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

Background of the dispute

The case of Surat Goods Transport Pvt. Ltd. Vs DCIT (ITAT Mumbai) revolves around the validity of reassessment proceedings initiated under Section 148 for Assessment Year (AY) 2018-19. The central legal controversy was whether the reassessment notice issued after expiry of three years from the end of the relevant AY was backed by sanction from the correct “specified authority” as mandated by Section 151 of the Income Tax Act 1961.

The assessee, a company engaged in transportation services, originally filed its return of income on 01.10.2018 declaring total income of Rs. 30,76,28,253/- under normal provisions. The return was selected for scrutiny and assessment under Section 143(3) was completed on 21.01.2021 without any addition, thereby accepting the income as returned.

Subsequently, the Assessing Officer (AO) reopened the assessment under the new reassessment framework introduced by the Finance Act, 2021:

  • Order under Section 148A(d) was passed on 07.04.2022
  • Notice under Section 148 was issued on the same date i.e., 07.04.2022

Pursuant to this, reassessment was completed under Section 147 read with Section 144B, wherein the AO made an addition of Rs. 5,04,493/- on account of interest allegedly paid on a bogus loan of Rs. 1,00,00,000 taken in AY 2017-18 from Ms. Aneri Fincap Ltd., characterized as a sham transaction in earlier year and taxed under Section 68 read with Section 115BBE.

The assessee challenged:

  • The very reopening of assessment as invalid in law
  • The procedural irregularities in approval under Section 151
  • Denial of cross-examination and non-provision of relied-upon statements
  • The disallowance of interest expenditure on merits

The Commissioner of Income Tax (Appeals) / National Faceless Appeal Centre [CIT(A)/NFAC] dismissed the appeal of the assessee. Aggrieved, the assessee carried the matter to the ITAT Mumbai.

Grounds raised before the Tribunal

The assessee put forth multiple legal and factual grounds, the critical ones being:

  1. Invalidity of reopening under Section 148 read with Section 148A

    • The assessee contended that the reopening notice dated 07.04.2022 and reassessment order under Section 147 read with Section 144B were void ab initio and without jurisdiction.
    • It was argued that the AO relied only on "borrowed satisfaction" from a different authority (DDIT), based principally on the statement of one Shri Rajesh G. Mehta, which was used against the assessee without independent application of mind.
    • Reliance was placed on Bombay High Court decisions in:
      • Hari Darshan Exports Pvt. Ltd. vs. ACIT (456 ITR 542)
      • H.R. Mehta (387 ITR 561)

  2. Incorrect approval under Section 151(2) / Section 151(ii)

    • The assessee specifically argued that since the AY involved was 2018-19 and the notice under Section 148 was issued on 07.04.2022, more than three years had elapsed from the end of the relevant AY (31.03.2018).
    • Accordingly, the sanctioning authority for issuing notice under Section 148 had to be the Principal Chief Commissioner of Income Tax (PCCIT) / Chief Commissioner / Principal Director General / Director General, as specified in clause (ii) of amended Section 151.
    • In the instant case, the approval was granted by the Principal Commissioner of Income Tax (PCIT), Mumbai-8, which the assessee contended was not the correct “specified authority” under Section 151(ii) in such a situation.
    • For this proposition, reliance was placed on:
      • Siemens Financial Services Pvt. Ltd. (457 ITR 647)
      • Gayatri Pipes and Fittings Pvt. Ltd. vs. ITO (WP No. 17817 of 2022)