2025 (7) TMI 943 - AT - Income Tax

Reopening of assessment u/s 147 - Period of limitation - violation of provisions contained in section 151A - scope of new regime - TOLA - notice issued beyond the period of three years - HELD THAT - In the case of present assessee since the notice issued u/s.148 is dated 15.07.2022 period of six years expired on 31.03.2022 and is thus barred by limitation. Accordingly notice so issued and re-assessment completed thereafter u/s. 147 is liable to be quashed in view of the decision of Hon ble Supreme Court in the case of Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) which was followed in the case of IBIBO 2024 (12) TMI 1269 - DELHI HIGH COURT We hold that notice for A.Y. 2015-16 issued on 15.07.2022 u/s 148 of the new regime is barred by limitation and hence bad in law liable to be quashed resulting in impugned reassessment proceedings as well as the impugned reassessment order bad in law. Accordingly grounds raised by the assessee are allowed. Approval obtained by AO for the purpose of issuing notice u/s 148 is not in accordance with the provisions of section 151 under the new regime of reassessment introduced by the Finance Act 2021 - We are presently addressing raised before us is not on the aspect of when for the procedural compliance for issuance of notice u/s.148 but on the aspect of by whom it ought to have been issued. DR has contended that there is hierarchical escalation vis- -vis obtaining approval for issuing notice u/s.148. In this respect Hon ble Court has very categorically held that the prior approval must be obtained from the appropriate authorities specified u/s.151 of the new regime for the notices issued in terms of Ashish Agrawal 2022 (5) TMI 240 - SUPREME COURT after 01.04.2021. Reference by DR to Section 149(1)(a) deals with time limit for issuing notice u/s.148. Contention of the ld. Sr. DR that there is no hierarchical escalation for obtaining prior approval for issuing notice u/s.148 is not in coherence with the guidelines mandated by the Hon ble Apex Court as enunciated above. Repeatedly Hon ble Court has stated including by way of illustration that TOLA extends time line from the old regime which survives making the notice validly issued subject to the approval requirements of Section 151 under the new regime. Accordingly the prior approval requirement is mandated under the section 151 of new regime. In the present case the relevant AY is 2016-17 and the time limit of three years lapsed on 31.03.2020 which falls between 20.03.2020 and 31.03.2021 during which provisions of TOLA would apply. Accordingly the amended provisions under the Act read with TOLA extended the time limit for granting of approval till 30.06.2021 by the specified authority. Thus on the above stated facts and law in the present case three years had lapsed from the end of the Assessment Year when the order u/s.148A(d) and notice u/s.148 was issued on 22.07.2022. In the present case since the notice u/s. 148 and order u/s. 148A(b) have been issued beyond the period of three years from the end of the relevant Assessment Year case of the assessee falls within the provisions of section 151(ii) of the amended law whereby the specified authority for grant of approval is specified as Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. Contrary to this requirement the approval obtained is by Principal Commissioner of Income Tax-27 Mumbai. Accordingly since a proper sanction by the specified authority had not been obtained for issue of notice u/s.148 under the applicable provisions of law said notice is invalid and bad in law. Keeping in juxtaposition the undisputed and the uncontroverted facts as stated above and the judicial precedent of the Hon ble Supreme Court in the case of Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT and Rajiv Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) we hold that sanction by specified authority has not been obtained by the ld. Assessing Officer in accordance with the provisions contained in section 151 of the Act under the new regime since notice u/s.148 has been issued beyond three years from the end of the relevant Assessment Year. Accordingly the said notice issued is invalid and thus quashed. Assessee appeal allowed.

Summary

The core legal issues considered by the Tribunal in these appeals relate primarily to the validity and limitation of reassessment notices issued under section 148 of the Income-tax Act, 1961, as amended by the Finance Act, 2021 (the "new regime"), and the procedural compliance concerning prior approval under section 151 of the Act. The key questions include:

1. Whether the notice issued under section 148 for Assessment Year (AY) 2015-16 is barred by limitation, particularly in light of the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 ("TOLA") and judicial precedents.

