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Judgment
PER MANISH AGARWAL, A.M.:
The present appeal is filed by assessee against the order dated 17.02.2026 passed by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2016-17/10259433 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of penalty order dated 19.05.2023 passed u/s 147 r.w.s. 144B of the Act pertaining to Assessment Year 2017-18.
Brief facts of the case are that the appellant is a Hindu Undivided Family (“HUF”) and filed its return of income on 20.08.2017, declaring total income of Rs. 29,57,120/- u/s 139 (1) of the Act. Based on the Information received from Investigation wing regarding penny Stock transaction where the assessee was alleged as one of the beneficiaries of receiving accommodation entry in the shape of bogus Long Term Capital Gain (“LTCG”) from the trading in the script of M/s Yamini Investment Company Ltd to convert its unaccounted money into Tax Exempted Legal Income. The AO thus, recorded the reasons for reopening the assessment u/s 147 of the Act and a notice u/s 148 of the Act was issued on 31.03.2021. In response, the Appellant filed the Return of Income declaring same income as was declared in the return filed u/s 139(1) of the Act. Thereafter, AO issued various notices u/s 142(1) of the Act from time to time which were replied by the assessee from time to time. The Assessment was then completed u/s 147 r.w.s 144B of the Income Tax Act dt. 19.05.2023 at a total income of Rs.1,03,93,770/- by making addition of Rs. 74,36,650/- holding the LTCG as bogus.
Against the reassessment order, assessee has preferred an appeal before the ld. CIT (A), NFAC, Delhi but the assessee failed to get any relief and the appeal filed was dismissed.
Being aggrieved by the order of ld. CIT(A), the assessee preferred present appeal before the Tribunal by taking various grounds of appeal as per the appeal memo.
Before us, Ground of appeal No.1 was not pressed thus, the same is treated as dismissed.
In Grounds of appeal Nos. 2 to 4, assessee has challenged the validity of the reassessment order passed u/s 147 of the Act as the notice u/s 148 of the Act was issued after the expiry of three years from the end of relevant assessment year and the approval was obtained from the authority which was not competent to grant the approval under amended section 151 of the Act and thus, is invalid order.
Heard both the parties at length and perused the material available on record. Form the perusal of the notice dt. 28.07.2022 issued u/s 148 of the Act, it is observed that the same was issued after obtaining the approval from the Pr. Commissioner of Income Tax-12, Delhi on 24.07.2022.
Section 148 of the Act was substituted by the Finance Act, 2021 w.e.f. 01.04.2021 and the notice issued u/s 148 of the Act under the old provisions of section 148 of the Act could be issued only upto 31.03.2021. This issue stands settled by the Hon'ble Supreme Court in Union of India vs. Ashish Agarwal reported in 444 ITR 1 (SC). In the instant case, after the judgment of Ashish Agarwal (supra), the AO has completed the proceedings u/s 148A of the Act and the notice u/s 148 of the Act was issued on 28.07.2022on. This fresh notice u/s 148 of the Act dt. 28.07.2022, was issued after obtaining approval of Principal Commissioner of Income Tax-12, Delhi taken on 24.07.2022 which is contrary to the provisions of section 151 of the Act as amended/substituted by the Finance Act, 2021. As per amended section 151 of the Act, if more than three years have lapsed from the end of the relevant assessment year, approval of Principal Chief Commissioner of Income-tax or Principal Director General or Chief Commissioner or Director General has mandatorily to be obtained before the issue of notice u/s 148 of the Act. In the present case since the notices u/s 148 was issued on 28.07.2022 for AY 2017-18 which is after the expiry of more than three years from the end of relevant assessment year, therefore, sanction/approval of Principal Chief Commissioner of Income-tax or Principal Director General or Chief Commissioner or Director General was necessary. The Hon’ble Supreme Court in the case of UOI Vs. Rajeev Bansal reported in 469 ITR 46(SC) has decided the issue of sanction u/s 151 under the old regime and new regime i.e. post amendment vide para 73 to 80 in “Part-E” of the order which is reproduced as under:
iii. Sanction of the specified authority
73.“Section 151 imposes a check upon the power of the Revenue to reopen assessments. The provision imposes a responsibility on the Revenue to ensure that it obtains the sanction of the specified authority before issuing a notice under Section 148. The purpose behind this procedural check is to save the assesses from harassment resulting from the mechanical reopening of assessments.128 A table representing the prescription under the old and new regime is set out below:
