2025 (6) TMI 1640 - AT - Income Tax

Reopening of assessment u/s 147 - Competent Authority for granting sanction u/sec.151(ii) - reopening assessments beyond three years from the end of the relevant assessment year - scope of amended by the Taxation and Other Laws Amendment Act 2021 (TOLA) - HELD THAT - As following the decision of Raziulla Syed Hyderabad 2025 (3) TMI 651 - ITAT HYDERABAD we are of the considered view that the notice issued u/sec.148 by obtaining prior approval from the Commissioner of Income Tax International Taxation -2 Mumbai is not in accordance with sec.151(ii) as applicable from 01.04.2021 onwards. Therefore we quash the notice issued u/sec.148 and consequent Final Assessment Order passed by the AOu/sec.147 r.w.s.144C(13). Accordingly the grounds raised by the assessee allowed.

Summary

The core legal questions considered by the Tribunal in these appeals revolve around the validity of reopening of assessments under section 147 of the Income Tax Act, 1961, specifically focusing on the compliance with the mandatory prior approval requirement under section 151(ii) as amended by the Taxation and Other Laws Amendment Act, 2021 (TOLA). The issues include:

1. Whether the reopening of assessment for the assessment years 2016-2017 and 2017-2018 was valid, given the procedural requirements under the amended provisions of section 147, 148, and 151 of the Income Tax Act.

2. Whether the prior approval for issuance of notice under section 148 was obtained from the competent authority as mandated by the amended section 151(ii) of the Act, considering that the reopening was initiated more than three years after the end of the relevant assessment years.

3. The correctness of additions made by the Assessing Officer under section 69A (unexplained money) and disallowance of exemption claimed under section 10(34) of the Act due to lack of documentary evidence.

4. The applicability and interpretation of judicial precedents, including the Supreme Court's decisions in Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal, and various decisions of ITAT and High Courts on the issue of sanctioning authority under section 151(ii).

Issue-wise Detailed Analysis

Issue 1 & 2: Validity of Reopening of Assessment and Competent Authority Approval under Section 151(ii)

The reopening of assessment under section 147 was initiated based on incriminating material found during a search and seizure operation related to the purchase of commercial property and unexplained income. The Assessing Officer issued notices under section 148 after obtaining prior approval from the Commissioner of Income Tax (International Taxation)-2, Mumbai. However, the reopening notices were issued more than three years after the end of the relevant assessment years, which invokes the amended provisions of section 151(ii) effective from 1 April 2021.

Section 151(ii) mandates that for reopening assessments beyond three years from the end of the relevant assessment year, prior approval must be obtained from the Principal Chief Commissioner of Income Tax or Principal Director General of Income Tax, or in their absence, Chief Commissioner or Director General. The approval from a Commissioner of Income Tax does not satisfy this requirement.

The Tribunal examined the timeline and noted that the notices under section 148 were issued on 23.08.2022 (for AY 2016-2017) and 27.07.2022 (for AY 2017-2018) after the three-year period had elapsed. The approval was obtained from the Commissioner of Income Tax, not the Principal Chief Commissioner or Principal Director General, thus not complying with the amended statutory requirement.

The Tribunal relied heavily on the Supreme Court's decision in Union of India vs. Rajeev Bansal, which clarified that the amended provisions of section 151(ii) apply to notices issued after 1 April 2021, and the specified authority for sanction must be the higher-ranking Principal Chief Commissioner or Principal Director General when reopening occurs after three years.

Further, the Tribunal followed the decision of the ITAT Hyderabad Bench in a similar case involving the same assessee, where it was held that the approval from the Commissioner of Income Tax was invalid for reopening beyond three years, rendering the notice and consequent reassessment order void ab initio. The Tribunal also referred to decisions of ITAT Mumbai in ACIT vs. Manish Financial and Manish Jagdish Joshi vs. CIT, which held that notices issued without proper sanction under the amended section 151(ii) are invalid.

The Revenue's contention that the reopening was under the pre-amended provisions was rejected, as the notices were issued after 1 April 2021, and the Supreme Court's decision in Union of India vs. Ashish Agarwal mandated treating the earlier notice as issued under section 148A, thus bringing the reopening under the new regime.

