Facts of the Case

The petitioners, including Twylight Infrastructure Pvt Ltd and several other assessees, filed their respective income tax returns for the relevant assessment years. The returns were processed by the Income Tax Department and intimation was issued under Section 143(1) of the Income Tax Act.

Subsequently, after the judgment of the Supreme Court in Union of India v Ashish Agarwal, the Income Tax Department initiated reassessment proceedings. Notices under Section 148A(b) were issued to the petitioners alleging that certain income had escaped assessment.

The petitioners filed replies to the notices. Thereafter, the assessing officer passed orders under Section 148A(d) holding that income had escaped assessment and issued consequential notices under Section 148 of the Income Tax Act for reassessment.

The petitioners challenged these reassessment proceedings before the Delhi High Court through writ petitions, primarily contending that the notices and orders were issued without approval from the legally required “specified authority”. 

Issues Involved

  1. Whether reassessment notices issued under Sections 148A(d) and 148 of the Income Tax Act are valid without proper approval from the specified authority under Section 151 of the Act.
  2. Whether reliance on the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and CBDT instructions could override statutory requirements under the Income Tax Act.
  3. Whether reassessment proceedings initiated by an authority not recognized under Section 151(ii) are legally sustainable. 

Petitioner’s Arguments

The petitioners contended that the reassessment notices and orders were invalid because the approval required under Section 151 of the Income Tax Act was not obtained from the specified authority.

They argued that the reassessment process had been initiated by an authority that was not authorized under Section 151(ii) of the Act, which mandates approval from the specified authority before issuing notices under Section 148.

The petitioners further submitted that the statutory requirement of prior approval is mandatory and cannot be substituted by internal departmental instructions or administrative directions.

 Respondent’s Arguments

The Income Tax Department argued that the reassessment proceedings were valid and relied upon the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).

The respondents also relied on CBDT Instruction No. 1 of 2022 dated 11.05.2022 to justify the procedure adopted for issuing the notices and conducting reassessment proceedings.

The revenue contended that the approval requirement should not invalidate the proceedings since the process was undertaken in accordance with administrative instructions issued after the Supreme Court decision in Union of India v Ashish Agarwal.

Court Findings

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

The Court observed that the statutory framework clearly requires prior approval from the specified authority before initiating reassessment proceedings under the Act.

The Court rejected the revenue’s contention that approval from another authority or reliance on administrative instructions could substitute the statutory requirement.

The Court held that the reassessment proceedings were initiated by an authority that was not recognized as the “specified authority” under Section 151(ii) of the Income Tax Act. The Court also referred to its earlier judgment in Ganesh Dass Khanna v Income Tax Officer & Anr., which had addressed similar issues regarding reassessment and limitation.

 Court Order

The Delhi High Court ruled in favour of the assessees and held that the reassessment notices and orders issued without proper approval of the specified authority were legally unsustainable.

Accordingly, the Court set aside the impugned notices and reassessment proceedings initiated against the petitioners.

Important Clarification by the Court

The Court clarified that the approval requirement under Section 151 of the Income Tax Act is mandatory and cannot be bypassed through administrative instructions or internal departmental procedures.

The Court emphasized that reassessment proceedings must strictly comply with statutory requirements prescribed under the Income Tax Act.

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

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