Regime Time Limits Specified Authority Section 151(2) of old regime Before expiry of four years from the end of relevant assessment year Joint Commissioner Section 151(1) of old regime After expiry of four years from the end of relevant assessment year Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner Section 151(i) of new regime Three years or less than three years from the end of the relevant assessment year Principal Commissioner or Principal Director or Commissioner or Director Section 151(ii) of the new regime More than three years have elapsed from the end of the relevant assessment year Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General 74.The above table indicates that the specified authority is directly co-related to the time when the notice is issued. This plays out as follows under the old regime:
(i)If income escaping assessment was less than Rupees one lakh: (a) a reassessment notice could be issued under Section 148 within four years after obtaining the approval of the Joint Commissioner; and (b) no notice could be issued after the expiry of four years; and (ii) If income escaping was more than Rupees one lakh: (a) a reassessment notice could be issued within four years after obtaining the approval of the Joint Commissioner; and (b) after four years but within six years after obtaining the approval of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.
75.After 1 April 2021, the new regime has specified different authorities for granting sanctions under Section 151. The new regime is beneficial to the assessee because it specifies a higher level of authority for the grant of sanctions in comparison to the old regime. Therefore, in terms of Ashish Agarwal (supra), after 1 April 2021, the prior approval must be obtained from the appropriate authorities specified under Section 151 of the new regime. The effect of Section 151 of the new regime is thus:
(i)If income escaping assessment is less than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) no notice could be issued after the expiry of three years; and (ii) If income escaping assessment is more than Rupees fifty lakhs: (a) a reassessment notice could be issued within three years after obtaining the prior approval of the Principal Commissioner, or Principal Director or Commissioner or Director; and (b) after three years after obtaining the prior approval of the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General.
76.Grant of sanction by the appropriate authority is a precondition for the assessing officer to assume jurisdiction under Section 148 to issue a reassessment notice. Section 151 of the new regime does not prescribe a time limit within which a specified authority has to grant sanction. Rather, it links up the time limits with the jurisdiction of the authority to grant sanction. Section 151(ii) of the new regime prescribes a higher level of authority if more than three years have elapsed from the end of the relevant assessment year. Thus, non-compliance by the assessing officer with the strict time limits prescribed under Section 151 affects their jurisdiction to issue a notice under Section 148.
77.Parliament enacted TOLA to ensure that the interests of the Revenue are not defeated because the assessing officer could not comply with the preconditions due to the difficulties that arose during the COVID-19 pandemic. Section 3(1) of TOLA relaxes the time limit for compliance with actions that fall for completion from 20 March 2020 to 31 March 2021. TOLA will accordingly extend the time limit for the grant of sanction by the authority specified under Section 151. The test to determine whether TOLA will apply to Section 151 of the new regime is this: if the time limit of three years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(i) has an extended time till 30 June 2021 to grant approval. In the case of Section 151 of the old regime, the test is: if the time limit of four years from the end of an assessment year falls between 20 March 2020 and 31 March 2021, then the specified authority under Section 151(2) has time till 31 March 2021 to grant approval. The time limit for Section 151 of the old regime expires on 31 March 2021 because the new regime comes into effect on 1 April 2021.
78.For example, the three year time limit for assessment year 2017-2018 falls for completion on 31 March 2021. It falls during the time period of 20 March 2020 and 31 March 2021, contemplated under Section 3(1) of TOLA. Resultantly, the authority specified under Section 151(i) of the new regime can grant sanction till 30 June 2021.
