Facts of the Case

The present batch of writ petitions before the Delhi High Court concerned reassessment proceedings initiated for Assessment Years 2016-17 and 2017-18. The petitioners had filed their returns of income which were processed by the Income Tax Department under Section 143(1) of the Income Tax Act, 1961.

Subsequently, following the Supreme Court decision in Union of India v. Ashish Agarwal, the Income Tax Department issued notices under Section 148A(b) alleging that certain income had escaped assessment. The petitioners submitted replies to these notices.

Thereafter, the Assessing Officers passed orders under Section 148A(d) concluding that income had escaped assessment and issued notices under Section 148 to initiate reassessment proceedings.

The petitioners challenged these notices and orders before the Delhi High Court through writ petitions, contending that the reassessment proceedings had been initiated without the mandatory approval of the “specified authority” as required under Section 151 of the Income Tax Act, 1961. 

Issues Involved

  1. Whether reassessment notices issued under Sections 148 and 148A(d) of the Income Tax Act, 1961 are valid when the prior approval of the specified authority under Section 151 is absent or obtained from an incorrect authority.
  2. Whether reassessment proceedings initiated in such circumstances are sustainable in law.
  3. Whether reliance placed by the Revenue on Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and CBDT instructions could validate such reassessment proceedings. 

Petitioner’s Arguments

The petitioners argued that the reassessment notices and orders were illegal and unsustainable as they were not backed by the approval of the “specified authority” mandated under Section 151(ii) of the Income Tax Act.

It was contended that the statutory scheme after the Finance Act, 2021 requires the Assessing Officer to obtain prior approval from the competent authority before issuing a notice under Section 148.

According to the petitioners, the approval obtained in the present cases was not from the correct authority contemplated under the amended provisions of Section 151. Therefore, the reassessment proceedings were vitiated from the very beginning.

The petitioners also relied on earlier decisions of the High Court which emphasized that compliance with statutory safeguards in reassessment proceedings is mandatory and cannot be bypassed. 

Respondent’s Arguments

The Revenue opposed the petitions and argued that the reassessment notices had been issued in accordance with the statutory framework.

It relied upon the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) as well as CBDT Instruction No. 1 of 2022 dated 11.05.2022 to justify the issuance of reassessment notices.

The Revenue also submitted that approval of the specified authority was not mandatory in the manner suggested by the petitioners and that the reassessment proceedings had been validly initiated under the applicable provisions of the Income Tax Act. 

Court Findings

The Delhi High Court examined the statutory scheme governing reassessment proceedings, particularly Sections 148, 149 and 151 of the Income Tax Act, both before and after the amendments introduced by the Finance Act, 2021.

The Court observed that the amended provisions clearly require that before issuing a notice under Section 148, the Assessing Officer must obtain prior approval from the specified authority.

The Court rejected the contention of the Revenue that such approval was not mandatory. It held that the requirement is a statutory safeguard intended to prevent arbitrary reassessment proceedings and must be strictly followed.

The Court further noted that reassessment proceedings triggered without approval from the proper specified authority would not satisfy the statutory requirements laid down under the Income Tax Act.

Court Order

The Delhi High Court held that reassessment notices and consequential proceedings issued without valid approval of the specified authority under Section 151 are unsustainable in law.

Accordingly, the Court ruled in favour of the assessees and against the Revenue, granting relief to the petitioners in the batch of writ petitions challenging such reassessment actions. 

Important Clarification by the Court

The Court clarified that the requirement of obtaining prior approval from the specified authority under Section 151 is mandatory and not merely procedural.

Failure to comply with this requirement renders the reassessment proceedings invalid. The statutory framework introduced after the Finance Act, 2021 must be strictly followed, and administrative instructions or relaxation provisions cannot override the mandatory provisions of the Income Tax Act. 

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

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