ACIT Vs Asha P Kedia (ITAT Mumbai)
Summary: The Income Tax Appellate Tribunal (ITAT), Mumbai Bench “A”, in ACIT Vs Ms. Asha P Kedia, quashed reassessment proceedings for Assessment Year 2017-18 after finding that the notice issued under Section 148 of the Income Tax Act, 1961 had been sanctioned by an authority not competent under Section 151(ii) of the Act. The Tribunal held that, since more than three years had elapsed from the end of the relevant assessment year, approval was required from the higher authority specified under Section 151(ii), rather than from the Principal Commissioner of Income Tax. Consequently, the Tribunal allowed the assessee’s cross-objection, quashed the reassessment and dismissed the Revenue’s appeal as infructuous. The dispute involved an addition of Rs.1,71,30,715/- under Section 68 read with Section 115BBE, but the Tribunal disposed of the proceedings on the preliminary jurisdictional issue without examining the addition on merits.
The assessee had originally filed her return of income on 31 July 2017, declaring total income of Rs.8,24,900/-. No regular assessment was completed under Section 143(3). Subsequently, the Assessing Officer reopened the case under Section 147 by issuing a notice under Section 148 dated 11 June 2021. In response, the assessee filed a return on 23 November 2021 declaring the same income. Following changes to the reassessment provisions and the directions issued by the Supreme Court in Union of India Vs Ashish Agarwal, the Assessing Officer proceeded under the amended reassessment framework. The record referred to a show-cause notice under Section 148A(b) dated 25 May 2022, followed by an order under Section 148A(d) and a fresh notice under Section 148 dated 27 July 2022.
In the reassessment, the Assessing Officer treated credits aggregating Rs.1,71,30,715/- in the assessee’s account as unexplained cash credits under Section 68 and applied Section 115BBE. The assessee challenged the assessment before the National Faceless Appeal Centre/Commissioner of Income Tax (Appeals). By order dated 21 May 2024, the appellate authority granted relief on the merits of the addition but did not accept the assessee’s jurisdictional challenge. The Revenue appealed against the relief granted on merits, while the assessee filed a cross-objection questioning the validity of the reassessment itself. The Tribunal first condoned a delay of four days in filing the cross-objection, accepting the assessee’s explanation that the delay was minor, bona fide and unintentional.
The assessee’s principal contention was that the notice dated 27 July 2022 had been issued more than three years after the end of Assessment Year 2017-18. Accordingly, the authority competent to grant approval was the Principal Chief Commissioner or another designated higher authority under Section 151(ii), whereas approval had been obtained from the Principal Commissioner of Income Tax-2, Mumbai. The assessee argued that this defect went to the jurisdiction of the Assessing Officer and rendered both the notice and the consequential assessment void ab initio. The Department contended that the three-year period should be calculated after considering the exclusions contemplated by the provisos to Section 149(1), thereby supporting the approval obtained from the Principal Commissioner.
In response, the assessee submitted that the relevant provisos invoked by the Department had been introduced through the Finance Act, 2023, with effect from 1 April 2023, and therefore could not govern a notice issued on 27 July 2022. The Tribunal examined the competing submissions in the context of the law applicable when the reassessment notice was issued. The critical question was not whether the alleged unexplained credits were genuine but whether the statutory sanction requirement had been fulfilled before reopening the assessment. The assessee emphasised that obtaining approval from an authority lower than the one prescribed by the applicable provision was not a mere procedural irregularity capable of sustaining the proceedings.
The Tribunal relied on the Bombay High Court’s decision in Vodafone India Idea Ltd. Vs DCIT, Writ Petition No. 2768 of 2022, decided on 6 February 2024. In that case, the High Court had considered a reassessment notice issued after three years from the end of the relevant assessment year and held that the appropriate sanctioning authority under Section 151(ii) was the Principal Chief Commissioner of Income Tax, not the Principal Commissioner. The High Court had also observed that the relevant proviso introduced with effect from 1 April 2023 could not apply to the earlier notice. Following this interpretation, the Tribunal held that the approval obtained from PCIT-2, Mumbai, for the assessee’s July 2022 notice was insufficient under the statutory framework then applicable.
