Facts of the Case

Multiple petitioners, including Twylight Infrastructure Pvt. Ltd., challenged reassessment proceedings initiated by the Income Tax Department. The impugned notices were issued under Section 148 of the Income Tax Act alleging that income chargeable to tax had escaped assessment.

The petitioners contended that the reassessment notices were issued after the expiry of the prescribed period of three years from the end of the relevant assessment year. Under such circumstances, the law mandates prior approval from the specified authority under Section 151(ii) before issuing the notice.

However, the approval for issuing reassessment notices had allegedly been obtained from an authority not competent under Section 151(ii). Consequently, the petitioners approached the Delhi High Court by way of writ petitions under Article 226 of the Constitution, seeking quashing of the reassessment notices and consequential proceedings.

 

Issues Involved

  1. Whether reassessment notices issued under Section 148 of the Income Tax Act are valid when the mandatory approval required under Section 151(ii) is not obtained from the specified authority.
  2. Whether reassessment proceedings can continue when approval is granted by an authority not authorized under the statutory framework.
  3. Whether such procedural non-compliance renders the reassessment proceedings invalid in law.

 

Petitioner’s Arguments

  • The petitioners argued that the reassessment notices were issued beyond three years from the relevant assessment year.
  • Under Section 151(ii), in such cases approval must be obtained from the specified authority, which was not done.
  • Instead, approval was obtained from an authority contemplated under Section 151(i), which is applicable only within the initial limitation period.
  • Therefore, the reassessment notices and orders were legally unsustainable as they violated mandatory statutory requirements.

 

Respondent’s Arguments

  • The Revenue contended that the reassessment notices were issued after following due procedure prescribed under the Income Tax Act.
  • It was submitted that approval had been obtained from the competent authority prior to issuance of notices.
  • The Department argued that procedural compliance had been substantially met and the reassessment proceedings should be allowed to continue.

Court Findings

The Delhi High Court examined the statutory scheme governing reassessment proceedings and emphasized that approval from the correct authority under Section 151(ii) is mandatory when reassessment is initiated after three years from the relevant assessment year.

The Court noted that in the present case the approval had been obtained from an authority falling under Section 151(i) rather than the authority specified under Section 151(ii).

Since the approval was not granted by the competent authority as required by law, the reassessment notices and related proceedings were found to be legally defective.

 

Court Order

The Delhi High Court quashed the reassessment notices and consequential proceedings issued against the petitioners due to non-compliance with the mandatory requirement of obtaining approval under Section 151(ii) of the Income Tax Act.

However, the Court clarified that the Revenue would be at liberty to initiate fresh reassessment proceedings in accordance with law, provided that all statutory requirements are properly complied with.

 

Important Clarification by the Court

  • Compliance with Section 151(ii) is mandatory when reassessment proceedings are initiated beyond the prescribed period.
  • Approval obtained from an incorrect authority cannot cure the jurisdictional defect.
  • Reassessment proceedings initiated without proper sanction are liable to be quashed.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/RAS05012024CW165242022_114311.pdf

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