ITAT Quashes Reassessment Due to Approval from Incompetent Authority Under Section 151

The Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings against an assessee because the necessary approval was obtained from an incorrect authority. The ITAT found that since the reassessment was initiated more than three years after the relevant financial year, approval should have come from the Principal Chief Commissioner of Income Tax (PCCIT), not the Principal Commissioner (PCIT). As the approval was granted by an incompetent authority, the Tribunal ruled the reassessment notice and subsequent proceedings invalid, without examining the assessee's capital gains exemption claim.

In the case of Chandra S. Sabhapathi v. ITO, the assessee had not filed the return of income. Based on information regarding the sale of an immovable property, the Assessing Officer initiated reassessment proceedings and issued an order under Section 148A(d) on 7 April 2022, followed by a notice under Section 148 on 12 April 2022.

During the assessment proceedings, the assessee claimed exemption under Section 54F in respect of the investment made in a new residential property. The Assessing Officer denied the claim relating to the construction of the house and computed the long-term capital gain. The CIT(A) granted partial relief for the purchase of vacant land but upheld the disallowance relating to the construction cost.

Before the ITAT, the assessee raised additional legal grounds challenging the validity of the reassessment proceedings. It was contended that since the order under Section 148A(d) and the notice under Section 148 were issued more than three years after the end of AY 2018-19, approval was required from the Principal Chief Commissioner of Income Tax (PCCIT) under Section 151(ii).

However, the approval in the present case had been obtained from the Principal Commissioner of Income Tax (PCIT), who was not the competent authority for granting approval after the expiry of the prescribed three-year period.

The Tribunal observed that the approval for both the Section 148A(d) order and the Section 148 notice had been obtained from the PCIT instead of the PCCIT. It further noted that the same approval reference number was used for both proceedings, indicating that separate approvals had not been obtained.

The ITAT held that the approvals were granted by an authority not competent under Section 151 and that the statutory requirements had not been properly followed. Consequently, the order passed under Section 148A(d), the notice issued under Section 148 and the reassessment proceedings initiated under Section 147 were held to be invalid.

Since the appeal was allowed on the legal grounds, the Tribunal did not examine the merits of the assessee’s claim for exemption under Section 54F.

Key Takeaway: Where reassessment proceedings are initiated after the prescribed period, approval must be obtained from the authority specifically designated under Section 151. Approval from an incompetent authority can render the entire reassessment proceedings invalid. Further, statutory approvals required for separate stages of reassessment proceedings must be obtained in accordance with the provisions of the Income Tax Act.

Disclaimer: This AI-generated summary is for informational purposes only. Please view the attached original judgment for the complete text and authoritative interpretation.