The Tribunal consequently concluded that the notice issued under Section 148 on 27 July 2022 was invalid for want of approval from the competent authority. It quashed the consequential reassessment order and allowed the assessee’s cross-objection. Since the reassessment itself no longer survived, the Revenue’s appeal challenging the appellate relief on the unexplained cash credit addition became infructuous and was dismissed. The decision highlights the jurisdictional significance of the sanctioning authority under the reassessment provisions and the need to determine the applicable statutory requirements by reference to the relevant notice date. The outcome was founded upon invalid sanction under Section 151(ii); it was not a substantive ruling that the alleged credits of Rs.1,71,30,715/- were explained or that the addition under Section 68 was otherwise unsustainable on merits.
Cases Discussed
1. Union of India Vs Ashish Agarwal (Supreme Court); Civil Appeal No. 3005 of 2022; Decision Date: 04.05.2022. The Tribunal referred to the Supreme Court’s directions concerning notices issued under the earlier reassessment regime and their treatment under the amended provisions of Sections 148 and 148A. The decision formed part of the procedural background explaining the subsequent issuance of the notice dated 27.07.2022.
2. Vodafone India Idea Ltd. Vs DCIT (Bombay High Court); Writ Petition No. 2768 of 2022; Decision Date: 06.02.2024. The Tribunal expressly relied upon this judgment concerning the authority competent to sanction a reassessment notice after three years from the end of the relevant assessment year. The Bombay High Court held that the approval was required under Section 151(ii) and that the subsequently introduced proviso could not govern the earlier notice. Applying this decision, the Tribunal quashed the reassessment proceedings.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal by the Revenue Department and the Cross Objection by the Assessee have been preferred against the order dated 21.05.2024, impugned herein, passed by the National Faceless Appeal Center (NFAC)/ Ld. Commissioner of Income Tax (Appeals) (in short Ld. Commissioner) u/s 250 of the Income Tax Act, 1961 (in short ‘the Act’) for the A.Y. 2017-18.
2. Considering the delay of 4 days in filing of the CO by the Assessee is miniscule, bonafide and unintentional as claimed by the Assessee is condoned.
3. In this case, the Assessee had declared her total income at Rs.8,24,900/- by filing her return of income on dated 31.07.2017. No regular assessment was done u/s 143(3) of the Act. The case of the Assessee was reopened u/s 147 of the Act by issuing a notice dated 11.06.2021 u/s 148 of the Act, in response to which the Assessee filed her return of income on dated 23.11.2021 declaring total income of Rs.8,24,900/-. Subsequently, there was change in the relevant provisions of the Act and therefore Hon’ble Apex Court in the case of Union of India vs. Ashish Agarwal (order dated 04.05.2022 in civil appeal No.3005/2002) issued certain directions for issuing the show cause notice u/s 148A of the Act and therefore considering the directions of the Hon’ble Apex Court, the Assessing Officer (AO) issued fresh notice dated 27.07.2022 u/s 148 of the Act and ultimately vide assessment order dated 19.04.2023 u/s 147 r.w.s. 144 r.w.s. 144B of the Act, made the addition of Rs.1,71,30,715/- which was found credited in the Assessee’s account as unexplained cash credit u/s 68 r.w.s. 115BBE of the Act and added the same in the total income of the Assessee.
4. The Assessee, being aggrieved, challenged the aforesaid addition on various grounds, as well as on merit. The Assessee though succeeded on merit but could not get succeeded on the legal ground and thus has preferred the instant cross objection, wherein the Assessee has raised the legal issue and therefore for the sake of brevity we are inclined to decide the same first, before proceeding to the Revenue’s appeal.