2. Whether the notice under section 148 for AY 2016-17 was validly issued, specifically regarding the authority from whom prior approval under section 151 of the new regime should have been obtained, given the lapse of more than three years from the end of the relevant AY.

3. Whether the procedural requirements under section 148, including issuance of notice with proper Document Identification Number (DIN), and compliance with section 151A, were met.

4. Whether reassessment proceedings initiated under section 147 were justified, or whether notice should have been issued under section 153C, and whether the Assessing Officer applied independent satisfaction or merely relied on borrowed satisfaction.

5. Whether the assessment orders passed under sections 147 read with 144 and 144B, including additions on account of unexplained income and alleged bogus purchases, were based on proper evidence and legal principles, and whether principles of natural justice were followed, including opportunity for cross-examination of witnesses.

Issue-wise Detailed Analysis

1. Limitation of Notice under Section 148 for AY 2015-16

Legal Framework and Precedents: The reassessment provisions under the Income-tax Act were amended by the Finance Act, 2021, introducing a new regime for reopening assessments with revised timelines and approval processes. The Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2020 ("TOLA") was enacted to provide relief during the COVID-19 pandemic by extending time limits for various compliances. The Supreme Court's ruling in Union of India v. Rajeev Bansal clarified the interplay between TOLA and the new regime, holding that TOLA overrides the time limits under the Income-tax Act, including sections 148 and 149, and extends the limitation period for issuing reassessment notices.

Court's Interpretation and Reasoning: The Tribunal referred extensively to the Supreme Court's observations in Rajeev Bansal, highlighting that for AY 2015-16, notices issued on or after 1 April 2021 are barred by limitation as per the timelines extended by TOLA. The Revenue conceded this position before the Supreme Court. The Tribunal also relied on the Delhi High Court decision in IBIBO Group Pvt. Ltd. v. ACIT, which quashed reassessment notices for AY 2015-16 on similar grounds.

Application of Law to Facts: In the present case, the notice under section 148 for AY 2015-16 was issued on 15 July 2022, well beyond the six-year limitation period (which expired on 31 March 2022) and outside the extended timelines under TOLA. Hence, the notice was held to be barred by limitation and invalid.

Conclusion: The Tribunal quashed the reassessment notice and proceedings for AY 2015-16 as barred by limitation, following binding Supreme Court authority and consistent High Court precedent.

2. Validity of Notice under Section 148 for AY 2016-17: Prior Approval under Section 151

Legal Framework and Precedents: Section 151 of the Income-tax Act mandates prior approval from a specified authority before issuing a notice under section 148. The Finance Act, 2021 introduced a new regime specifying different authorities depending on whether the notice is issued within or after three years from the end of the relevant AY. For notices issued beyond three years, approval must be obtained from a higher authority (Principal Chief Commissioner or equivalent). The Supreme Court in Ashish Agrawal and Rajeev Bansal clarified that TOLA extends the time limits for obtaining such approval but does not alter the hierarchical requirement of the specified authority under section 151.

Court's Interpretation and Reasoning: The Tribunal noted that for AY 2016-17, the three-year period from the end of the AY expired on 31 March 2020, which falls within the TOLA extension period. Therefore, approval for issuing the notice after this period must be obtained from the higher specified authority under section 151(ii). However, in the present case, approval was obtained from Principal Commissioner of Income Tax-27, Mumbai, which is not the competent authority under the new regime for notices issued after three years.

The Tribunal emphasized the Supreme Court's clear direction that the prior approval requirement under section 151 of the new regime must be strictly complied with, and TOLA only extends the time for obtaining approval but does not change the identity of the approving authority.

Application of Law to Facts: Since the notice for AY 2016-17 was issued on 22 July 2022 (beyond three years from the end of AY), and approval was not obtained from the Principal Chief Commissioner or equivalent, the notice was invalid.

Conclusion: The Tribunal quashed the notice and reassessment proceedings for AY 2016-17 for lack of valid prior approval as required under section 151 of the new regime.

