Reopening Without Backing Of Valid Sanction U/S 151, Is Not Sustainable

While hearing a writ petition challenging the vires of re-assessment proceedings commenced against the Assessee, the High Court of Bombay found that the re-assessment was vitiated because the sanction granted under Section 151 to permit commencement of re-assessment, had been allowed without due application of mind.

Considering the Affidavit in reply filed by the Revenue, the Division Bench of Justice KR Shriram and Justice Firdosh P Pooniwalla noted that the sanction was granted by the jurisdictional Principal Commissioner of Income Tax (PCIT), without noticing anomalies in the time limit for re-opening assessment.

The Bench observed – “…there is no explanation as to how the PCIT granted this sanction when in box 9 of the approval the time limit for current proceedings covered under is stated to be under Section 149(1)(b) – for more than 3 years but not more than 10 years. In the affidavit in reply, it is stated that the reopening is within three years and the specified authority is PCIT under Section 151 of the Act. In that case, the applicable provision would be Section 149(1)(a) and not Section 149(1)(b) of the Act. Therefore, it is rather clear that neither the issuing authority, i.e., respondent no.1, nor the sanctioning authority, i.e., respondent no.2, have applied their mind but have simply issued the notice mechanically…”. (para 13)

The Petitioner-Assessee was represented by Mr. Tanzil Padvekar whereas the Respondent-Revenue was represented by Mr. Subir Kumar.

The Assessee, an individual, had filed the present petition to contest the vires of re-assessment notice issued in respect of the relevant Assessment Year. The primary argument of the Assessee was that since the order sanctioning re-assessment was itself lacking in application of mind, the consequent re-assessment notice and order under Section 148A, were flawed as well.

On hearing the contentions of both the parties, the Bench observed that the procedural safeguards provided in Sections 148A and 151 had been disregarded, while allowing the re-assessment proceedings. The Bench observed – “…There is no evidence that PCIT has even granted any valid sanction. If respondents say there was a sanction by respondent no.2, then it is an obvious case of utter non application of mind because he would otherwise have not granted sanction if he had only read and applied his mind to what is stated in box 9, i.e., the time limit for current proceedings covered under is stated to be under Section 149(1)(b), or he would have sent it back to respondent no.1 refusing to grant approval…”.

The Bench further observed there to be non-application of mind, not just on part of the officer sanctioning the re-assessment proceedings, but also on part of the officer who sought to commence re-assessment in the first place. The Bench observed in this regard, that – “…It also goes to say that even respondent no.1, who has sought approval, has not applied his mind. We are of the opinion that if only respondent no.2 had read the report carefully, he would have never come to the conclusion that there is any material before him to treat it as a fit case to issue notice under Section 148 of the Act or pass order under Section 148A(d) of the Act. The safeguards provided in Sections 148 and 151 were lightly treated by respondent nos.1 and respondent no.2….”.

With these observations, the Bench find it fit to quash the re-assessment notice and order on the sole ground of not being backed by valid sanction, and did not enter into merits of other submissions raised by the Assessee.

Cause Title: Kartik Sureshchandra Gandhi Vs Asst. Commissioner of Income Tax Circle 4(2)(1), Mumbai & Ors. [W.P No.1812 OF 2023 / 2023-Enterslice-9-HC-Bom-IT]

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Kartik-Gandhi