2025 (6) TMI 1324 - AT - Income Tax

Validity of Reassessment proceedings - as argued by assessee that no proper prior approval from the specified authority as contemplated u/s 151 - HELD THAT - On examination of the record we note that the Assessing Officer obtained prior approval to issue notice under section 148 of the Act is only from Principal Commissioner of Income Tax Chennai-1 in our opinion is not the specified authority as contemplated under clause (ii) of section 151 of the Act. Since no proper prior approval has been obtained before initiating reassessment proceedings the reassessment order passed under section 147 r.w.s. 144 read with section 144B of the Act dated 25.05.2023 is liable to be quashed. As decided in the case of FIVES India engineering 2024 (3) TMI 887 - MADRAS HIGH COURT held that clause (i) under section 151 of the Act is applicable for issuance of notice in those cases if less than three years have elapsed and clause (ii) under section 151 of the Act is applicable for issuance of notice in those cases if more than three years have elapsed. As discussed above in the present case notice u/s148 was issued after lapse of three years from the end of relevant assessment year therefore the provision of clause (ii) of section 151 of the Act is applicable and the specified authority to sanction issuance of notice for the purpose under section 148 and 148A of the Act is PCCIT but not PCIT. Since the AO has taken prior approval from PCIT-1 Chennai for issuance of notice vide order under section 148A(d) of the Act dated 21.07.2022 the reassessment made thereon is invalid and quashed. Thus the additional ground raised by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether the Tribunal has jurisdiction to entertain and adjudicate a legal ground raised for the first time before it, which was not raised before the lower authorities;
• Whether the reassessment proceedings initiated by the Assessing Officer under section 148 of the Income Tax Act, 1961 (the "Act") for the assessment year 2016-17 are valid in the absence of proper prior approval from the specified authority as mandated under section 151 of the Act;
• Whether the prior approval obtained from the Principal Commissioner of Income Tax (PCIT), Chennai-1, instead of the Principal Chief Commissioner of Income Tax (PCCIT), as required under clause (ii) of section 151 of the Act for issuance of notice after the lapse of three years, renders the reassessment order bad in law;
• Whether the reassessment order dated 25.05.2023 passed under section 147 read with sections 144 and 144B of the Act is liable to be quashed on the ground of invalid sanction.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of the Tribunal to entertain legal grounds raised for the first time

Relevant legal framework and precedents: The Tribunal referred to the Supreme Court ruling in NTPC v. CIT (229 ITR 383), which clarifies that the Tribunal has jurisdiction to entertain legal grounds raised for the first time before it, provided no new facts are involved.

Court's interpretation and reasoning: The Tribunal noted that the additional ground raised by the assessee was purely legal and based on the same set of facts. Since no new facts were to be verified, the Tribunal proceeded to adjudicate the legal ground as a preliminary issue.

Application of law to facts: The assessee had not raised this legal ground before the Assessing Officer or the Commissioner of Income Tax (Appeals), but the Tribunal exercised its jurisdiction to hear the legal issue first.

Treatment of competing arguments: The Department raised no objection to the Tribunal hearing the additional legal ground.

Conclusion: The Tribunal confirmed its jurisdiction to entertain and decide the legal ground raised for the first time.

Issue 2: Validity of reassessment proceedings in absence of proper prior approval under section 151 of the Act

Relevant legal framework: Section 151 of the Act requires that before issuing a notice under section 148 (reopening of assessment) or section 148A, prior approval must be obtained from the specified authority. Clause (ii) of section 151 mandates that if more than three years have elapsed from the end of the relevant assessment year, the specified authority for sanction is the Principal Chief Commissioner of Income Tax (PCCIT) or Principal Director General.

Key facts and findings: The assessment year under consideration is 2016-17, ending 31.03.2017. The reassessment notice under section 148 was issued on 30.06.2021, more than three years after the end of the assessment year. The Assessing Officer obtained prior approval from the Principal Commissioner of Income Tax (PCIT), Chennai-1, instead of the PCCIT.

Precedents considered: The Tribunal relied heavily on the decision of the Madras High Court in FIVES India Engineering & Projects (P) Ltd. v. ITO (464 ITR 760), which held that clause (i) of section 151 applies if less than three years have elapsed, and clause (ii) applies if more than three years have elapsed, requiring sanction by PCCIT or Principal Director General for notices issued after three years.

Court's interpretation and reasoning: The Tribunal interpreted the statutory provision strictly, emphasizing that since more than three years had elapsed, the prior approval must be from the PCCIT. Approval from PCIT does not satisfy the statutory requirement.

Application of law to facts: Since the Assessing Officer obtained approval from PCIT instead of PCCIT, the sanction was invalid. Consequently, the issuance of notice under section 148 and the subsequent reassessment order dated 25.05.2023 are invalid.

Treatment of competing arguments: The Department relied on the order of the Commissioner of Income Tax (Appeals), which had upheld the reassessment. However, the Tribunal found the legal position and binding precedent favor the assessee's contention.

Conclusion: The reassessment proceedings initiated without valid prior approval under section 151 are bad in law and liable to be quashed.

Issue 3: Validity of reassessment order dated 25.05.2023

Key evidence and findings: The reassessment order was passed after reopening the assessment on the basis of a statement from another assessee indicating that the sale consideration declared by the assessee was understated. The Assessing Officer added Rs. 93,00,000/- as escaped income.

Court's interpretation and reasoning: Despite the factual basis for reopening, the Tribunal held that the procedural defect in sanction invalidates the entire reassessment process.

Application of law to facts: The absence of valid prior approval under section 151 renders the reassessment order non-est in the eyes of law.

Conclusion: The reassessment order dated 25.05.2023 is quashed.

Other grounds raised by the assessee

Since the Tribunal allowed the additional legal ground, it held that all other grounds raised became academic and dismissed them as infructuous.

3. SIGNIFICANT HOLDINGS

The Tribunal crystallized the following principles and determinations:

"The Tribunal has jurisdiction to entertain any legal ground for the first time. Since no new facts are to be verified, the legal ground raised by the assessee is admitted and adjudicated as a primary issue."

"Clause (ii) of section 151 of the Income Tax Act clearly explains that the Principal Chief Commissioner of Income Tax or Principal Director General is the specified authority for sanction of issue of notice under section 148 and 148A, if more than three years have elapsed from the end of the relevant assessment year."

"In the present case, since the notice under section 148 was issued after the lapse of three years from the end of the relevant assessment year, the prior approval must be obtained from the PCCIT and not from the PCIT."

"The Assessing Officer obtained prior approval from PCIT-1, Chennai, who is not the specified authority under clause (ii) of section 151. Therefore, the reassessment proceedings initiated and the order passed are invalid and liable to be quashed."

"Accordingly, the additional ground raised by the assessee is allowed and all other grounds become academic and are dismissed."