2025 (7) TMI 309 - AT - Income Tax

Validity of reopening of assessment - Period of limitation - scope of old law - validity of approval for reopening issued by the Principal Commissioner of Income Tax (PCIT) - HELD THAT - In the present case the AY 2017-18. The reopening of assessment for the said year was not getting time barred up to 31.03.2021. In fact under the old provision limitation was expiring on 31.03.2024 so in view of the above said judicial pronouncement sanction is to be given by PCCIT not by PCIT. Accordingly we find substance in the argument of assessee that the approval for reopening is bad in law. Since the reapproval of reopening is bad in law hence entire assessment proceedings are hereby quashed. Accordingly the appeal of the assessee is allowed.

The primary legal issue considered in this appeal pertains to the validity of the approval granted for reopening the assessment under section 148 of the Income Tax Act, 1961 (hereinafter "the Act") for the assessment year (AY) 2017-18. Specifically, the question is whether the approval for reopening issued by the Principal Commissioner of Income Tax (PCIT) was valid under the amended provisions effective from 1 April 2021, which require such sanction to be granted by the Principal Chief Commissioner of Income Tax (PCCIT) or an equivalent higher authority when the notice is issued after more than three years from the end of the relevant assessment year.

In addition, the appeal indirectly raises the issue of the jurisdictional validity of the reassessment proceedings initiated pursuant to the allegedly defective sanction, and whether such defect vitiates the entire reassessment process.

Another ancillary issue is whether the assessee's failure to raise the objection regarding the authority granting sanction before the lower authorities affects the maintainability of the present appeal on this ground.

Issue-wise Detailed Analysis

1. Validity of Approval for Reopening under Section 148/151 of the Act

Legal Framework and Precedents: The reopening of an assessment under section 148 requires prior approval from a specified authority under section 151 of the Act. The authority competent to grant approval depends on the time elapsed since the end of the relevant assessment year and the amount of income escaping assessment.

Prior to 1 April 2021 ("old regime"), section 151 prescribed that if the notice was issued within four years from the end of the assessment year, approval was to be granted by the Joint Commissioner; if beyond four years but within six years, approval was to be granted by the Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner.

Post 1 April 2021 ("new regime"), the authorities competent to grant approval were redefined. If the notice is issued within three years from the end of the assessment year, approval must be granted by the Principal Commissioner, Principal Director, Commissioner, or Director. If beyond three years, approval must be granted by the Principal Chief Commissioner, Principal Director General, Chief Commissioner, or Director General.

The Supreme Court judgment in Union of India & Ors. v. Rajib Bansal (2024) extensively interprets these provisions, emphasizing that the identity of the sanctioning authority is directly correlated with the timing of the notice issuance. The Court held that non-compliance with the prescribed sanctioning authority under section 151 vitiates the jurisdiction of the assessing officer to issue the notice under section 148.

Further, the Court clarified that the new regime is beneficial to the assessee, imposing a higher threshold for approval authority, and that the prior approval must be obtained from the correct authority as per the time of issuance of the notice.

Additional judicial precedents from the ITAT Ahmedabad Bench, Bombay High Court (Holiday Developers case), and Delhi High Court (Ashok Kumar Makhija case) have consistently held that sanction obtained from an incorrect authority under the new regime is invalid, rendering the reassessment proceedings void.

Court's Interpretation and Reasoning: The Tribunal carefully examined the timeline of events: the notice under section 148 was issued on 21 July 2022, which is more than three years from the end of AY 2017-18 (which ended on 31 March 2018). Therefore, under the new regime, sanction should have been granted by the PCCIT or an equivalent higher authority.

However, in the present case, approval was granted by PCIT-5, Kolkata, which is not the competent authority under section 151(ii) of the new regime. The Tribunal held that this non-compliance with the statutory mandate is fatal to the jurisdiction of the assessing officer to reopen the assessment.

The Tribunal relied on the Supreme Court's detailed analysis in Rajib Bansal, which underscores the procedural safeguard intended to prevent harassment of taxpayers by ensuring that reopening notices are issued only after proper sanction by the designated authority.

