Tax, who is not the specified authority under section 151(ii), which requires sanction from the Principal Chief Commissioner or Principal Director General or, in their absence, the Chief Commissioner or Director General.

Other issues raised but not adjudicated on merit due to the jurisdictional findings included the retrospective application of section 56(2)(vii)(b) to property acquired in AY 2010-11 but assessed in AY 2017-18, the correctness of additions under this section, and procedural compliance regarding faceless assessment and issuance of notices without providing the Document Identification Number (DIN).

Regarding the first issue, the Tribunal examined the relevant statutory provisions. Section 148 mandates that before reopening an assessment, the Assessing Officer must issue a notice and obtain prior approval from the specified authority as defined in section 151. Section 149(1)(b) restricts issuance of notices beyond three years from the end of the relevant assessment year unless the escaped income exceeds Rs. 50 lakh. Explanation 3 to section 148 clarifies that the "specified authority" is as defined in section 151.

Section 151(ii) specifies that if more than three years have elapsed, the sanction must be from the Principal Chief Commissioner or Principal Director General or, if unavailable, the Chief Commissioner or Director General. The Finance Act 2021 amendments and subsequent judicial pronouncements clarified that these provisions are mandatory and must be complied with at the time of sanction.

The Tribunal relied heavily on precedents from the Hon'ble Bombay High Court and coordinate benches of the Tribunal, notably decisions in Siemens Financial Services (P.) Ltd. vs. DCIT and Vodafone Idea Limited vs. DCIT, which held that sanction from a Principal Commissioner is invalid where more than three years have elapsed. The Tribunal noted that the proviso to section 151, inserted by the Finance Act 2023 effective 01-04-2023, was not applicable to the case as the sanction and notices were issued before this date.

Applying these principles to the facts, the Tribunal found that the notice under section 148 was issued on 28-07-2022, beyond three years from the end of AY 2017-18, and the approval was obtained from the Principal Commissioner of Income Tax, not the Principal Chief Commissioner or equivalent specified authority. Further, the quantum of escaped income was Rs. 32,92,746, below the Rs. 50 lakh threshold. Therefore, the reopening was both time-barred under section 149 and lacked valid sanction under section 151(ii).

The Tribunal also rejected the Revenue's reliance on the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 (TOLA) and related notifications, holding that TOLA only extends limitation periods but does not override the substantive requirements of section 151(ii). The Tribunal emphasized that subordinate legislation cannot override provisions enacted by Parliament, and the sanction must comply with the law as it stood at the time of sanction.

Consequently, the Tribunal held the notice under section 148 as void ab initio, quashed the reopening proceedings, and set aside the assessment order passed under section 147 read with section 144C(13). This conclusion rendered the other grounds raised by the assessee, including those on merits related to section 56(2)(vii)(b) and procedural compliance, academic and thus dismissed.

In its reasoning, the Tribunal preserved verbatim key legal provisions and judicial observations, including:

"The first proviso to section 148 of the Act refers to the approval of the specified authority being obtained before a notice under section 148 of the Act can be issued. Explanation 3 to section 148 of the Act specifies that the meaning of the term 'specified authority' as provided for in section 151 of the Act is to apply for the purpose of section 148."

"As per section 151 of the Act, the 'specified authority' who has to grant his sanction for the purposes of section 148 and section 148A is the Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, the Chief Commissioner or Director General if more than three years have elapsed from the end of the relevant assessment year."

"In the present case, the approval as contemplated in section 151(ii) of the Act would have to be obtained which has not been done by the Assessing Officer. The impugned notice mentions that the prior approval has been taken of the 'Principal Commissioner of Income-tax' which is bad in law."

"TOLA only seeks to extend the period of limitation and does not affect the scope of section 151."

"The sanction of the specified authority has to be obtained in accordance with the law existing when the sanction is obtained and, therefore, the sanction is required to be obtained by applying the amended section 151(ii) of the Act and since the sanction has been obtained in terms of section 151(i) of the Act, the impugned order and impugned notice are bad in law and should be quashed and set aside."

The core principles established by the Tribunal are:

• Reopening of assessment under section 147 beyond three years from the end of the relevant assessment year is permissible only if the escaped income exceeds Rs. 50 lakh as per section 149(1)(b).
• Prior approval for issuance of notice under section 148 beyond three years must be obtained from the specified authority as defined in section 151(ii) - Principal Chief Commissioner or equivalent, not from the Principal Commissioner.
• Failure to obtain sanction from the correct specified authority renders the reopening notice and subsequent proceedings void ab initio.
• Subordinate legislation such as TOLA cannot override the statutory requirements of section 151.
• Provisos to section 151 inserted effective 01-04-2023 are not retrospective and do not apply to sanctions granted before that date.

On the final determinations:

• The reopening notice under section 148 issued beyond three years without valid sanction from the specified authority and for escaped income below Rs. 50 lakh was held invalid and quashed.
• The reassessment order passed pursuant to such invalid reopening was also quashed.
• Other grounds concerning substantive additions and procedural irregularities were dismissed as academic.