79.Under Finance Act 2021, the assessing officer was required to obtain prior approval or sanction of the specified authorities at four stages:
a. Section 148A(a) – to conduct any enquiry, if required, with respect to the information which suggests that the income chargeable to tax has escaped assessment;
b. Section 148A(b) – to provide an opportunity of hearing to the assessee by serving upon them a show cause notice as to why a notice under Section 148 should not be issued based on the information that suggests that income chargeable to tax has escaped assessment. It must be noted that this requirement has been deleted by the Finance Act 2022;
c. Section 148A(d) – to pass an order deciding whether or not it is a fit case for issuing a notice under Section 148; and
d. Section 148 – to issue a reassessment notice.
80.In Ashish Agarwal (supra), this Court directed that Section 148 notices which were challenged before various High Courts “shall be deemed to have been issued under Section 148-A of the Income Tax Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of Section 148-A(b).” Further, this Court dispensed with the requirement of conducting any enquiry with the prior approval of the specified authority under Section 148A(a). Under Section 148A(b), an assessing officer was required to obtain prior approval from the specified authority before issuing a show cause notice. When this Court deemed the Section 148 notices under the old regime as Section 148A(b) notices under the new regime, it impliedly waived the requirement of obtaining prior approval from the specified authorities under Section 151 for Section 148A(b). It is well established that this Court while exercising its jurisdiction under Article 142, is not bound by the procedural requirements of law.
81.This Court in Ashish Agarwal (supra) directed the assessing officers to “pass orders in terms of Section 148-A(d) in respect of each of the assesses concerned.” Further, it directed the assessing officers to issue a notice under Section 148 of the new regime “after following the procedure as required under Section 148-A.” Although this Court waived off the requirement of obtaining prior approval under Section 148A(a) and Section 148A(b), it did not waive the requirement for Section 148A(d) and Section 148. Therefore, the assessing officer was required to obtain prior approval of the specified authority according to Section 151 of the new regime before passing an order under Section 148A(d) or issuing a notice under Section 148. These notices ought to have been issued following the time limits specified under Section 151 of the new regime read with TOLA, where applicable.
As could be seen that the Hon’ble Supreme Court in para 81 of its order categorically observed that prior approval of the specified authority u/s 151 of the new regime is sine qua non before issue of notice u/s 148 of the Act. In para 73 of the order, the Hon’ble Court also defined the prescribed authority as per the timeline provided in amended section 151. In the present case, as observed above, notice was issued u/s 148 of the Act on 28.7.2022 after the prior approval of Pr. Commissioner of Income Tax-12, Delhi though the same is issued after the expiry of three years from the end of relevant assessment year. In terms of the amended section 151(ii) of the Act, the approval should be from Principal Chief Commissioner or Principal Director General or where there is no such authority, by Chief Commissioner or Director General and not from any authority below such rank as has been done in the present case. The hon’ble jurisdictional high court in the case of Communist Party of India (Marxist) vs. CIT Exempt. reported in [2025] 174 taxmann.com 925 (Delhi), has held as under:
"10.The impugned notice is also liable to be set aside on the ground that it was issued without the approval of the authority specified under Section 151 of the Act. Since the impugned notice was issued beyond the period of three years from the end of the relevant assessment year, thus, in terms of Section 151(ii) of the Act, the same was required to be approved by the Principal Chief Commissioner or Principal Director General or where there is no such authority, by Chief Commissioner or Director General. The determination of the specified authority for grant of approval under Section 151 of the Act depends on whether the notice under Section 148 of the Act has been issued after the expiry of three years from the end of the relevant assessment year or within the said period."
In view of above, notice issued u/s 148 of the Act on 28.07.2022 after obtaining the approval of Pr.CIT-12, Delhi is invalid notice and consequent reassessment order passed is hereby quashed. Accordingly, grounds of appeal Nos. 2 to 4 raised by the assessee are allowed.
Since we have allowed the legal grounds of appeal taken by the assessee and quashed the reassessment order passed thus, the other grounds of appeal challenging the additions on merits are not adjudicated.
In the result, appeal of the assessee is allowed.