The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings against a primary agricultural cooperative society, holding that the approval required under Section 151(ii) of the Income Tax Act, 1961 had not been obtained from the competent higher authority once more than three years had elapsed from the end of the relevant assessment year.
The bench of Keshav Dubey (Judicial Member) and Waseem Ahmed (Accountant Member) observed that where more than three years have passed from the end of the relevant assessment year, approval for initiating reassessment proceedings must come from the Principal Chief Commissioner of Income Tax, Principal Director General, Chief Commissioner or Director General, as prescribed under Section 151(ii). Approval from the Principal Commissioner, in such circumstances, was held insufficient.
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The appellant/assessee was a primary agricultural cooperative society registered under the Karnataka State Co-operative Societies Act, 1959. According to its bye-laws, it was engaged in purchasing and selling agricultural equipment and fertilisers and providing credit facilities to its members.
The reassessment proceedings originated from information flagged on the Income Tax Department’s Insight portal under the Risk Management Strategy category concerning “Non-filer cases.” The information indicated that the society had not filed its return of income for AY 2018-19 despite carrying out substantial banking transactions.
The department noted cash deposits, including deposits through bearer cheques, of ₹23,79,354, cash withdrawals including through bearer cheques of ₹1,39,15,425, and time deposits of ₹2,14,33,981 with Bijapur District Central Cooperative Bank Ltd. The transactions aggregated to ₹3,77,28,760, leading the department to conclude that income chargeable to tax had escaped assessment.
The Assessing Officer issued a show-cause notice under Section 148A(b) on March 20, 2022, requiring the society to submit its response with supporting documents by March 26, 2022.
The Tribunal recorded that the notice therefore provided less than the statutory minimum period of seven days for responding. The assessee did not respond to the notice or seek additional time. On the basis of the material available, the Assessing Officer thereafter passed an order under Section 148A(d) on April 6, 2022, concluding that the case was fit for issuance of a reassessment notice.
A notice under Section 148 followed on April 7, 2022. The assessee subsequently filed its return in response to the notice, declaring total income of NIL.
During the reassessment, the Assessing Officer rejected the society’s claim for deduction under Section 80P, relying upon the requirement under Section 80AC regarding filing of the return within the prescribed time.
The Assessing Officer also added ₹11,45,540 towards interest received from bank investments, which, according to the assessment order, had not been substantiated by the assessee.
Consequently, the reassessment order dated March 14, 2024 determined the total assessed income at ₹20,47,367.
The Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre dismissed the assessee’s appeal, relying upon the Supreme Court’s decision in Pr. CIT v. M/s Wipro Limited and holding that the society was not entitled to Section 80P deduction because the return had not been filed within the prescribed period under Section 139(1).
Before the ITAT, the assessee raised additional legal grounds challenging the very validity of the reassessment proceedings.
The principal contention was that the Section 148A(d) order dated April 6, 2022 and the Section 148 notice dated April 7, 2022 had both been issued on the basis of approval granted by the Principal Commissioner of Income Tax, Hubli on April 3, 2022.
According to the assessee, however, the three-year period from the end of AY 2018-19 had already expired on March 31, 2022. Therefore, when the Section 148A(d) order and Section 148 notice were issued in April 2022, the competent sanctioning authority was no longer the Principal Commissioner but the higher authority specified under Section 151(ii).
The assessee also contended that the Section 148A(b) notice itself was defective because it granted less than seven days to respond, allegedly violating the principles of natural justice.
The Revenue, on the other hand, argued that the alleged defects were merely curable technical irregularities. It also contended that since the assessee had participated in the assessment proceedings and had not raised the jurisdictional objections before the lower authorities, it should not be permitted to raise them for the first time before the Tribunal.
The Tribunal first considered whether the additional legal grounds could be raised at the appellate stage.
It noted that the additional grounds were purely legal in nature and could be decided on the basis of facts already available on record, without requiring any fresh investigation.
Relying on judicial precedents including the Supreme Court’s decision in National Thermal Power Co. Ltd. v. CIT, the Tribunal held that a pure question of law arising from facts already on record can be raised before the appellate forum where consideration of that question is necessary for correctly determining the assessee’s tax liability.
Accordingly, the ITAT admitted the additional legal grounds for adjudication.
The Tribunal then examined the statutory framework governing approval for reassessment.
It noted that under Section 151(i), where three years or less have elapsed from the end of the relevant assessment year, approval can be granted by the Principal Commissioner, Principal Director, Commissioner or Director.
However, under Section 151(ii), where more than three years have elapsed, the specified authority shifts to the Principal Chief Commissioner, Principal Director General or, where there is no such Principal Chief Commissioner or Principal Director General, the Chief Commissioner or Director General.
The Tribunal observed that AY 2018-19 was the relevant assessment year and that three years from the end of that assessment year expired on March 31, 2022.
The Section 148A(d) order was passed on April 6, 2022, while the Section 148 notice was issued on April 7, 2022. Thus, both actions took place after the three-year period had expired.
The Tribunal found that both the Section 148A(d) order and the Section 148 notice were issued on the basis of approval granted by the Principal Commissioner of Income Tax, Hubli.
However, because more than three years had elapsed from the end of the relevant assessment year, Section 151(ii) required approval from the higher specified authority.
The ITAT therefore agreed with the assessee that the approval granted by the Principal Commissioner did not satisfy the statutory requirement applicable to the case.
The Tribunal placed particular emphasis on the nature of the sanction contemplated by Section 151.
It held that valid approval under Section 151 requires the prescribed authority to apply its mind rather than mechanically endorse the Assessing Officer’s proposal. The Tribunal referred to the Supreme Court’s decision in Chhugamal Rajpal in observing that a valid satisfaction by the prescribed authority is necessary before the Assessing Officer can assume jurisdiction to issue a notice under Section 148.
The Tribunal further noted that the first proviso to Section 148 itself requires the Assessing Officer to obtain prior approval of the specified authority before issuing a reassessment notice.
According to the Tribunal, the legislative requirement for approval by a higher authority after the passage of substantial time from the end of the assessment year is intended to protect taxpayers against arbitrary or reckless reopening of completed assessments.
The ITAT categorically held that the provisions of Section 151 are mandatory in nature and that the required sanction constitutes a jurisdictional prerequisite.
It observed that the sanctioning authority has a supervisory role and must examine the material relied upon by the Assessing Officer before granting approval. The authority’s satisfaction cannot be exercised casually or routinely.
The Tribunal stressed that the statutory safeguard is not merely a procedural formality. According to the ruling, the higher level of approval prescribed once more than three years have elapsed is intended to operate as an important check on the exercise of reassessment powers.
The Tribunal held that since more than three years had elapsed from the end of AY 2018-19, the competent authority for purposes of Sections 148 and 148A was the Principal Chief Commissioner of Income Tax/Chief Commissioner of Income Tax.
As the April 6, 2022 Section 148A(d) order and April 7, 2022 Section 148 notice had instead been issued on the basis of approval from the Principal Commissioner, the Tribunal held both actions to be bad in law for violation of Section 151(ii).
The ITAT consequently quashed and set aside the Section 148A(d) order, the Section 148 notice and all proceedings and orders emanating from them, thereby allowing the assessee’s appeal.
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