Key Evidence and Findings: The record showed that the approval was granted by PCIT-5, Kolkata on 21 July 2022, along with approvals in 23 other cases. The reopening notice was also issued on 21 July 2022. The limitation period for reopening under the old regime would have expired on 31 March 2024, but the sanctioning authority under the new regime must be PCCIT for notices issued after three years.

Application of Law to Facts: Since the notice was issued after three years from the end of the assessment year, the sanctioning authority had to be PCCIT. The approval granted by PCIT was therefore invalid. Consequently, the jurisdictional precondition for issuing the notice under section 148 was not fulfilled.

Treatment of Competing Arguments: The Revenue contended that the issue of invalid sanction was not raised before the lower authorities and thus could not be entertained at this stage. The Tribunal rejected this contention, emphasizing that jurisdictional defects can be raised at any stage and that the issue goes to the root of the authority of the assessing officer to proceed with reassessment.

The assessee's counsel relied extensively on the Supreme Court judgment in Rajib Bansal and other judicial pronouncements to support the argument that the sanction was bad in law.

Conclusion: The Tribunal concluded that the sanction obtained from the PCIT was invalid and that the reopening notice issued on that basis was without jurisdiction. Therefore, the entire reassessment proceedings were liable to be quashed.

2. Jurisdictional Validity of Reassessment Proceedings

Legal Framework and Precedents: It is well established that the power to reopen an assessment under section 148 is conditional upon prior approval under section 151. Failure to comply with this precondition results in the notice being invalid and the proceedings void.

Supreme Court rulings have consistently held that jurisdictional defects cannot be cured by subsequent approvals or ratifications.

Court's Interpretation and Reasoning: The Tribunal, following the precedents, held that since the sanction was invalid, the assessing officer lacked jurisdiction to proceed with reassessment. The reassessment order passed in such circumstances is without jurisdiction and liable to be quashed.

Key Evidence and Findings: The reassessment order was passed on the basis of the reopening notice issued after invalid sanction. No subsequent valid sanction was obtained.

Application of Law to Facts: The jurisdictional defect in sanction rendered the entire reassessment proceedings void ab initio.

Treatment of Competing Arguments: The Revenue did not dispute the legal principle but argued procedural default by the assessee in not raising the issue earlier, which was rejected as explained above.

Conclusion: The reassessment proceedings were quashed due to lack of jurisdiction arising from invalid sanction.

3. Effect of Non-Raising of Issue Before Lower Authorities

Legal Framework and Precedents: While procedural objections are generally required to be raised at the earliest opportunity, jurisdictional defects are exceptions and can be raised at any stage, including appeals and revision.

Court's Interpretation and Reasoning: The Tribunal observed that the issue of invalid sanction goes to the jurisdiction of the assessing officer, which cannot be waived or cured by failure to raise it earlier.

Key Evidence and Findings: The assessee raised the issue before the Tribunal, supported by authoritative judicial pronouncements.

Application of Law to Facts: The Tribunal entertained the issue despite non-raising before the CIT(A), holding that jurisdictional defects are fundamental and can be raised at any stage.

Treatment of Competing Arguments: The Revenue's contention was rejected as untenable in law.

Conclusion: The Tribunal rightly considered the issue of invalid sanction despite non-raising before the lower authority.

Significant Holdings

"Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments."

"The specified authority is directly co-related to the time when the notice is issued... After 1 April 2021, the new regime has specified different authorities for granting sanctions under section 151. The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime."

"Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under section 148 to issue a reassessment notice... Non-compliance by the assessing officer with the strict time limits prescribed under section 151 affects their jurisdiction to issue a notice under section 148."

"Since the sanction obtained for reopening of assessment was from a wrong Specified Authority, the entire reopening itself is bad in law and liable to be quashed."

"Jurisdictional defects can be raised at any stage and are not barred by failure to raise the issue before lower authorities."

The Tribunal's final determination is that the approval for reopening granted by PCIT was invalid under the amended provisions effective from 1 April 2021, which require sanction from PCCIT or equivalent higher authority for notices issued beyond three years from the end of the assessment year. Consequently, the notice issued under section 148 lacked jurisdiction, and the reassessment proceedings are quashed. The appeal of the assessee is allowed accordingly.

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