2025 (7) TMI 245 - AT - Income Tax

Validity of reopening u/s.148 - notice u/s 148 issued after 3 years from the end of the relevant assessment year - sanctioning authority to issue notice - addition based on some Whats App chat - HELD THAT - Section 151 of the Act as applicable w.e.f. 01/04/2021 to 01/09/2024 the specified authority for sanction of notice for the purpose of Section 148 and 148A provides that if the notice has been issued before three years from the end of the relevant assessment year then ld. PCIT or ld. CIT can grant approval / sanction the notice; and if it is more than three years then ld. Pr. Chief Commissioner or ld. Chief Commissioner are the specified authorities who can sanction the notice. Here in this case the notice u/s.148 has been issued on 06/04/2022 which is clearly more than three years from the end of the relevant assessment year. Thus the notice could have been issued only after the approval or sanction of notice by the ld. PCCIT or ld. CCIT. The Hon ble Supreme Court in the case of Union of India vs. Rajeev Bansal 2024 (10) TMI 264 - SUPREME COURT (LB) has categorically held that the conditions provided u/s.151 is mandatory. Hon ble Supreme Court has clearly clarified that under the provision brought by the Finance Act 2021 AO was required to obtain prior approval or sanction of the specified notice at four stages. Here in this case the order u/s. 148A (d) and final notice u/s. 148 has been issued with the prior approval or sanction of PCIT who had no authority to grant approval. Accordingly on this ground alone the entire notice u/s.148 deserves to be quashed. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

• Whether the reopening of assessment under section 147 of the Income Tax Act for the assessment year 2018-19 was valid, particularly focusing on the procedural validity of the notice issued under section 148.
• Whether the approval or sanction for issuance of notice under section 148, as mandated by section 151 of the Income Tax Act, was granted by the appropriate authority in accordance with the amended law effective from 01/04/2021.
• Whether the addition of Rs. 64,00,000/- based on WhatsApp chat evidence was justified on merits.
• Whether the procedural safeguards introduced by the Finance Act, 2021, particularly the requirement of prior approval at various stages of reassessment proceedings, were complied with.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reopening of Assessment under Section 147 and Issuance of Notice under Section 148

Relevant Legal Framework and Precedents: The reopening of assessment under section 147 is subject to strict procedural safeguards. Section 148 notice must be issued within prescribed time limits and with prior approval of the specified authority as per section 151. The Finance Act, 2021 amended section 151 to specify different authorities for sanction depending on whether the notice is issued within or beyond three years from the end of the relevant assessment year. The Supreme Court in Union of India vs. Rajeev Bansal (2024) 469 ITR 46 has held that compliance with section 151 is mandatory and non-compliance vitiates the jurisdiction to issue notice under section 148.

Court's Interpretation and Reasoning: The Tribunal examined the timeline and authority granting approval. The assessment year in question is 2018-19, and the three-year period from the end of that year expired on 31/03/2022. The notice under section 148 was issued on 06/04/2022, i.e., beyond three years. The approval for issuance of notice was granted by the Principal Commissioner of Income Tax (PCIT), Central Mumbai-3, who is not the competent authority under the amended section 151 for notices issued beyond three years. The competent authority in such cases is the Principal Chief Commissioner of Income Tax (Pr. CCIT) or Chief Commissioner of Income Tax (CCIT).

The Tribunal relied heavily on the Supreme Court's detailed exposition in Rajeev Bansal, which clarified the mandatory nature of obtaining sanction from the specified authority depending on the time of issuance of the notice. The Court emphasized the procedural check intended to prevent harassment from mechanical reassessments. The Tribunal noted that the approval at four stages-enquiry under section 148A(a), show cause notice under section 148A(b), order under section 148A(d), and issuance of notice under section 148-must be obtained from the appropriate authority. Here, both the order under section 148A(d) and the notice under section 148 were sanctioned by PCIT, who lacked jurisdiction to grant such approval beyond three years.

Key Evidence and Findings: The record showed the date of issuance of notice under section 148 as 06/04/2022, beyond the three-year limit. The approval was granted by PCIT, not Pr. CCIT or CCIT. The Tribunal also noted the initial notice under section 148A(a) was issued on 11/03/2022, within three years, but the final notice under section 148 was issued after the three-year period, triggering the requirement for higher authority approval.

Application of Law to Facts: The Tribunal applied the Supreme Court's ruling that the jurisdiction to issue a notice under section 148 is contingent upon prior approval by the specified authority. Since the notice was issued beyond three years, the sanction by PCIT was invalid, rendering the notice and consequent reassessment order void.

Treatment of Competing Arguments: The Revenue argued that since the initial enquiry notice under section 148A(a) was issued within three years with PCIT approval, the subsequent notice under section 148 was a continuation and thus valid. The Tribunal rejected this, holding that the final notice under section 148 was a distinct action requiring fresh approval from the higher authority as per the amended section 151 regime.

Conclusion: The reopening was invalid due to lack of proper sanction from the competent authority. The notice under section 148 dated 06/04/2022 was quashed as invalid, and the reassessment order was set aside.

Issue 2: Merits of Addition Based on WhatsApp Chat Evidence

Relevant Legal Framework: Additions to income must be based on credible and admissible evidence. WhatsApp chats can be considered evidence if they are relevant, authentic, and form a basis for the addition.

Court's Interpretation and Reasoning: The Tribunal did not proceed to analyze the merits of the addition since the entire reassessment order was quashed on procedural grounds related to the invalidity of the notice. The issue of addition based on WhatsApp chat was therefore not adjudicated upon.

Conclusion: The merits of the addition were not examined due to the quashing of the reassessment proceedings on legal grounds.

Issue 3: Compliance with Procedural Safeguards Introduced by Finance Act, 2021

Relevant Legal Framework: The Finance Act, 2021 introduced procedural safeguards requiring prior approval at four stages: enquiry under section 148A(a), show cause notice under section 148A(b) (later deleted), order under section 148A(d), and issuance of notice under section 148. These approvals must be obtained from the specified authorities as per section 151.

Court's Interpretation and Reasoning: The Tribunal noted that the assessing officer obtained approval from PCIT at the stages of order under section 148A(d) and issuance of notice under section 148. However, since the approval was granted by an unauthorized officer beyond the three-year period, the procedural safeguard was not complied with. The Tribunal emphasized that such compliance is mandatory and non-compliance affects the jurisdiction of the assessing officer.

Conclusion: The procedural requirement of obtaining prior approval from the competent authority was not met, rendering the reassessment invalid.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"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."

"Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year."

"The notice under section 148 dated 06/04/2022 is quashed as invalid as sanction of the notice has been given by the ld. PCIT instead of Pr. CCIT or ld. CIT."

Core principles established include:

• The mandatory nature of obtaining prior approval from the specified authority under section 151 for issuance of notice under section 148.
• The distinction in competent authorities based on whether the notice is issued within or beyond three years from the end of the relevant assessment year.
• Non-compliance with these procedural requirements vitiates the jurisdiction of the assessing officer and invalidates the reassessment proceedings.

Final determinations:

• The reopening of assessment under section 147 for A.Y. 2018-19 was invalid due to lack of proper sanction from the competent authority as mandated by section 151.
• The notice under section 148 dated 06/04/2022 was quashed as invalid.
• The reassessment order passed pursuant to the invalid notice was also quashed.
• The addition based on WhatsApp chat was not adjudicated due to quashing on procedural grounds.