The Tribunal concluded that the reopening notices issued without approval from the specified authority under the amended section 151(ii) were invalid, and consequently, the final assessment orders passed under section 147 read with section 144C(13) were illegal and liable to be quashed.

Issue 3: Additions under Section 69A and Disallowance of Exempt Income under Section 10(34)

The Assessing Officer made additions of Rs. 33,70,000/- and Rs. 16,67,000/- for AYs 2016-2017 and 2017-2018 respectively, treating these amounts as unexplained money under section 69A, due to failure of the assessee to provide purchase agreements, payment details, bank statements, and other documentary evidence substantiating the source of funds for property purchases from Skill Promoters Pvt. Ltd.

Additionally, the Assessing Officer disallowed exempt income claimed under section 10(34) amounting to Rs. 9,33,950/- (AY 2016-2017) and Rs. 7,09,225/- (AY 2017-2018) for lack of supporting evidence. The assessee also claimed deductions under section 80C, which were denied for similar reasons.

The Disputes Resolution Panel (DRP) upheld these additions and disallowances, emphasizing the fundamental principle that the onus lies on the claimant to provide conclusive documentary evidence to substantiate claims of exemption or deductions. The assessee's failure to furnish such evidence justified the additions and disallowances.

However, since the Tribunal quashed the entire reassessment proceedings due to invalid sanction under section 151(ii), these substantive additions and disallowances were not adjudicated upon in the final order and effectively set aside.

Issue 4: Interpretation of Judicial Precedents and Application to Present Case

The Tribunal extensively analyzed the applicability of the Supreme Court's rulings in Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal. The former clarified the procedure for reopening assessments under the new regime effective from 1 April 2021, including the issuance of notices under section 148A and subsequent section 148 notices. The latter specifically addressed the mandatory nature of obtaining prior approval from the specified authorities under amended section 151(ii) when reopening occurs beyond three years.

The Tribunal also relied on decisions of ITAT Mumbai and Hyderabad Benches which held that failure to obtain prior approval from the appropriate specified authority renders the reopening notice and consequent reassessment order void ab initio. The Tribunal noted that the Revenue's reliance on approval from the Commissioner of Income Tax instead of the Principal Chief Commissioner or Principal Director General was contrary to the statutory mandate and judicial pronouncements.

Conclusions

The Tribunal concluded that:

- The reopening notices issued under section 148 for the assessment years 2016-2017 and 2017-2018 were invalid due to non-compliance with the mandatory prior approval requirement under section 151(ii) as amended by TOLA.

- The approval obtained from the Commissioner of Income Tax was not competent authority sanction as required for reopening assessments beyond three years.

- Consequently, the reassessment orders passed under section 147 read with section 144C(13) of the Income Tax Act for both assessment years were illegal, void ab initio, and liable to be quashed.

- The substantive additions and disallowances made by the Assessing Officer and upheld by the DRP were not adjudicated upon due to the invalidity of the reassessment proceedings.

- The appeals for both assessment years were allowed, and the reassessment orders were quashed accordingly.

Significant Holdings

The Tribunal's crucial legal reasoning is encapsulated in the following verbatim excerpt:

"The notice issued by the Assessing Officer u/sec.148 of the Act dated 30.07.2022 with the approval of Principal Commissioner of Income Tax-1, Hyderabad dated 27.07.2022 is not in accordance with the provisions of sec.151(ii) of the Act and consequently, the re-assessment order passed by the Assessing Officer u/sec.147 r.w.s.144C(13) of the Act is illegal, void ab initio and liable to be quashed."

Core principles established include:

• The mandatory nature of prior approval from the specified authority under amended section 151(ii) for reopening assessments beyond three years.
• The invalidity of reopening notices and consequent reassessment orders where such approval is not obtained from the competent authority as defined by the amended law.
• The application of the Supreme Court's decisions in Union of India vs. Ashish Agarwal and Union of India vs. Rajeev Bansal as authoritative guidance on procedural compliance in reassessment proceedings under the new regime.

Final determinations on each issue are that the reopening notices and reassessment orders are quashed for non-compliance with section 151(ii), and the appeals are allowed accordingly.