The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings involving an addition of ₹33.36 crore after finding that the statutory notice was issued without approval from the competent authority prescribed under Section 151(ii) of the Income Tax Act, 1961.
The Bench of Sandeep Singh Karhail (Judicial Member) and Bijayananda Pruseth (Accountant Member) has observed that following the expiry of the applicable period, approval from the Principal Chief Commissioner of Income Tax was necessary. Sanction granted by the Principal Commissioner of Income Tax was insufficient to confer jurisdiction upon the Assessing Officer.
The taxpayer had filed his income tax return on July 30, 2016, declaring a total income of ₹2.50 lakh. The assessment was subsequently reopened under Section 147 through a notice issued under Section 148 on July 30, 2022. An order under Section 148A(d) was also passed on the same date.
In response to the reassessment notice, the taxpayer filed a return declaring the same income. The Assessing Officer thereafter treated aggregate credits of ₹33.36 crore appearing in the taxpayer’s bank accounts as unexplained money under Section 69A, read with Section 115BBE.
The reassessment order was passed on May 25, 2023, under Sections 143(3), 147 and 144B of the Income Tax Act.
The taxpayer challenged the proceedings before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre. Apart from contesting the addition on merits, the taxpayer questioned the validity of the reassessment and raised an additional jurisdictional ground concerning the absence of approval from the competent authority under Section 151.
The CIT(A) allowed the taxpayer’s appeal both on merits and on the jurisdictional issue relating to the Section 148 notice. Challenging that decision, the Income Tax Department approached the ITAT.
The Revenue argued that the CIT(A) had wrongly treated the reassessment notice as invalid. According to the Department, the notice was generated and issued electronically through the faceless system in accordance with Section 151A and CBDT Notification No. 18/2022 dated March 29, 2022.
It submitted that the notice carried a valid Document Identification Number and was accompanied by an electronically generated intimation letter. The Revenue consequently contended that the CIT(A)’s conclusion that the notice had been manually issued was factually incorrect.
On the merits of the addition, the Department argued that the CIT(A) had improperly accepted the taxpayer’s claim that the bank credits represented genuine sales. It claimed that the documents relied upon were self-generated and lacked independent third-party corroboration.
The Department further alleged that the taxpayer had failed to establish the identity of the buyers, genuineness of the transactions, movement and delivery of goods, transportation details and the availability of sufficient commercial infrastructure.
The taxpayer, however, raised a more fundamental objection concerning the authority that sanctioned the reassessment proceedings.
It was submitted that the Section 148A(d) order was passed after obtaining approval from the Principal Commissioner of Income Tax-19, Mumbai, on July 29, 2022. The Section 148 notice was issued on the following day.
The taxpayer argued that the three-year period relevant to the assessment year had already expired and that even the extension granted under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, had ended on June 30, 2021.
Accordingly, the Assessing Officer was required to obtain approval from the higher authority specified in Section 151(ii), namely the Principal Chief Commissioner of Income Tax. Since the proceedings were sanctioned by the Principal Commissioner instead, the taxpayer maintained that the Assessing Officer lacked jurisdiction.
Before examining the jurisdictional objection, the Tribunal considered the Revenue’s challenge to the delayed filing of the taxpayer’s cross-objection. The cross-objection had been filed with a delay of 95 days.
The ITAT observed that Section 253(5) permits it to admit an appeal or cross-objection filed beyond the prescribed period when sufficient cause is established. It noted that the taxpayer had already raised an additional jurisdictional ground before the CIT(A), although the appellate authority had not specifically dealt with the precise objection contained in the cross-objection.
Finding that the delay was not intentional, the Tribunal referred to the Supreme Court’s decision in Collector, Land Acquisition, Anantnag v. Mst. Katiji & Others. The Supreme Court had held that where substantial justice and technical considerations are in conflict, the cause of substantial justice deserves preference.
The Tribunal therefore condoned the 95-day delay.
It also admitted the legal ground raised through the cross-objection, observing that the issue was purely legal and could be decided based on facts already available on record.
Relying upon the Supreme Court’s ruling in National Thermal Power Co. Ltd. v. CIT, the ITAT said that its powers under Section 254 are expressed in the widest possible terms. A legal question arising from the assessment proceedings may be considered even if it was not raised earlier, provided the relevant facts are already on record and determination of the question is necessary to correctly ascertain the taxpayer’s liability.
Turning to the validity of the reassessment, the Tribunal framed the central issue as whether approval from the Principal Commissioner under Section 151(i), or from the Principal Chief Commissioner under Section 151(ii), was required where an order under Section 148A(d) and a reassessment notice under Section 148 were issued after June 30, 2021 for Assessment Year 2016-17.
The Bench held that the issue was no longer open for determination in view of the Supreme Court’s ruling in Union of India v. Rajeev Bansal.
It noted that the Supreme Court had clarified that the authority specified under Section 151(i) of the new reassessment regime could grant sanction only until June 30, 2021 and not thereafter.
In the present case, both the Section 148A(d) order and the Section 148 notice were issued on July 30, 2022. However, the approval had been granted by the Principal Commissioner of Income Tax-19, Mumbai.
The ITAT held that the specified authority competent to approve the proceedings at that stage was the Principal Chief Commissioner under Section 151(ii), and not the Principal Commissioner.
“In absence of the approval from the specified authority under Section 151(ii) of the Act, the AO lacked jurisdiction to pass the order under Section 148A(d) and issue notice under Section 148,” the Tribunal observed.
Consequently, the ITAT quashed the Section 148A(d) order and the Section 148 notice, both dated July 30, 2022, as being bad in law. The consequential reassessment order dated May 25, 2023, including the ₹33.36 crore addition under Section 69A, was also quashed.
Since the reassessment itself had been annulled for want of valid statutory approval, the Tribunal found it unnecessary to adjudicate the Department’s grounds concerning the merits of the bank-credit addition. Those grounds became infructuous.
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