Guidance For Success In Appeals Under Income Tax Act, 1961

For success in the appeals before CIT /ITAT, appellant need to make deep analysis of the relevant legal provisions and should be aware with latest judicial pronouncements.

No doubt that facts, if presented properly, would enhance your chances of success, but if you succeed in finding the legal grounds in the case, your chances of getting a favourable verdict further brighten up. Normally in the appeals before the CIT(A) and invariably, in the appeals before ITAT, preference is given to the disposal of legal grounds over the factual grounds.

I am discussing some recent legal grounds decided by Hon’ble ITAT/HC, which, we professional may explore to find and raise in our pending appeals or fresh appeals:

1. When to raise?:

Legal grounds can be raised at any stage of appeal.

a) Section 250(5) itself allows raising additional ground, if not raised in form No. 35 provided JCIT/Commissioner (Appeals) is satisfied that the omission of that ground the form of appeal was not willful or unreasonable.

b) Grounds including those not raised before first appellate authority can also be raised in form No. 36. Section 254 of the Income Tax Act gives ITAT wide appellate powers. Reinforcing this, Rule 11 of the ITAT Rules, 1963 expressly permits filing additional grounds. Supreme Court judgments (NTPC, Jute Corporation), strongly support admission of new grounds in the appeal proceedings.

2. If you are respondent in the departmental appeal before  ITAT/HC:

Action: Check whether the order is appealable or not – Does it have monetary limit for appeal or substantial question of law ? CBDT as per Circular No. 09/2024 dated 17th September 2024 has set following new limits of appeal by department:

Exceptions to above monetary limits:

These include cases involving constitutional validity, illegal orders, pros ecution, and specific directions from courts. Additionally, cases related to undisclosed foreign income/assets and tax evasion are treated separately.

3. Whether the AO had the valid jurisdiction ?

3.1 When satisfaction was borrowed (applicable on cases reopened before 1/4/2021) :

Action: Go through the reasons minutely to find out whether the AO recording reasons, has done any homework or applied his mind on those reasons. If it is a case of `Copy and paste’ of data/records received from investigation offices/AO of department, then it may amount to case of `Borrowed Satisfaction’.

3.2 Check whether the territorial jurisdiction of the AO is correct ? Did you file the ITR with the same jurisdictional officer who has issued the reopening notice u/s148 ?

It is the mandate of law that for transfer of case from one Assessing Officer to another having offices situated in the same city, locality or place, an order of transfer u/s 127(1) is pre-requisite. If the requisite order u/s 127(1) of the Act, was not passed, whereas the case of the assessee was transferred from ITO-1(2) to ACIT, Circle-1(1) without instructions of the competent authority by way of an order u/s 127, placed the Ld. AO in a position wherein, he was devoid of valid assumption of jurisdiction to frame the assessment in the case of assessee u/s 143(3) of the Act. Thus, in terms of aforesaid observations, the assessment framed by Ld. ACIT, Circle- 1(1), dehors valid assumption of jurisdiction is liable to be quashed.

3.3 Inaccuracy of Facts in reasons

Action: Check the facts mentioned in the reasons. For example, if the reasons mentions that assessee has not filed the ITR, while the assessee filed, then raise the ground for wrong facts mentioned. Wrong facts mentioned in the reasons my result in quashing the whole proceedings.

3.4 Check approvals of `Specified Authority’ for Reopening AY 2021-22 (Section 148A) (upto 31/08/2024)

Action: If your case pertains to AY 2021-22, then approval from the specified authorities for both Sections i.e. initiation of inquiry u/s 148A(a) and before issuing order u/s 148A(d) are required. Further approval u/s 148 would also be required. Thus 3 approvals were required for AY 2021-22.

From AY 2022-23 onwards, only one approval i.e. u/s 148A(d) is required.

3.5 Deficiency in Service of the notice (Section 148) (upto 31/08/2024)

Service of the notice u/s 148 has been contentious issue for a long time.

Action: Especially in the case of notices dated 31st March, check whether the notice was sent thru mail on 31st March or on 1st April. Notice under section 148 of the Act dated 31-3-2021 has been issued to the assessee on 1-4-2021 vide email at 7.20 a.m. was held to be invalid. Therefore, check the time of sending the mail. Mere generation of notice on the Income Tax Business Application screen cannot in fact or in law constitute issue of notice, whether the notice is issued in paper form or electronic form. In case of paper form, the notice must be despatched by post on or before March 31, 2021 and for communication in electronic form the email should have been dispatched on or before March 31, 2021.

3.6 Notice issued in the name of dead person or non-existent company/firm:

Action: If the noticee is no more surviving but the notice is still issued in the name of dead person, then the notice is a nullity in the eyes of law. Income Tax Law does not lay down any obligation on legal heirs to inform the Income Tax Department about the death of the assessee. Notice is fundamentally illegal if it is issued to a non-existent entity, a position conclusively settled by the Supreme Court in Maruti Suzuki India Ltd. The Court clarified that once an entity ceases to exist, a notice issued in its name is void and cannot form the basis of any assessment, irrespective of participation by the successor entity.

