Stipulations of sanction required u/s 151 for reopening is not diluted by TOLA Notifications & CBDT Instruction

While setting aside the reassessment proceedings of Siemens Financial Services (Assessee) for AY 2016-17 where the sanction under Section 151 of Income Tax Act was not obtained as per the amended reassessment regime, the Bombay High Court held that sanction of the specified authority has to be obtained as per the law prevailing while obtaining the sanction, and the Assessing Officer cannot seek to take the shelter of TOLA, as a subordinate legislation cannot override any statute enacted by the Parliament.  

Clarifying that TOLA only seeks to extend the period of limitation and does not affect the scope of section 151, the Division Bench comprising of Justice K. R. Shriram and Justice Dr. N. K. Gokhale observed that “the amendments to the substantive provisions of were envisaged under Section 3 of TOLA, which was only a relaxation provision dealing with time limits under various enactments and thus, Revenue could have assumed jurisdiction but only after complying with the amended Section 147 which has not been done”.

The Bench categorically emphasized that ruling given by Apex Court in case of Union of India Vs. Ashish Agarwal [(2022) 138 taxmann.com 64(SC)] does not anywhere indicate the notices that could be issued for eternity, and therefore, TOLA cannot apply in respect of reassessment proceedings for AY 2015-16 and subsequent years.

Senior Advocate P. J. Pardiwalla appeared for the Assessee while the Revenue was represented by Advocate Suresh Kumar.

Briefly, for AY 2016-17, Asesssee’s returned income was accepted and on Jun 25, 2021, Assessee received notice u/s 148 wherein necessary satisfaction was obtained under the old regime. The AO opined that notice under Section 148 shall be deemed to be issued under Section 148A as substituted by the Finance Act 2021. Subsequently, the AO passed order under Section 148A(d) and issued notice under Section 148 dated Jul 31, 2022 which came to be challenged by the Assessee.

After considering the submission, the Bench noted the provision of Section 151 as per which specified authority up-to three years form the end of AY shall be Principal Commissioner and if more than three years have elapsed, it shall be Principal Chief Commissioner.

The Bench stated that for instant AY 2016-17, notice was issued beyond three years which elapsed on Mar 31, 2020, thus, approval under Section 151(ii) and not Section 151(i) would have to be obtained.

Pointing that even if it is assumed that notices travel back to the date of the original notice i.e. Jun 25, 2021, even then approval of Principal Chief Commissioner should be obtained in terms of section 151(ii), the Bench observed that the CBDT in Instruction no.1/2022 has wrongly stated that the notices issued under section 148 of the Act for AY 2016-17 are to be considered as having been issued within a period of three years from the end of the relevant assessment year and, on that basis, has wrongly mentioned that the approval of the specified authority under section 151(i) should be taken.

Thus, the Bench clarified that TOLA does not envisage notices travelling back to Mar 31, 2020, and therefore, notice issued on Jul 31, 2022 issued beyond three years is to be sanctioned under Section 151(ii).

The Bench also made it clear that even if time travel of notice to original date i.e. Jun 25, 2021 is accepted, still new Section 149 shall be applicable as per new provisions.

Accordingly, the High Court concluded that approval granted by Principal Commissioner of Income Tax-8 is invalid and thus, quashed the notice issued u/s 148.

Cause Title: Siemens Financial Services Pvt Ltd vs. Deputy Commissioner of Income Tax [W.P No. 4888 of 2022 / 2023-Enterslice-20-HC-Bom-IT]

Click here to read/download the Judgment

Siemens-Financial-Services-Pvt-Ltd-vs-Deputy-Commissioner-of-Income-Tax