ITAT Pune annuls reassessment where Section 151(ii) approval was taken from wrong authority

Background of the dispute

The matter in ITO Vs Rajaram Ramswarup Jaju (ITAT Pune) arose from an appeal by the Revenue and a cross objection by the assessee relating to Assessment Year (AY) 2016-17. The central controversy before the Income Tax Appellate Tribunal, Pune Bench, concerned the legality of reassessment proceedings initiated under Section 147 and Section 148, particularly in light of the sanction requirement under Section 151 of the Income Tax Act 1961.

The assessee was engaged in the business of extracting cotton seed wash oil and trading in edible oil, oil cake, cotton seed, wheat, jowar, soybean, tur, chana and other agro commodities through a proprietorship concern, M/s Jaju Industries. A return of income was originally filed on 10.10.2016 declaring total income of ₹13,77,900.

Subsequently, based on information received by the Department indicating cash deposits of ₹55,30,281 in the assessee’s bank account with Shri Renuka Mata Multi State Urban Co-operative Credit Society Ltd. during Financial Year 2015-16, the Assessing Officer (AO) reopened the assessment.

Steps taken by the Assessing Officer

1. Initiation of reassessment

   • Reassessment proceedings for AY 2016-17 were initiated under Section 147 on the basis of the above information relating to substantial cash deposits.
   • A notice under Section 148 dated 17.06.2021 was issued to the assessee.

2. Statutory framework used for extension of time

   • The notice under Section 148 was stated to be issued in conformity with:
     • The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, and
     • Notification No. 38 dated 27.04.2021, which extended the time limit for issuance of Section 148 notices up to 30.04.2021 and 30.06.2021.

3. Non-compliance by assessee before AO

   • The assessee did not file a return in response to the notice under Section 148.
   • Multiple notices under Section 142(1) were served, seeking:
     • Details of the cash deposits,
     • Sources of such deposits, and
     • Relevant supporting documents.
   • The assessee did not respond with the required details, leading to non-compliance at the assessment stage.

4. Best judgment reassessment and addition under Section 69A

   • Owing to absence of cooperation, the AO completed the reassessment on a best judgment basis under Section 147 read with Section 144 and Section 144B.
   • The full amount of cash deposits of ₹55,30,281 was treated as unexplained money under Section 69A.
   • The total income was reassessed at ₹69,08,181 as per order dated 12.05.2023.

Proceedings before the Commissioner (Appeals) [NFAC]

The assessee carried the matter in appeal before the Commissioner of Income Tax (Appeals) [NFAC].

• Grounds raised:
  • 7 regular grounds of appeal, and
  • 2 additional grounds.

The Commissioner (Appeals):

• Adjudicated only additional ground no. 2, on which relief was granted in favour of the assessee.
• Treated grounds 1 to 7 and additional ground no. 1 as academic in view of the appeal having already been allowed on additional ground no. 2.
• Consequently, those grounds remained undecided.

Aggrieved, the Revenue preferred an appeal before the ITAT, challenging the order of the Commissioner (Appeals).

Parallelly, the assessee filed a cross objection before the Tribunal raising seven grounds, including a crucial legal challenge regarding validity of the reassessment itself.

Cross objection by assessee and condonation of delay

Delay in filing cross objection

The assessee’s cross objection (C.O. No.35/PUN/2024) was filed with a delay of 61 days. An application seeking condonation of delay, supported by an affidavit, was placed on record.

The assessee explained that: