Facts of the Case

Multiple writ petitions were filed before the Delhi High Court challenging reassessment proceedings initiated by the Income Tax Department for Assessment Years 2016–17 and 2017–18.

The reassessment proceedings were initiated through notices issued under Section 148A(b) followed by orders under Section 148A(d) and consequential Section 148 notices alleging that certain income had escaped assessment.

In the representative matter, the assessee had filed its return of income which was processed under Section 143(1). Subsequently, after the judgment in Union of India v. Ashish Agarwal, the Revenue issued notices under Section 148A(b) alleging escaped income. The assessee filed replies, but the Assessing Officer passed orders under Section 148A(d) and issued reassessment notices under Section 148.

The assessees challenged these notices before the High Court primarily on the ground that the reassessment proceedings were initiated without obtaining approval from the proper “specified authority” as required under the Income Tax Act.

 

Issues Involved

  1. Whether reassessment notices issued under Sections 148A(d) and 148 of the Income Tax Act, 1961 are valid if approval was obtained from an authority not prescribed as the “specified authority” under Section 151(ii).
  2. Whether prior approval of the specified authority is mandatory before issuing reassessment notices.
  3. Whether reassessment proceedings initiated without proper approval are liable to be quashed.

 

Petitioner’s Arguments

  • The reassessment proceedings were initiated without obtaining approval from the competent specified authority as mandated under Section 151(ii) of the Income Tax Act, 1961.
  • Under the amended regime introduced by the Finance Act, 2021, the authority granting approval depends on the time elapsed from the end of the relevant assessment year.
  • Since more than three years had elapsed, approval ought to have been obtained from higher authorities such as Principal Chief Commissioner or Director General, but instead approval was obtained from lower authorities.
  • Consequently, the reassessment proceedings were illegal and without jurisdiction.

 

Respondent’s Arguments

  • The reassessment proceedings were initiated in accordance with law following the judgment in Union of India v. Ashish Agarwal.
  • The department relied on the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) and CBDT Instruction No. 1 of 2022 dated 11.05.2022 to justify the notices.
  • It was suggested that approval obtained from the authorities was sufficient and that the requirement of approval should not invalidate the proceedings.

 

Court Findings / Order

  • The first proviso to Section 148 clearly requires that a reassessment notice can be issued only after obtaining prior approval of the specified authority.
  • Section 151 of the Income Tax Act explicitly identifies which authority qualifies as the specified authority depending on the time elapsed from the relevant assessment year.
  • Where more than three years have elapsed, approval must be obtained from the higher authority mentioned in Section 151(ii).
  • In the present batch of cases, although more than three years had elapsed, approval was taken from authorities mentioned under Section 151(i) instead of Section 151(ii).
  • Therefore, the reassessment notices and orders were legally unsustainable.

 

Important Clarification by the Court

  • Prior approval of the specified authority is mandatory under the Income Tax Act before issuing reassessment notices.
  • Approval from an authority not designated under Section 151(ii) cannot validate reassessment proceedings.
  • However, the Revenue was granted liberty to initiate fresh reassessment proceedings in accordance with law, if permissible.

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

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