2024 (9) TMI 347 - AT - Income Tax

Validity of reassessment proceedings beyond period of three years - assessee is a non-resident individual, and derives income from other sources - case where three years have elapsed - sanction of the Specified Authority is not in conformity with the law prevalent - information was received from the office of DIT(I CI), Mumbai regarding the data received from the office of the Sub- Registrar of sales and purchases for the year under consideration in respect of transactions of immovable property where there were instances of a possible infringement, inter-alia, of section 56(2)(vii) HELD THAT - We find that while considering the similar issue and similar submissions the Hon ble Jurisdictional High Court in Siemens Financial Services (P.) Ltd. 2023 (9) TMI 552 - BOMBAY HIGH COURT held that TOLA would not affect the scope of section 151 and sanction of Specified Authority was to be obtained in accordance with the law existing when the sanction was obtained. It was further held that where the AO issued a reopening notice beyond the period of three years, approval was required to be taken as per provisions of amended section 151 from the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General. We find no merits in the reliance placed by the Revenue on the provisions of TOLA. As, in the present case, the period of three years has elapsed from the end of the relevant assessment year and the order dated 23/05/2022 was passed under section 148A(d) of the Act after obtaining the approval of the Principal CIT-1, Mumbai we are of the considered view that the Revenue has not followed the mandatory provisions of the Act while initiating the reassessment proceedings and sanction of the Specified Authority is not in conformity with the law prevalent at the time of grant of sanction. Also no u/s 148 shall be issued after the expiry of three years but not more than ten years, unless the AO is in the position of documents or evidence which reveal that income amounting to Rs. 50 lakh or more chargeable to tax has escaped assessment. As noted above in the present case, the income which is alleged to have escaped assessment is less than Rs. 50 lakh Thus, in the present case, it is discernible that the notice under section 148 of the Act was issued not only in contravention of the provisions of section 151 as the sanction of the concerned Specified Authority was not obtained, but the same is also time-barred as per the provisions of section 149 of the Act as the same was issued after three years and the amount alleged to have escaped assessment is only Rs. 43,32,000, i.e. less than Rs. 50 lakh. Accordingly, we are of the considered view that the notice issued under section 148 of the Act is void ab initio and bad in law - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income Tax Act, 1961.
2. Jurisdictional authority for issuing notice under section 148.
3. Compliance with the amended provisions of sections 149 and 151.
4. Addition made under section 56(2)(vii)(b) of the Act.

Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The assessee challenged the reopening of the assessment under section 147, arguing that the notice under section 148 was issued after the expiry of three years from the end of the assessment year 2017-18. The assessee contended that as per section 149(1)(b), notice under section 148 can only be issued beyond three years if the income escapement is above Rs. 50 lakh. In this case, the alleged income escapement was Rs. 43,32,000, which is below the threshold.

The Tribunal noted that the original notice under section 148 was issued on 15/06/2021, after three years from the end of the relevant assessment year. The Hon'ble Supreme Court in Union of India v/s Ashish Agarwal held that notices issued under section 148 after 01/04/2021 should be treated as show cause notices under section 148A(b).

2. Jurisdictional Authority for Issuing Notice under Section 148:
The assessee argued that the approval for issuing the notice was obtained from the Principal Commissioner of Income Tax (PCIT), whereas it should have been obtained from the Principal Chief Commissioner or Principal Director General as per the amended section 151(ii) since more than three years had elapsed from the end of the relevant assessment year.

The Tribunal referred to the decision in Siemens Financial Services (P.) Ltd. v/s DCIT, where it was held that the approval should be obtained from the Principal Chief Commissioner or Principal Director General if more than three years have elapsed. The Tribunal found that the approval in the present case was not in conformity with the law as it was obtained from the PCIT.

3. Compliance with Amended Provisions of Sections 149 and 151:
The Tribunal examined the provisions of section 149, which stipulates that no notice under section 148 shall be issued if three years have elapsed unless the income escapement is Rs. 50 lakh or more. In the present case, the alleged income escapement was Rs. 43,32,000, which is below the threshold. Therefore, the notice issued under section 148 was found to be time-barred.

The Tribunal also noted that the sanction for issuing the notice was obtained from the PCIT instead of the Principal Chief Commissioner or Principal Director General, which is a mandatory requirement under section 151(ii) for cases where more than three years have elapsed.

4. Addition Made under Section 56(2)(vii)(b):
The assessee also challenged the addition made under section 56(2)(vii)(b) on the grounds that the Permanent Alternative Accommodation Agreement (PAA) had not been acted upon, as the assessee had neither surrendered his tenancy rights nor given possession of the existing premises. The Tribunal did not delve into the merits of this issue as it had already quashed the reassessment proceedings on jurisdictional grounds.

Conclusion:
The Tribunal quashed the notice issued under section 148 and the subsequent reassessment proceedings, including the final assessment order, on the grounds that the notice was time-barred and the approval was not obtained from the correct authority as mandated by the amended provisions of sections 149 and 151. Consequently, the appeal by the assessee was allowed. The other grounds raised by the assessee were rendered academic and were left open.

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