2025 (6) TMI 1293 - AT - Income Tax

Validity of re-assessment proceedings - approving authority is PCIT or CCIT - proper approval as mandated under section 151 accorded or not? - HELD THAT - It is an admitted fact that the original assessment was completed u/s 143(1) of the Act and not u/s 143(3) of the Act. Since the Assessing Officer in the instant case has taken the approval of the JCIT / Addl. CIT therefore the same is in order and therefore the Ld. CIT(A) was not justified in quashing the re-assessment proceedings on account of improper satisfaction. We therefore set aside the order of the Ld. CIT(A) and restore the issue to his file for fresh adjudication as he has not adjudicated the issue on merit and also on the other limbs of section 147 raised by the assessee in the submissions filed before him. CIT(A) shall adjudicate the issue as per fact and law after providing due opportunity of being heard to the assessee. Appeal allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal and cross-objection include:

• Whether the reassessment notice issued under section 148 of the Income Tax Act, 1961 was validly issued with proper approval as mandated under section 151 of the Act, particularly regarding the rank of the approving authority;
• Whether the provisions of section 151(1) or section 151(2) of the Act were applicable in the facts of this case, given that the original assessment was completed under section 143(1) and not under section 143(3);
• Whether the reassessment proceedings initiated by the Assessing Officer (AO) were legally sustainable or liable to be quashed for procedural irregularities;
• Whether the addition of Rs. 22,50,50,000/- made by the AO under section 68 of the Act as unexplained cash credit was justified, considering the assessee's explanation regarding the identity, creditworthiness, and genuineness of the share premium transactions;
• Whether the AO was justified in charging interest under section 234B and initiating penalty proceedings under section 271(1)(c) of the Act;
• Whether the Ld. CIT(A) erred in quashing the reassessment proceedings without adjudicating the merits of the addition and other grounds raised by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

Validity of Reassessment Notice and Approval Authority under Section 151

Legal Framework and Precedents: Section 151 of the Income Tax Act governs the procedure for issuance of notices under section 148 for reopening assessments. Sub-section (1) requires approval from higher authorities such as the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner if the notice is issued after four years from the end of the relevant assessment year. Sub-section (2) applies to cases where the notice is issued within four years, requiring approval from the Joint Commissioner or equivalent rank if the Assessing Officer is below that rank.

Judicial precedents cited by the Ld. CIT(A) and the assessee, including decisions from the ITAT Allahabad and Allahabad High Court, held that notices issued without proper approval under section 151 are invalid and the resulting reassessment orders are liable to be quashed.

Court's Interpretation and Reasoning: The Ld. CIT(A) quashed the reassessment proceedings on the ground that the AO had obtained approval from the Additional Commissioner of Income Tax, 11(2), Mumbai, which was not the prescribed authority under section 151(1) for notices issued after four years. The CIT(A) relied on the proviso to section 151(1) that mandates approval from higher authorities (Chief Commissioner or Commissioner) for reopening beyond four years, and found the approval by Additional Commissioner insufficient, rendering the notice invalid.

The Revenue contended that since the original assessment was completed under section 143(1) (summary assessment), the provisions of section 151(2) applied, which required approval from Joint/Addl. Commissioner, and that the AO had obtained the correct approval accordingly. The Tribunal examined the language of section 151 as it stood at the time and noted that sub-section (2) applies to cases other than those covered under sub-section (1), i.e., where the notice is issued within four years. Since more than four years had elapsed, sub-section (1) was applicable, requiring approval from higher authorities.

Key Evidence and Findings: The reasons recorded by the AO for reopening indicated that information received from the DCIT's office suggested receipt of share premium from shell companies, which raised suspicion of bogus accommodation entries. The AO sought approval under section 151(2), which was granted by the Additional Commissioner. The remand report accepted that the approval was from Additional Commissioner and not from the higher authorities specified in section 151(1).

The Tribunal found that the original assessment was completed under section 143(1), and the notice under section 148 was issued after more than four years from the end of the relevant assessment year. Therefore, the proviso to section 151(1) applied, requiring approval from the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner, not from the Additional Commissioner.

Application of Law to Facts and Treatment of Competing Arguments: The Tribunal observed that the Ld. CIT(A) had quashed the reassessment proceedings solely on the ground of improper approval. However, the Tribunal noted that the Ld. CIT(A) did not adjudicate the merits of the addition or other grounds raised by the assessee. The Tribunal held that the approval obtained by the AO was from the Addl. Commissioner, which was not the prescribed authority for reopening after four years, making the notice invalid in law.

However, instead of confirming the quashing, the Tribunal set aside the order of the CIT(A) and remanded the matter for fresh adjudication on all issues, including the merits of the addition and other grounds raised by the assessee. The Tribunal emphasized that the CIT(A) must provide an opportunity for the assessee to be heard and decide the matter on facts and law.

Justification of Addition under Section 68

Legal Framework and Precedents: Section 68 of the Income Tax Act deals with unexplained cash credits. The onus is on the assessee to explain the identity, creditworthiness, and genuineness of the source of the credit. If the assessee fails to do so satisfactorily, the amount can be added to income as unexplained cash credit.

Court's Interpretation and Reasoning: The AO made an addition of Rs. 22,50,50,000/- on the ground that the share premium received was from shell companies and the assessee failed to prove the identity and creditworthiness of the share applicants. The assessee disputed the addition, claiming to have furnished all necessary details.

The Ld. CIT(A) did not adjudicate on this issue on merit, as the reassessment proceedings were quashed on procedural grounds. The Tribunal directed the Ld. CIT(A) to examine this issue afresh upon remand, after hearing the parties.

Interest under Section 234B and Penalty under Section 271(1)(c)

The assessee challenged the levy of interest under section 234B and penalty under section 271(1)(c), arguing that these were not justified. These issues were not adjudicated by the Ld. CIT(A) due to the quashing of reassessment proceedings. The Tribunal directed these issues also be adjudicated afresh on remand.

3. SIGNIFICANT HOLDINGS

"Since the Assessing Officer in the instant case has taken the approval of the JCIT / Addl. CIT, therefore, the same is in order and therefore, the Ld. CIT(A) was not justified in quashing the re-assessment proceedings on account of improper satisfaction."

"The original assessment was completed u/s 143(1) of the Act and not u/s 143(3) of the Act. We find the Assessing Officer reopened the assessment by recording the reasons which have been reproduced by the Ld. CIT(A) in the body of the appellate order."

"The Ld. CIT(A) shall adjudicate the issue as per fact and law after providing due opportunity of being heard to the assessee."

Core principles established include:

• The approval authority for issuing a notice under section 148 after four years must be as prescribed under section 151(1), i.e., the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner, and not a lower authority such as Additional Commissioner, unless the notice is issued within four years, in which case section 151(2) applies;
• The procedural requirements under section 151 are mandatory and non-compliance renders the notice invalid;
• The merits of the addition under section 68 and related issues such as interest and penalty must be adjudicated on facts and law, not avoided by procedural quashing;
• Tribunal has the power to remit the matter for fresh adjudication when the lower authority has not decided issues on merit.

Final determinations on each issue were that the reassessment notice's validity was questionable due to improper approval, but the Tribunal did not uphold the quashing outright and remanded the matter for fresh consideration of all issues, including the validity of the addition under section 68, interest, and penalty charges, ensuring compliance with procedural and substantive law.