Facts of the Case

The petitioner, Communist Party of India (Marxist), is a national political party registered under Section 29A of the Representation of the People Act, 1951. For Assessment Year 2016-17, it filed its return of income on 15.10.2016 declaring Nil income after claiming exemption under Section 13A of the Income-tax Act.

An initial notice dated 28.06.2021 under Section 148 was issued under the pre-amended reassessment regime. In view of the Supreme Court decision in Union of India vs. Ashish Agarwal, the said notice was deemed to be a show cause notice under Section 148A(b). The Assessing Officer furnished information on 30.05.2022 alleging that an amount of ₹1,64,50,227 deposited in a bank account at State Bank of Travancore, Kozhikode had not been disclosed in column 13(b) of the return.

The petitioner replied on 08.06.2022 explaining that although the bank account was inadvertently omitted from the return, all transactions were duly recorded in the books and income arising therefrom was already accounted for. Despite this, an order dated 29.07.2022 was passed under Section 148A(d) with approval of the Commissioner of Income Tax (Exemption), followed by issuance of notice under Section 148 on the same date. Assessment was completed under Section 147 read with Section 144B on 23.05.2023 raising demand. The petitioner challenged the entire proceedings.

Issues Involved

Whether the order under Section 148A(d) was barred by limitation in terms of the fourth proviso to Section 149(1), whether the notice under Section 148 was issued without valid approval of the specified authority under Section 151, whether sanction granted by the Commissioner of Income Tax (Exemption) was legally sustainable, and whether consequent reassessment and faceless assessment orders could survive.

Petitioner’s Arguments

The petitioner contended that since the original notice under Section 148 dated 28.06.2021 was issued two days before expiry of limitation as extended by TOLA, the Assessing Officer had only two days after receipt of reply to pass an order under Section 148A(d). In terms of the fourth proviso to Section 149(1), the maximum permissible period was seven days, which expired on 16.06.2022. The order dated 29.07.2022 was therefore time-barred.

It was further argued that the notice under Section 148 was issued beyond three years from the end of the relevant assessment year and, therefore, sanction under Section 151(ii) could be granted only by the Principal Chief Commissioner or Principal Director General. Approval by the Commissioner of Income Tax (Exemption) was without jurisdiction. Reliance was placed on decisions including Twylight Infrastructure Pvt. Ltd., Abhinav Jindal (HUF), Ganesh Dass Khanna and Siemens Financial Services.

Respondent’s Arguments

The Revenue sought to justify the proceedings by contending that the approvals were obtained in accordance with law and that the reassessment was validly initiated based on information suggesting escapement of income. Reliance was placed on the extension of limitation under TOLA and the deemed conversion of notice under Section 148A pursuant to Ashish Agarwal.

Court Order / Findings

The Delhi High Court held that the order dated 29.07.2022 passed under Section 148A(d) was beyond the period prescribed under the fourth proviso to Section 149(1) and therefore unsustainable. The Court further held that since more than three years had elapsed from the end of Assessment Year 2016-17, sanction for issuance of notice under Section 148 was required to be obtained from the specified authority under Section 151(ii), namely the Principal Chief Commissioner or Principal Director General.

Relying on a consistent line of authorities including Abhinav Jindal (HUF), Twylight Infrastructure Pvt. Ltd., Ganesh Dass Khanna and decisions of the Bombay and Madras High Courts, the Court held that TOLA merely extended limitation and did not alter the hierarchy or distribution of sanctioning powers under Section 151. Approval by the Commissioner of Income Tax (Exemption) was therefore invalid. Consequently, the notice under Section 148, the order under Section 148A(d), the assessment order dated 23.05.2023 and the demand raised were all held to be without jurisdiction.

Important Clarification

The High Court clarified that validity of reassessment proceedings must be tested strictly with reference to the amended provisions of Sections 148, 148A and 151 as applicable on the date of issuance of notice. Extension of time under TOLA does not modify or dilute the statutory requirement of sanction by the specified authority, nor does it extend the time for passing orders under Section 148A(d) beyond what is expressly provided under Section 149.

Final Outcome

The writ petition was allowed. The order dated 29.07.2022 passed under Section 148A(d), the notice issued under Section 148, the assessment order dated 23.05.2023 passed under Section 147 read with Section 144B, and the consequential demand were set aside. All proceedings pursuant thereto were quashed.

Link to download order https://www.mytaxexpert.co.in/uploads/1769755974_COMMUNISTPARTYOFINDIAMARXISTVsINCOMETAXDEPARTMENTCIREXMPT11DELHI.pdf 

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