5. The Assessee has contended that in this case, the show cause notice u/s 148A(b) of the Act was issued on dated 25.05.2022 and thereafter an order u/s 148A(d) of the Act was passed and consequently notice u/s 148 of the Act was issued on dated 27.07.2022 which is admittedly, beyond three years from the end of the relevant A.Y. 2017-18 and therefore the specified authority for granting the approval for issuing such notice would be the authority as specified in sub clause (ii) of section 151 of the Act, but not Ld. Pr. Commissioner of Income Tax-2, Mumbai from whom approval has been taken and therefore, the notice issued u/s 148 of the Act and assessment order passed in pursuance to such notice, would be un-sustainable being void ab initio.
6.1 The Ld. D.R. on the contrary has claimed that the time of three years as prescribed in the sub clause (i) of section 151 of the Act, shall be computed after taking into account the period of limitation as excluded by 3rd or 4th or 5th or 6th proviso to sub section (i) of section 149 of the Act and hence the contention of the Assessee is un-tenable.
6.2. The Assessee in response to aforesaid submission of the Ld. DR, has submitted that the above provisos as demonstrated by the Ld. D.R., were inserted vide the Finance Act, 2023 and w.e.f. 01.04.2023 and thus the same at all were not in existence at the time of issuing the impugned notice dated 27.07.2022 u/s 148 of the Act and thus the same would not be applicable to the case of the Assessee.
7. We have given thoughtful considerations to the peculiar facts and circumstances of the case. Admittedly, the Hon’ble Jurisdictional High Court has dealt with such provisos, as involved in the instant case, in the case of Vodafone India Idea Ltd. vs. DCIT (write petition 2768 of 2022 decided on 06.02.2024), wherein it has been held as under:
“3. The impugned order and the impugned notice both dated 7th April 2022 state that the Authority that has accorded the sanction is the PCIT, Mumbai 5. The matter pertains to Assessment Year (“AY”) 2018-19 and since the impugned order as well as the notice are issued on 7th April 2022, both have been issued beyond a period of three years. Therefore, the sanctioning authority has to be the PCCIT as provided under Section 151 (ii) of the Act. The proviso to Section 151 has been inserted only with effect from 1st April 2023 and, therefore, shall not be applicable to the matter at hand.”
8. In the instant case, admittedly the notice u/s 148 of the Act was issued for reopening of the case on dated 27.07.2022 i.e. after elapsing of three years from the end of the relevant assessment year and therefore as per sub clause (ii) of section 151 of the Act, the specified authority for granting the approval for issuing the notice u/s 148 of the Act, would have been, either Principal Chief Commissioner or Principal Director or where there is no such post then the Chief Commissioner or Director General, for granting the sanction for issuing of notice u/s 148 of the Act, but not the Ld. PCIT-2, Mumbai who has granted the approval in this case and/or authority specified under sub clause (i) of section 151 of the Act.
Relevant provisions of law, which are very much clear and the Hon’ble Jurisdictional High Court in the case of Vodafone India Idea Ltd. has also clearly held that proviso to section 151 of the Act has been inserted w.e.f. 01.4.2023 and therefore shall not be applicable to the A.Y. 2018-19. In effect, the Hon’ble High Court has clarified that provisos to section 151 of the Act would be effective from 01.04.2023 onwards and would not be applicable to the prior period.
Thus, the impugned notice dated 27.07.2022 u/s 148 of the Act, as issued by the AO in the instant case by taking approval from the Ld. Pr. CIT-2, Mumbai but not from the Ld. Pr. CCIT and in pursuance to that the assessment order dated 23.01.2023 u/s 147 r.w.s. 144 & 144B of the Act, is liable to be quashed being void, ab-initio and thus, the same is quashed accordingly. Thus, the CO is allowed.
9. As we have quashed the reopening and therefore the appeal of the Revenue has become infructuous and thus the same is liable to be dismissed.
10. In the result, the CO filed by the Assessee is allowed, whereas the appeal filed by the Revenue stands dismissed.
Order pronounced in the open court on 28.03.2025.
