The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings for Assessment Year 2018-19 after holding that the notice issued under Section 148 of the Income Tax Act, 1961, lacked approval from the competent authority prescribed under Section 151(ii).
The bench of Saktijit Dey (Vice President) and Narendra Kumar Billaiya (Accountant Member) has observed that once more than three years had elapsed from the end of the relevant assessment year, sanction was required from the Principal Chief Commissioner of Income Tax (PCCIT) or another authority specified under Section 151(ii). Approval obtained from the Commissioner or Principal Commissioner was therefore insufficient.
The dispute arose after the Assessing Officer initiated reassessment proceedings against the assessee for Assessment Year 2018-19. A show-cause notice under Section 148A(b) was issued on March 20, 2022, to which the assessee submitted a response on March 30, 2022.
After considering the response, the Assessing Officer passed an order under Section 148A(d) on April 6, 2022. A notice under Section 148 was also issued on the same date after obtaining approval from the Commissioner-level authority.
The assessee challenged the proceedings on the ground that they had been initiated after the expiry of three years from the end of Assessment Year 2018-19. It was contended that Section 151(ii), as applicable at the relevant time, required approval from the PCCIT, Principal Director General, Chief Commissioner or Director General.
Since the sanction in the present case had been granted by the CIT or PCIT instead of an authority specified under Section 151(ii), the assessee argued that the notice and all subsequent proceedings were invalid.
The Revenue defended the proceedings by contending that the notice had been approved by the authority competent at the relevant time. It also relied on a coordinate bench decision in Albert Joseph Rozario v. ITO, where the extended limitation available under the provisos to Section 149 was considered while determining the competent sanctioning authority under Section 151.
Under Section 151 as it stood at the relevant time, a Principal Commissioner, Principal Director, Commissioner or Director could grant approval where three years or less had elapsed from the end of the relevant assessment year. Where more than three years had elapsed, approval was required from the higher authorities specified in Section 151(ii).
The Tribunal relied upon the Bombay High Court’s decision in Vodafone Idea Limited v. Deputy Commissioner of Income Tax. In that case, the High Court held that a reassessment notice issued beyond three years for Assessment Year 2018-19 required sanction from the PCCIT. Since the sanction had been granted by the PCIT, the notice and the order under Section 148A(d) were quashed.
The Tribunal also referred to the Bombay High Court’s rulings in Mystique Media Pvt. Ltd. v. ITO and Purnima Jitendra Navsariwala v. ITO, where reassessment proceedings were set aside because the sanction had been granted by the PCIT instead of the PCCIT after the expiry of three years.
Accountant Member Narendra Kumar Billaiya observed that the jurisdictional High Court had already settled the issue. Accordingly, the Tribunal set aside the notice under Section 148 for want of sanction from the appropriate authority and consequently quashed the reassessment order.
In a separate concurring order, Vice President Saktijit Dey examined the relationship between Sections 149 and 151 of the Income Tax Act in detail.
The Vice President observed that Section 149 prescribes the limitation for issuing notices under Sections 148 and 148A, whereas Section 151 separately identifies the authority competent to grant sanction. Section 149(2) expressly makes the limitation prescribed under Section 149(1) subject to Section 151.
The Tribunal noted that, before its amendment by the Finance Act, 2023, Section 151 did not contain any provision permitting the excluded or extended periods available under the provisos to Section 149(1) to be taken into account while computing the three-year period under Section 151.
A proviso permitting such computation was inserted into Section 151 only with effect from April 1, 2023. It provides that the three-year period for the purposes of Section 151(i) must be computed after considering the periods excluded or extended under the relevant provisos to Section 149(1).
The Tribunal held that this proviso could not apply retrospectively to reassessment proceedings initiated in April 2022. Consequently, the Revenue could not rely on the extended time available under Section 149 to treat the notice as falling within the three-year period for determining the sanctioning authority.
The Vice President emphasised that Sections 149 and 151 operate in different fields. Section 149 determines the limitation for issuing a reassessment notice, while Section 151 prescribes the authority that must approve the proceedings. Before April 1, 2023, the extensions available under Section 149 could not automatically be imported into Section 151.
The Tribunal distinguished the coordinate bench ruling in Albert Joseph Rozario, noting that earlier decisions in Davos International Fund v. ACIT and ACIT v. Asha P. Kedia did not appear to have been placed before the bench in that case. Those earlier decisions had followed the binding rulings of the Bombay High Court and held that approval from the CIT was invalid where more than three years had elapsed.
The Tribunal further referred to the Bombay High Court’s decision in Agnello Oswin Dias v. ACIT, which reiterated that the proviso inserted into Section 151 with effect from April 1, 2023, does not have retrospective application.
It consequently held that both the order passed under Section 148A(d) and the notice issued under Section 148 were invalid for want of sanction from the competent authority under Section 151(ii). Since the jurisdictional notice itself was quashed, the consequential reassessment order was also declared invalid.
The ITAT did not examine the additions made on merits, observing that this was unnecessary after the reassessment notice had been set aside. The assessee’s appeal was accordingly allowed.
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