2025 (5) TMI 878 - AT - Income Tax

Validity of reopening of assessment - Approval obtained by non specified authority - HELD THAT - Since the facts of the instant case are identical to the facts in the case of Hareshkumar Dungarmal Jain 2025 (2) TMI 1179 - ITAT PUNE therefore respectfully following the same we hold that since in the instant case notice u/s 148A(d) of the Act has been issued on 27.07.2022 which is beyond the period of three years from the relevant assessment year and the approval has been granted by the PCIT for reopening of the case instead of Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General therefore such approval being not in accordance with law we hold that the entire re-assessment proceedings are vitiated. Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the interest amount received under section 28 of the Land Acquisition Act, 1894, on enhanced compensation for compulsory acquisition of rural agricultural land, constitutes taxable income under the Income Tax Act, 1961, or is a capital receipt exempt from tax;

(b) Whether the addition made under section 56(2)(viii) read with section 57(iv) of the Income Tax Act, 1961, on the interest amount was justified;

(c) Whether the appellate authority erred in following decisions of Non-Jurisdictional High Courts instead of the decision of the Jurisdictional ITAT Pune Bench;

(d) Whether the dismissal of Special Leave Petition (SLP) in limine by the Supreme Court impacts the applicability of the decision in CIT, Faridabad v. Ghanshyam (HUF) (2009) 315 ITR 1 (SC);

(e) The validity of the notice issued under section 148 of the Income Tax Act, 1961, specifically whether the approval for issuance of the notice was obtained from the correct specified authority in accordance with section 151 of the Act;

(f) Consequentially, whether the reassessment proceedings initiated under section 147 read with section 144 and section 144B of the Act are valid or liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Taxability of Interest under Land Acquisition Act and Addition under Sections 56(2)(viii) and 57(iv)

Relevant Legal Framework and Precedents: Interest awarded under section 28 of the Land Acquisition Act, 1894, arises on enhanced compensation for compulsory acquisition of land. Section 2(14) of the Income Tax Act defines capital asset, and section 10(37) exempts capital gains on compensation received on compulsory acquisition of urban agricultural land. Section 56(2)(viii) pertains to receipt of income not chargeable under other heads, and section 57(iv) allows 50% deduction on such income.

Court's Interpretation and Reasoning: The Assessing Officer (AO) concluded that the amount received, Rs. 2,60,05,088/-, was interest on enhanced compensation and taxable as income from other sources. The AO denied exemption under section 10(37) because that exemption applies only to capital gains on compensation, not interest on compensation. The AO allowed 50% deduction under section 57(iv), resulting in taxable income of Rs. 1,30,02,544/-. The Commissioner of Income Tax (Appeals) / NFAC upheld this view.

Key Evidence and Findings: The assessee failed to submit details of co-owners and cost of acquisition, and did not file return of income for the relevant year. The entire interest amount was shown in Form 26AS under the assessee's PAN. The assessee claimed the land was not a capital asset and the interest was a capital receipt exempt from tax, but did not substantiate this claim with documentary evidence.

Application of Law to Facts: The AO applied the provisions correctly by classifying the interest as income from other sources, allowing the statutory deduction under section 57(iv), and rejecting exemption under section 10(37) which applies only to capital gains, not interest.

Treatment of Competing Arguments: The assessee argued that the interest forms part of compensation under section 11 of the Land Acquisition Act and is a capital receipt not taxable under the Income Tax Act. The AO and CIT(A) rejected this, relying on the statutory provisions and absence of evidence.

Conclusions: The addition under section 56(2)(viii) read with section 57(iv) was justified and upheld.

Issue (c) and (d): Reliance on Non-Jurisdictional High Courts and SLP Dismissal

The assessee contended that the CIT(A) erred in following decisions of Non-Jurisdictional High Courts instead of the Jurisdictional ITAT Pune Bench decision favoring the assessee, and that the dismissal of SLP in limine does not affect the precedence of CIT, Faridabad v. Ghanshyam (HUF).

The Tribunal did not specifically adjudicate these grounds, as the appeal succeeded on a preliminary legal ground (issue (e) and (f)) relating to the validity of reassessment proceedings. Hence, these grounds were rendered academic and not adjudicated.

Issue (e) and (f): Validity of Notice under Section 148 and Approval under Section 151

Relevant Legal Framework and Precedents: Section 148 authorizes reopening of assessment where income has escaped assessment. Section 151 prescribes the specified authority for approval of such reopening notices. Post 1 April 2021, if more than three years have elapsed from the end of the relevant assessment year, approval must be obtained from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General (section 151(ii)). For three years or less, approval from Principal Commissioner or Principal Director or Commissioner or Director suffices (section 151(i)).

The Supreme Court in Union of India & Ors. v. Rajeev Bansal (2024) clarified that notices issued under section 148 after 1 April 2021 are to be treated as issued under section 148A(b) and require prior approval under section 151. However, the Court waived the requirement of approval under section 148A(a) and (b) but not under section 148A(d) and section 148.

Court's Interpretation and Reasoning: The Tribunal examined the facts that the notice under section 148 was issued on 31 March 2021 and the order under section 148A(d) was passed on 27 July 2022. Since more than three years had elapsed from the end of the assessment year 2016-17, approval for reopening should have been obtained from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, as per section 151(ii). However, approval was obtained from the Principal Commissioner of Income Tax (PCIT), which is not the competent authority in this context.

The Tribunal relied on recent decisions of coordinate Benches of the Tribunal and the jurisdictional Bombay High Court, which held that approval from the incorrect authority vitiates the reassessment proceedings. The Tribunal also referred to the decision in Hareshkumar Dungarmal Jain v. DCIT and others, where reassessment proceedings were quashed on similar grounds.

Key Evidence and Findings: The order under section 148A(d) showed approval from PCIT-1, Thane, instead of the Principal Chief Commissioner or equivalent authority. The Tribunal noted that the notice under section 148 was issued beyond the three-year period from the end of the relevant assessment year, thus requiring approval from the higher authority as per section 151(ii).

Application of Law to Facts: The Tribunal applied the statutory provisions and judicial precedents strictly, concluding that the approval obtained was not in accordance with law, rendering the reassessment proceedings invalid.

Treatment of Competing Arguments: The Department contended that approval by PCIT was proper. The Tribunal rejected this, relying on the statutory mandate and judicial pronouncements emphasizing the necessity to obtain approval from the specified authority as per the time elapsed.

Conclusions: The Tribunal held that the reassessment proceedings were vitiated due to invalid approval and quashed the reassessment. Since the appeal succeeded on this preliminary legal ground, the Tribunal did not adjudicate the other grounds related to merits of addition and taxability.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"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."

Further, the Tribunal observed:

"Since the assessee succeeds on this legal ground, the other grounds challenging the addition on merit are not being adjudicated being academic in nature."

The Tribunal reaffirmed the principle that the approval for reopening assessments under section 148 must be obtained from the correct specified authority as mandated by section 151, depending on the time elapsed from the end of the relevant assessment year. Failure to comply with this requirement renders the reassessment proceedings invalid.