Facts of the Case

The petitioners in several writ petitions challenged reassessment proceedings initiated by the Income Tax Department under the provisions of the Income Tax Act, 1961. The reassessment notices were issued alleging that income chargeable to tax had escaped assessment.

The dispute arose after the amendments introduced by the Finance Act, 2021, which substantially modified the reassessment framework, including the provisions relating to Sections 148, 149, and 151 of the Income Tax Act.

The petitioners contended that reassessment notices were issued without obtaining proper approval from the specified authority as mandated under the amended provisions of the Act.

It was further argued that the statutory safeguards introduced after the amendment were not followed while initiating reassessment proceedings.

Issues Involved

  1. Whether reassessment notices issued under Section 148 of the Income Tax Act are valid without obtaining approval of the specified authority as required under Section 151 of the Act.
  2. Whether the procedural safeguards introduced by the Finance Act, 2021 must be strictly followed while initiating reassessment proceedings.
  3. Whether the approval requirement varies depending upon the time limit and quantum of escaped income under Section 149.

Petitioner’s Arguments

The petitioners argued that reassessment proceedings were initiated in violation of the statutory scheme introduced after the Finance Act, 2021.

It was contended that under the amended provisions, approval of the specified authority is mandatory before issuing a notice under Section 148.

The petitioners further submitted that the Income Tax Department failed to obtain valid approval from the competent authority before issuing the impugned notices.

They also relied upon the interpretation of reassessment provisions given in earlier decisions of the Court, including Ganesh Dass Khanna, to contend that the statutory requirements regarding time limits and approval must be strictly complied with.

Respondent’s Arguments

The Income Tax Department contended that reassessment proceedings were validly initiated under the provisions of the Income Tax Act.

It was argued that approval of the specified authority was not mandatory in the manner claimed by the petitioners.

The department further submitted that the reassessment notices were issued in accordance with the amended statutory framework and that procedural compliance had been substantially met.

Court Findings

The Delhi High Court examined the amended provisions of Sections 148, 149, and 151 of the Income Tax Act introduced by the Finance Act, 2021.

The Court observed that the amended statutory framework clearly incorporates the requirement of approval of the specified authority before issuance of reassessment notices.

It held that the first proviso to Section 148, when read together with Section 151, clearly mandates prior approval from the specified authority depending upon the applicable time period for reopening the assessment.

The Court further noted that the earlier decision in Ganesh Dass Khanna had clarified the applicability of time limits under Section 149, particularly in cases where the alleged escaped income was less than ₹50 lakh.

In the present batch of cases, the alleged escaped income was more than ₹50 lakh, and therefore the statutory provisions regarding approval and time limits had to be interpreted accordingly.

Court Order

The Court held that the approval of the specified authority under Section 151 of the Income Tax Act is mandatory before issuance of reassessment notices under Section 148.

The interpretation suggested by the Revenue that such approval was not mandatory was rejected by the Court as being contrary to the statutory provisions.

Accordingly, the Court examined the reassessment proceedings in light of the statutory requirement of prior approval by the competent authority.

Important Clarification by the Court

  1. The approval of the specified authority under Section 151 is mandatory before issuing a notice under Section 148.
  2. The requirement of approval is linked with the time limits provided under Section 149 of the Income Tax Act.
  3. The amended reassessment framework introduced by the Finance Act, 2021 must be interpreted in a manner that preserves the procedural safeguards provided to taxpayers.
  4. Non-compliance with statutory approval requirements may render reassessment proceedings legally unsustainable. 

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

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