3.7 Notice of Jurisdictional Assessing Officer (JAO) Vs. Faceless Assessing Officer (FAO) under Faceless assessment of income escaping assessment:

Section 151A was inserted in the law on 01/11/2020 thru TOLA, 2020 and notified wef 28.03.2022 specifically contemplates that there would be automated allocation system in accordance with risk management strategy formulated by the CBDT.

It was held in the case of Hexaware by Hon’ble Mumbai High Court that notices u/s 148 issued by JAO after 28/03/2022 are invalid and these notices should had been issued by FAO. Now the department is before Hon’ble Supreme Court for this issue.

As on date the legal position remains jurisdiction-dependent. Rajasthan High Court in the case of Rajesh Todwal, Darshan Dhankani, Shree Cement Ltd and Sharda Devi Chhajer has followed Hexawre holding the noices issued by JAO as invalid. Gujarat High Court and Delhi High Court have held the notice issued by JAO as valid, while Telangana, Guwahati and Punjab & Haryana High Courts have held the notices issued by JAO as invalid.

3.8 NAFAC did not have jurisdiction to assess income escaping cases before 29/03/2022 u/s 151A(Faceless appeals):

In several cases, National Faceless Assessment Centre (NAFAC) has conducted the re-assessment proceedings including the notice u/s 143(2). These proceedings are completely invalid. Though the law u/s 151A(Faceless Assessment) was inserted in the statute on 01/11/2020 but it was notified on 29/03/2022 which implies that NAFAC did not have jurisdiction to re-assess before 29/03/2022.. NAFAC erred in having assumed jurisdiction u/s 151A r.w.s 144B of the Act from 01.11.2020 when they were not empowered under any notification about the applicability of the faceless scheme for making assessment in faceless manner prior to 29.03.2022.

3.9 Whether it is necessary that in all cases where notice u/s 148 is issued in April 2021 and onwards, order u/s 148A(d) / 148A has to be enclosed/attached ?

Action: Check the notice u/s 148 whether the order u/s 148A /148A(d) is attached with the notice or not. If not attached, then you have reason to challenge the notice

3.10 Check whether the minimum time of 7 days has been given in the notice u/s 148A(b) ?

Section 148A(b) requires the minimum 7 days period for replying to the SCN issued to assessee. Where only 6 days time was granted by Assessing Officer to assessee to file reply to notice issued under section 148A(b), such period being less than 7 days, notice itself was held vitiated and, thus, consequential orders and notices were to be set aside – Held in Deputy Commissioner of Income-tax v. Sahajanand Medical Technologies Ltd. – [2025] 178 taxmann.com 626 (Surat – Trib.)

3.11 Whether the notice u/s143(2) was issued ?

Action: If the assessee has filed the ITR in response to notice u/s 148, the AO is under obligation to issue notice u/s 143(2). Relying on Supreme Court in ACIT v. Hotel Blue Moon (321 ITR 362) which held that absence of notice u/s 143(2) is fatal & renders reassessments void. When the notice for reassessment is received, it is always desirable to file the return. Many a times it has been observed that the tax consultants file the letter with their letter head stating that, the return filed by the assessee earlier may be treated as return in pursuance of notice u/s 148. In Tiwari Kanyhaiya Lal v. CIT (1985) 154 ITR 109 (Raj.)(HC) (115), ITO v. R.K.Gupta (2008) 115 ITD 384 (Delhi)(Trib), it was held that letter stating that the earlier return filed may be treated as return filed in pursuance of notice u/s. 148 is a sufficient compliance and the date of filing of such return would be the date on which assessee wrote the letter to Assessing Officer. In such situation, the AO is bound to issue notice u/s 143(2).

3.12 Whether the notice issued u/s143(2) is in the format prescribed by CBDT ?

Action: Notice u/s 143(2) of the Income Tax Act, 1961 has to be in the format prescribed by CBDT Instruction F.No. 225/157/2017/ITA-II dated 23.06.2017. The three formats of notice(s) are for:

i) Limited Scrutiny (Computer Aided Scrutiny Selection)

ii) Complete Scrutiny (Computer Aided Scrutiny Selection)

iii) Compulsory Manual Scrutiny

CBDT instruction laid down that all notices issued after this date. Check the format of the notice issued by AO. If not found in prescribed format, then raise the jurisdictional ground. Various benches of the ITAT have held the notice invalid and declaring the whole proceedings as void.

3.13 Whether the approval of notice u/s 151 is by `Specified Authority’ ?

Specified authority for Section 148 and 148A and had been as under:

a) Prior to 01/04/2021:

Satisfaction on the reasons recorded by AO for the purpose of notice u/s 148 was required by following authorities:

b) Between 01/04/2021 to 31/08/2024:

Specified authority for the purpose of Section 148 and 148A were as under:

c) From 01/09/2024 onwards:

Specified authority for the purpose of Section 148 and 148A shall be Additional Commissioner, Additional Director, Joint Commissioner and Joint Director

It is a trite law that the approval should be from the specified authority only. There can not be any substitution of any authority. Where the approval was required from Joint Commissioner, the approval obtained from commissioner was held to be invalid.

