Income Tax Officer vs M/s Aarti Flour Mills Private Limited

PER MAHAVIR SINGH, VP:

These appeals by the Revenue are arising out of the order of learned CIT(A), Delhi-31 in appeal No.NFAC/2012-13/10279682 dated 23rd September, 2025 and in appeal No.NFAC/2013-14/10279688 dated 23rd September, 2025 for the assessment year 2013-14 and 2014-15 respectively. Assessment was framed by the Assessment Unit, Income Tax Department for the assessment year 2013-14 and 2014-15 under Section 147 read with Section 144B of the Income-tax Act, 1961 (hereinafter referred to as 'the Act') dated 23rd May, 2023 and 26th May, 2023 respectively.

The brief facts of the case are that the Assessee filed its return of income under section 139(1) of the Act declaring a total income of Rs 3,02,670. The case was selected for scrutiny and an assessment order under section 143(3) of the Act was passed accepting the returned income. Subsequently, a notice under section 148 of the Act was issued on 23.06.2021 under the provisions of that section as they stood prior to their substitution by the Finance Act, 2021 (i.e., the unamended or 'old' regime governing initiation of reassessment proceedings), with the approval of the Principal Commissioner of Income Tax ('PCIT').

Following the judgment of the Hon'ble Supreme Court in Union of India v. Ashish Agarwal Civil Appeal no. 3005/2022, wherein notices issued under the unamended section 148 of the Act on or after 01.04.2021 were directed to be treated as show-cause notices under section 148A(b) of the Act, the AO issued a notice under section 148A(b) of the Act on 27.05.2022, passed an order under section 148A(d) of the Act on 22.07.2022 and issued a fresh notice under section 148 of the Act on 22.07.2022. The reassessment was thereafter completed vide order dated 23.05.2023 under section 147 read with section 143(3) of the Act, making addition on account of alleged bogus purchases.

Aggrieved, the Assessee carried the matter in appeal before the CIT(A). In the course of the appellate proceedings, the Assessee raised an additional legal ground contending that the initiation of the reassessment proceedings was bad in law and barred by limitation. The most important contention of the Assessee before the CIT(A) was that the assessment order was founded upon the notice under section 148 of the Act issued on 23.06.2021 with the approval of the PCIT, and not of the Principal Chief Commissioner of Income Tax ('PCCIT') or the Chief Commissioner of Income Tax ('CCIT'), who alone were the specified authorities under clause (ii) of section 151 of the Act, more than three years having elapsed from the end of the relevant assessment year;

The CIT(A) noted that the very issue stood decided by the Hon'ble jurisdictional Delhi High Court in H and M Hennes and Mauritz Retail Private Limited v. ACIT [W.P.(C) No. 4848 of 2023, judgment dated 14.05.2025], wherein, on materially identical facts, the Hon'ble High Court was pleased to allow the writ petition of the assessee therein and quash the reassessment proceedings. Respectfully following the said judgment, the CIT(A) annulled the assessment order dated 23.05.2023 passed under section 147 read with section 143(3) of the Act. Aggrieved thereby, the Revenue is in appeal before us.

The Learned Departmental Representative ('DR') supported the order of the AO and submitted that the reassessment proceedings had been initiated in accordance with the procedure laid down by the Hon'ble Supreme Court in Ashish Agarwal (supra).

We have perused the material available on record, including the orders of the authorities below and the judgments cited.

The legal position governing reassessment notices issued during the transition from the unamended to the substituted regime is no longer res integra. The Finance Act, 2021 substituted sections 147 to 151 of the Act with effect from 01.04.2021. In Union of India v. Ashish Agarwal (supra), the Hon'ble Supreme Court directed that notices issued under the unamended section 148 of the Act on or after 01.04.2021 shall be deemed to be show-cause notices under section 148A(b) of the substituted regime, and that the reassessment proceedings must thereafter be taken to their logical conclusion in accordance with the substituted provisions.

Insofar as the requirement of sanction is concerned, clause (i) of section 151 of the substituted regime specifies the PCIT or the Principal Director or the Commissioner or the Director as the specified authority where three years or less have elapsed from the end of the relevant assessment year, whereas clause (ii) thereof mandates that where more than three years have so elapsed, the specified authority shall be the PCCIT or the Principal Director General or, where there is no PCCIT or Principal Director General, the CCIT or the Director General. The Hon'ble jurisdictional Delhi High Court has consistently held that the validity of the sanction for passing the order under section 148A(d) and for issuing the consequent notice under section 148 of the Act must be tested with reference to the substituted section 151 of the Act, and that a sanction obtained from an authority specified under clause (i), where clause (ii) applied, vitiates the entire reassessment proceedings.

We have also considered the effect, if any, of the amendments made by the Finance Act, 2026 on the issues arising in this appeal. By the Finance Act, 2026, section 292BC has been inserted in the Act with retrospective effect from 01.04.2021, providing, inter alia, that approvals granted by income tax authorities in relation to assessment and reassessment proceedings are administrative and supervisory in nature, and that such proceedings shall not be invalidated merely on account of inadequacy of the reasons recorded in the approval, defects in the authentication or communication of the approval, or the absence of a digital signature.

In our considered view, the said provision, on its plain terms, addresses defects in the form, reasoning or authentication of an approval granted by the authority specified under the Act; it does not, and cannot, supply the sanction of the specified authority where the approval has been granted by an authority not specified under clause (ii) of section 151 of the Act at all. The defect in the present case is not one of inadequate reasons or defective authentication, but the very absence of sanction by the competent specified authority, a jurisdictional precondition, as authoritatively held by the Hon'ble Supreme Court in Rajeev Bansal (supra) which falls outside the curative sweep of section 292BC of the Act.

In the case before us, it is not in dispute that the original notice under section 148 of the Act dated 23.06.2021 was issued with the approval of the PCIT and not of the PCCIT or the CCIT, and that the order under section 148A(d) and the consequent notice under section 148 of the Act came to be issued only on 22.07.2022. The facts are uncontroverted. The Hon'ble jurisdictional Delhi High Court in H and M Hennes and Mauritz Retail Private Limited (supra), rendered after considering the law laid down by the Hon'ble Supreme Court, has quashed reassessment proceedings on materially identical facts. The said judgment is squarely applicable to the facts of the present case, and the Learned DR has neither been able to distinguish the same on facts nor brought to our notice any contrary decision of the Hon'ble Supreme Court or of the Hon'ble jurisdictional High Court, nor any material to show that the operation of the said judgment has been stayed or that it has been reversed in appeal.

Respectfully following the judgment of the Hon'ble Delhi High Court in H and M Hennes and Mauritz Retail Private Limited (supra), and in the light of the law laid down by the Hon'ble Supreme Court in Ashish Agarwal (supra) and Rajeev Bansal (supra), we hold that the CIT(A) was justified in annulling the assessment order dated 23.05.2023 passed under section 147 read with section 143(3) of the Act. We, therefore, decline to interfere with the order of the CIT(A). The grounds of appeal raised by the Revenue are dismissed.

In the result, the appeal of the Revenue is dismissed.

As the issue and the facts involved in this appeal of the Revenue are identical to that of ITA No.7908/Del/2025, which has been decided by us in the earlier part of this order, this appeal of the Revenue is also dismissed.

In the result, both the appeals of the Revenue are dismissed.