DCIT Vs SPR Associates (ITAT Mumbai)
Reopening Quashed – Approval by PCIT Instead of PCCIT Invalid Beyond 3 Years U/s 151 – Entire Reassessment Held Void – ITAT Mumbai
Assessee challenged validity of reassessment notice issued under new regime u/s 148A/148 on ground that sanction u/s 151 was obtained from PCIT though notice was issued beyond 3 years, where approval of PCCIT/CCIT level authority was mandatory. Revenue contested on merits relating to dividend vs capital receipt issue; however Tribunal first examined jurisdictional validity.
ITAT held that under new regime, where more than 3 years have elapsed from end of AY, approval must be granted by higher specified authority as per Sec 151(ii). Since notice dated 22.04.2022 was approved only by PCIT, mandatory jurisdictional condition was violated. Following SC ruling in Union of India vs Rajeev Bansal, Tribunal quashed notice u/s 148 and consequent reassessment proceedings. As reopening itself failed, Revenue grounds on merits became academic; cross-objection of assessee allowed & Revenue appeal dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal filed by the Revenue and the cross-objection filed by Assessee arise out of the order dated 13/10/2025 passed by the Ld.CIT(A) for A.Y. 2018-19.
2. The revenue has raised the following grounds of appeal:-
“1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by the Assessing Officer by treating the receipt as dividend income, ignoring the fact that the mutual fund itself had declared and distributed the amount as dividend and discharged Dividend Distribution Tax thereon.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in accepting the assessee’s contention that the receipt was a repayment of capital, whereas in the hands of the assessee, the character of the receipt is clearly dividend income and is taxable as such.
3. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the assessee, after treating the amount as repayment of capital, has claimed short term capital loss in the subsequent year by adopting full cost of acquisition of 23.00 crore without reducing the said amount, thereby enjoying double benefit.
4. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the provisions of section 68 were not applicable, without appreciating that the addition was made not only under section 68 but on the ground that the receipt is taxable in the year of receipt as dividend income.
5. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the assessee’s explanation that the dividend was paid by the mutual fund out of capital funds, without appreciating that once the distribution is made as dividend and Dividend Distribution Tax is paid thereon, the character of the receipt in the hands of the assessee cannot be altered.
6. The appellant craves leave to amend or alter any ground or submit additional ground which may be necessary.”
2.1. The assessee has raised the following grounds of appeal in its cross-objection:-
“1. The Ld. CIT(A) ought to have appreciated that the reopening of assessment u/s. 147 of the Act and issue of notice u/s. 148 of the Act was invalid and void ab initio.
2. The Ld. CIT(A) ought to have appreciated that the approval obtained for reopening the assessment was not in accordance to the provisions of s. 151 of the Act and was invalid.
3. The respondent craves leave of Your Honour to add to, amend or alter the foregoing grounds of cross-objection.”
3. Since the issue raised in the cross-objection challenging the validity of the notice issued u/s 148 of the Act goes to the root of the assessment proceedings and strikes at the very jurisdiction assumed by the Ld. AO, we deem it appropriate to adjudicate the same at the outset. The validity of the reassessment notice being a foundational issue, its determination is essential before proceeding to examine the merits of the additions made in the impugned assessment order. Accordingly, we first take up the grounds raised in the cross-objection relating to the legality and validity of the notice issued u/s 148 of the Act.