3.14 Whether the notice u/s 148 / 143(2) is signed by AO and sanction u/s 151 is signed by `Specified Authority’ ?

Sanction under Section 151, prerequisite for issuing a notice under Section 148, should be either manually or digitally signed by the prescribed authority. Signing of such approval manually or digitally is a mandatory requirement, and an unsigned sanction cannot confer jurisdiction on the Assessing Officer. In absence of the signature on the notice issued u/s 148 /148A/151/ 143(2) of the Act, the same would be treated as non-est. Deeming Authentication in Section 282A(2) Cannot cure defect.

3.15 Whether the reopening is within the period specified under Section 149 ?

Action: Check the time limits of notice u/s 148 and income alleged to be escaped:

Prior to 01/04/2021:

a) From 01/04/21 to 31/08/2024

From 01/09/2024 onwards:

Time limits for issuing show cause notice u/s 148A were separately notified wef 01/09/2024 u/s 149 which are as under:

From 01/09/2024 onwards:

First Proviso to Section 149: No notice can be issued for AY 2021-22 or prior years if barred by the old regime’s limitation period at the time of issuance.

3.16 Check whether the 148 notice issued between 01/4/2021 to 30/06/2021 is time barred ? (if notice pertains to AY 2013-14, 2014-15, 2015-16, 2016-17, 2017-18)

Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (in short `TOLA’) relaxed the time periods for compliance of various actions under the Act. It initially provided that if the due date for compliance of any action is falling within 20 March 2020 to 31 March 2021, then such an action can be done by 31 March 2021. This compliance date was further extended to 30 April 2021 and thereafter, to 30 June 2021. Thus the extended dates for the above 5 assessment years were as under:

The department was under the erroneous belief that the reopening provisions under Old Law, would remain in force after 1st April 2021, on account of extensions of time limits provided under TOLA. Accordingly, post 1st April 2021, for various AYs reopening notices were issued under the Old Law. These notices were litigated and the SC in Ashish Agarwal finally held that the Revenue ought to have followed the New Law for issuance of any reopening notice after 1st April 2021. But to protect the interest of revenue, the SC invoked its powers under Article-142 of the Constitution of India and the reopening notices issued under Old Law were deemed as “show-cause notice u/s. 148A(b) of the Act”. Further, the Income-tax Department was directed to provide the relied upon information / material and the assessees were granted 2 weeks’ time to file their replies against the reopening of assessment.

The period from, the date of issuance of notice, and 04^th May, 2022, being the date of decision of the Ashish Agarwal case was required to be excluded by virtue of the third proviso to Section 149 (1) of the Act.

Thus the computation of limitation for notice u/s 148 can be illustrated as under:

3.17 Check whether the alleged evasion in notice beyond 3 years from the end of assessment year was Rs. 50 Lacs or more but the actual addition in the re-assessment is less than Rs. 50 Lacs

If the addition to the returned income is below Rs. 50L, then thereopening beyond the period of 3 years is illegal. In such a case, Assumption of jurisdiction by Assessing Officer about the escapement of income of more than rupee fifty lakhs is wrong. Mumbai Bench of the Tribunal Ms. Sonali Dharmendra Mhatre vs ITO [2025] 174 taxmann.com 699 while considering the similar set of facts that when Assessing Officer issued notice under section 148 about time deposit / cash deposit of Rs.90.64 lakhs had escapement, later on while passing the assessment order accepted the investment in time deposit and no addition in assessment was made, however made additions on account of variation qua unexplained money wherein amount did not exceed of Rs.50 lakhs, the notice under section 148 after expiry of three years from the end of the relevant assessment was held time barred.

3.18 Check whether the CIT(A) order has failed to adjudicate the jurisdictional grounds and restored the matter to the file of AO if the assessment order was passed u/s 144:

It is being observed nowadays that appellate orders by CIT(A)/JCIT are setting aside the assessment proceedings back to the file of AO by exercising the proviso to clause(a) of subsection(1) of Section 251 of the Act, with directions to the Assessing Officer to re-examine the case afresh. These orders are not even adjudicating the jurisdictional grounds. Jurisdictional grounds can be adjudicated by the appellate authorities only and not by the AO whose own jurisdiction is under challenge. Thus the provision which was inserted in the statute wef 01/10/2024 is being abused by the First appellate authority(FAA).

If the FAA has not adjudicated the jurisdictional or legal grounds, the assessee should seek the justice from ITAT for adjudication of legal grounds and quashing the order of FAA. This would save the time and harassment of the assessee.

3.19 Check whether the penalty notice and assessment order had the specific charge i.e. concealment of income or furnishing inaccurate particulars of income:

The show cause notice under Section 271(1)(c) must clearly and explicitly specify the specific default for which the penalty is sought to be imposed. An ambiguous show cause notice that does not clearly specify the default i.e. Concealment or furnishing inaccurate particulars violates due process. A penalty order based on a show cause notice that does not clearly specify the default is invalid. Similarly under section 270A, the SCN should spell out clearly the under-reporting or mis-reporting of income. Wrong invocation in the penalty notice or assessment order would render the whole proceeding void.