3. Procedural Compliance: Issuance of Notice without DIN and Violation of Section 151A

Legal Framework and Precedents: Circular No. 09/2019 mandates issuance of notices under section 148 with a Document Identification Number (DIN) to ensure traceability and validity. Section 151A requires certain procedural steps before issuance of reassessment notices. The Bombay High Court in Ashok Commercial Enterprises and Hexaware Technologies Limited held that failure to comply with these procedural requirements renders the notice invalid.

Court's Interpretation and Reasoning: The assessee contended that the notice dated 22 July 2022 was issued without DIN and in violation of section 151A. The Tribunal, while noting these grounds, primarily focused on limitation and prior approval issues for quashing the notices. However, it acknowledged that non-compliance with these procedural safeguards constitutes a violation of binding legal directions and precedents.

Application of Law to Facts and Conclusion: Though not the primary basis for quashing, the Tribunal recognized that the notices issued without DIN and in violation of section 151A lacked procedural validity, supporting the assessee's challenge.

4. Appropriateness of Initiating Reassessment under Section 147 instead of Section 153C and Reliance on Borrowed Satisfaction

Legal Framework and Precedents: Section 153C applies to reassessment proceedings initiated based on search or seizure operations and requires issuance of notice under that section. The principle of independent application of mind by the Assessing Officer before issuance of notice under section 148 is well established. Reliance solely on information or satisfaction borrowed from another authority without independent verification is impermissible.

Court's Interpretation and Reasoning: The assessee argued that reassessment should have been initiated under section 153C and that the Assessing Officer issued notice under section 148 based on borrowed satisfaction without independent application of mind. The Tribunal noted these contentions but did not delve deeply into them, as the notices were quashed on limitation and approval grounds.

Conclusion: The Tribunal implicitly accepted that initiation under section 147 without proper jurisdiction or independent satisfaction is flawed, reinforcing the invalidity of reassessment proceedings.

5. Validity of Additions on Account of Unexplained Income and Alleged Bogus Purchases and Principles of Natural Justice

Legal Framework and Precedents: Additions under sections 68 and 69A require cogent evidence beyond surmises, conjecture, or suspicion. The Supreme Court in Kishanchand Chellaram v. CIT and Andaman Timber Industries v. Commissioner of Central Excise emphasized the right of the assessee to cross-examine witnesses and fair opportunity to defend.

Court's Interpretation and Reasoning: The assessee challenged the additions of Rs. 81,75,025/- (AY 2015-16) and Rs. 61,71,452/- (AY 2016-17) as based on vague and incorrect findings, and contended denial of opportunity to cross-examine witnesses relied upon by the Assessing Officer. The Tribunal noted these grounds but did not adjudicate on merits due to quashing of reassessment notices on jurisdictional grounds.

Conclusion: While the Tribunal did not rule on these substantive issues, it acknowledged the importance of natural justice and proper evidentiary standards in reassessment proceedings.

Significant Holdings

"The notice for AY 2015-16 issued on 15.07.2022 u/s 148 of the new regime is barred by limitation and hence bad in law, liable to be quashed."

"Since the notice u/s.148 for AY 2016-17 was issued beyond three years from the end of the relevant Assessment Year, prior approval under section 151(ii) must have been obtained from the Principal Chief Commissioner or equivalent. Approval obtained from Principal Commissioner was invalid; hence, notice is invalid and quashed."

"TOLA extends the time limit for the grant of sanction by the authority specified under section 151, but does not alter the hierarchical specification of the authority required to grant such sanction."

"Non-compliance with procedural safeguards such as issuance of notice without DIN and violation of section 151A further vitiate the reassessment proceedings."

"Reassessment proceedings initiated without independent application of mind and relying solely on borrowed satisfaction are invalid."

"Additions based on surmises, conjecture, or suspicion without proper evidence and denial of opportunity for cross-examination violate principles of natural justice."

In conclusion, the Tribunal allowed both appeals, quashing the reassessment notices and proceedings for AYs 2015-16 and 2016-17 on grounds of limitation and invalid prior approval respectively, while underscoring the necessity of strict compliance with procedural and substantive safeguards in reassessment proceedings under the Income-tax Act.