ITAT Rajkot Quashes Reassessment: Unsigned Section 151 Approval Renders Entire Proceedings Void

Background and Context

In a significant ruling concerning the procedural safeguards governing reassessment proceedings, the ITAT Rajkot Bench allowed the appeal filed by the assessee for Assessment Year 2019-20 and quashed the reassessment order entirely. The core issue before the Tribunal was whether the approval granted under Section 151 of the Income-tax Act, 1961 was legally valid — and the Tribunal's finding was an unambiguous no.

The case arose because the assessee had not filed a return of income for AY 2019-20. The Revenue, having noted certain financial transactions with potential tax implications, initiated reassessment proceedings by following the prescribed procedure under Section 148A of the Income-tax Act, 1961 and thereafter issuing a notice under Section 148.

Case Reference

Case Name: Dhanji Murji Hirani Vs ITO (ITAT Rajkot)
Assessment Year: 2019-20
Relevant Provisions: Section 147, Section 148, Section 148A, Section 151, Section 69, Section 115BBE, Section 144C(13), Section 234A, Section 234B, Section 234F, Section 271AAC

Grounds of Appeal Before the Tribunal

The assessee raised the following grounds before the Tribunal:

  1. That the reassessment under Section 148 of the Income-tax Act, 1961 was wrongly initiated without any valid information being in the Assessing Officer's possession.
  2. That jurisdiction was transferred from Bhavnagar to Gandhidham without passing an order under Section 127 of the Income-tax Act, 1961.
  3. That the Assessing Officer passed the order without possessing valid jurisdiction.
  4. That the CIT (DRP-2) Mumbai-2 wrongly confirmed the addition of Rs.1,00,60,306/- as unexplained investment under Section 69 of the Income-tax Act, 1961.
  5. That the Assessing Officer wrongly invoked the provisions of Section 115BBE of the Income-tax Act, 1961.
  6. That the Assessing Officer wrongly initiated penalty proceedings under Section 271AAC of the Income-tax Act, 1961.
  7. That interest under Section 234A, Section 234B, and Section 234F of the Income-tax Act, 1961 was wrongly charged.
  8. That the findings of the Assessing Officer and the DRP were unjustified and bad in law.

Facts of the Case

Non-Filing of Return and Initiation of Reassessment

The assessee had not filed any return of income for AY 2019-20 within the time prescribed under Section 139 of the Income-tax Act, 1961. Based on information available regarding the assessee's financial transactions, the Assessing Officer, after following the due process under Section 148A, recorded reasons and issued notice under Section 148.

During the course of assessment, the assessee was called upon to establish the legitimate source of funds remitted to his NRE account held in India. The Assessing Officer requested the submission of relevant documents such as income statements, net worth statements, bank account details from the country of residence, and any other documentary evidence to substantiate that the remittances originated from known and disclosed sources.

Investment in Time Deposit

The Assessing Officer observed that during AY 2019-20, the assessee had made an investment of Rs.1,00,60,306/- in a time deposit with Corporation Bank. Since the assessee initially failed to furnish documentary evidence explaining the source of this investment, the Assessing Officer treated the entire amount as unexplained and brought it to tax under Section 69 read with Section 115BBE of the Income-tax Act, 1961.

Proceedings Before the DRP

Aggrieved by the draft assessment order, the assessee approached the Dispute Resolution Panel (DRP). Before the DRP, the assessee submitted additional evidence including: