Facts of the Case

The petitioners filed their returns of income for Assessment Years 2016-17 and 2017-18 which were processed by the Income Tax Department under Section 143(1) of the Income Tax Act.

Subsequently, following the judgment of the Supreme Court in Union of India v. Ashish Agarwal, the Revenue issued notices under Section 148A(b) alleging that certain income had escaped assessment.

The assessees submitted replies to the notices. Thereafter, the Assessing Officer passed orders under Section 148A(d) and issued consequential reassessment notices under Section 148 of the Income Tax Act.

The reassessment proceedings were initiated after obtaining approval from the Principal Commissioner of Income Tax.

The petitioners challenged the notices before the Delhi High Court on the ground that the approval was not obtained from the correct “specified authority” as mandated under Section 151(ii) of the Act. 

Issues Involved

  1. Whether reassessment notices issued under Sections 148A(d) and 148 are valid when the approval is obtained from an authority not prescribed under Section 151(ii) of the Income Tax Act.
  2. Whether approval of the specified authority is mandatory for issuing reassessment notices under the amended provisions of the Income Tax Act after the Finance Act, 2021. 

Petitioner’s Arguments

  • The petitioners contended that reassessment notices were issued without obtaining approval from the competent specified authority under Section 151(ii) of the Income Tax Act.
  • Since more than three years had elapsed from the end of the relevant assessment year, approval was required from the Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General.
  • However, the approval had been obtained only from the Principal Commissioner of Income Tax, which is not the specified authority for such cases.
  • Therefore, the initiation of reassessment proceedings was illegal and without jurisdiction. 

Respondent’s Arguments

  • The Revenue argued that the reassessment proceedings were valid and relied upon:
    • The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA)
    • CBDT Instruction No.1/2022 dated 11.05.2022
  • It was also contended that approval from the Principal Commissioner was sufficient and that the requirement regarding the specified authority should not invalidate the proceedings.

Court Findings

  • The first proviso to Section 148 mandates prior approval of the specified authority before issuing a reassessment notice.
  • Section 151 clearly defines the rank of the authority whose approval is required, depending on the time elapsed from the end of the relevant assessment year.
  • Where more than three years have elapsed, approval must be obtained from authorities specified under Section 151(ii).
  • In the present cases, approval was taken from the Principal Commissioner, which falls under Section 151(i) and not Section 151(ii).
  • Therefore, the reassessment notices were issued without valid approval of the specified authority, making them legally unsustainable.

Court Order

  • Quashed the impugned orders passed under Section 148A(d) and the consequential notices issued under Section 148 of the Income Tax Act.
  • Held that the reassessment proceedings were invalid due to the absence of approval from the specified authority under Section 151(ii).
  • Granted liberty to the Revenue to initiate reassessment proceedings afresh in accordance with law, if permissible. 

Important Clarification by the Court

  • Approval of the specified authority is mandatory under the first proviso to Section 148.
  • The authority granting approval must strictly comply with Section 151 depending on the time limitation under Section 149.
  • If approval is obtained from an incorrect authority, the entire reassessment proceeding becomes invalid.

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

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