Reassessment Quashed: Notice by JAO Invalid & Wrong Sanction Authority

Reassessment Quashed: Notice by JAO Invalid & Wrong Sanction Authority

Issue

1. Whether a notice for reassessment under Section 148 issued by a Jurisdictional Assessing Officer (JAO) on 30-03-2023 is valid in law, given the mandate under Section 151A and CBDT Notification No. 18/2022 for issuance by a Faceless Assessing Officer (FAO).

2. Whether the sanction for issuing notice under Section 148 for a case beyond three years (AY 2016-17 reopened in March 2023) was obtained from the correct “specified authority” under Section 151(ii).

Facts

• Assessment Year: 2016-17.

• Core Dispute: The AO made a massive addition of Rs. 58.68 Crores on account of alleged bogus purchases from eight parties. The CIT(A) estimated the addition at 9%. Both the assessee and Revenue filed cross-appeals.

• Reopening Notice: The notice under Section 148 was issued on 30-03-2023.

• Issuing Officer: The notice was issued by the Jurisdictional Assessing Officer (JAO), specifically the Income Tax Officer, Circle-1, Ludhiana.

• Sanctioning Authority: The approval for reopening was granted by the Principal Commissioner of Income Tax (Pr. CIT-1), Ludhiana.

• Timeline: The reopening notice (March 2023) was issued more than three years after the end of the relevant assessment year (which ended on 31-03-2017; the three-year limit expired on 31-03-2020).

Decision

• The Income Tax Appellate Tribunal (ITAT) quashed the reassessment proceedings entirely.

• On Faceless Jurisdiction: The Tribunal held that post 29-03-2022, notices under Section 148 must be issued by a Faceless Assessing Officer (FAO) as per Section 151A and CBDT Notification No. 18/2022. Relying on the binding High Court judgment in Jatinder Singh Bhangu, the notice issued by the JAO was declared illegal and void.

• On Sanction Authority: The Tribunal found that since the case was reopened beyond three years, the “specified authority” for approval under Section 151(ii) is the Principal Chief Commissioner or Chief Commissioner (Pr. CCIT/CCIT). The Pr. CIT (who approved this case) is only authorized for cases within three years. Thus, the sanction was invalid, rendering the notice void ab initio.

• Outcome: The assessee’s appeal was allowed on these legal grounds, and the Revenue’s appeal was dismissed as infructuous.

Key Takeaways

• JAO vs. FAO: Notices for reassessment issued by local Jurisdictional Assessing Officers after the implementation of the Faceless Scheme (March 2022) are legally unsustainable in jurisdictions covered by favorable High Court rulings (like Punjab & Haryana).

• Hierarchy of Sanction: Taxpayers must verify if the approval for reopening was taken from the correct authority based on the time elapsed. For cases beyond 3 years, approval from a Pr. CIT is a fatal defect; it must come from the Pr. CCIT/Chief Commissioner level.

• Jurisdictional Defect: Errors in jurisdiction (wrong officer issuing notice) or sanction (wrong authority approving) are substantive defects that cannot be cured, leading to the quashing of the entire tax demand.

• Binding Precedent: The Tribunal is bound to follow the jurisdictional High Court’s interpretation of the Faceless Assessment Scheme.

IN THE INCOME TAX APPELLATE TRIBUNAL
“B” BENCH, CHANDIGARH
JCIT (in situ)Aaykar Bhawan, Rishi Nagar
Ludhiana – 141001
Vs.
M/s Sharmanji Yarns Pvt. Ltd.
Village Lakhowal Road
Kohara, Jandiali
Ludhiana – 141112