ITAT Quashes Reassessment Beyond 3 Years for Lack of Proper Sanction

The partnership firm in question had not filed its return for the assessment year 2017–18. The case was reopened after it was found that the firm had bought an immovable property for Rs. 3.65 crore, while the stamp duty value was Rs. 4.79 crore. Initially, a notice under Section 148 was issued on 15 April 2021, as per the old regime. Following the Supreme Court’s decision in Ashish Agarwal, a fresh notice under Section 148 was issued on 31 July 2022, citing continuation under the new regime. The firm filed its return on 22 April 2023, declaring a business loss. During the assessment, the assessing officer made an addition of Rs. 1.10 crore under Section 56(2)(viia), without referring the matter to the Deputy Valuation Officer despite the firm’s request. The assessment was completed on 30 May 2023. The Deputy Valuation Officer’s report dated 30 January 2024 valued the property at Rs. 3.95 crore.

The CIT(A) in appeal restricted the addition based on this value, reducing the difference to Rs. 30.19 lakh, which is about 8.27% of the actual consideration, below the 10% threshold under the provision.

Main issues: Whether the addition under Section 56(2)(viia) was tenable even though the DVO valuation was within allowable bounds, and whether the reassessment procedures were legitimate under the new regime when the notice under Section 148 was issued after three years and not approved by the appropriate authority.

ITAT’s Decision: The ITAT Mumbai allowed the appeal, holding that the reassessment was invalid. Since the notice dated 31.07.2022 was issued more than three years after the end of AY 2017–18, the correct sanctioning authority under Section 151(ii) should have been the Principal Chief Commissioner or equivalent. However, approval was taken from the PCIT rendering the reassessment notice void.

The tribunal held that notices issued under the new regime must fully comply with Sections 149 and 151. Since this wasn’t done, both the reassessment and the order were quashed.

On merits, the Tribunal found that the DVO’s value was only 8.27% higher than the consideration paid—within the 10% tolerance allowed. Hence, no addition could be made under Section 56(2)(viia). The AO’s promise to rectify the order later was noted but disregarded as the correct value was already on record by the time of CIT(A)’s decision.

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