Bombay High Court on Reassessment: Invalid Section 151 Approval and Mandatory Personal Hearing under Section 148A(b)

1. Background of the Writ Petition

The Bombay High Court in Nikhil Chandrakant Dharia Vs ITO (Bombay High Court) (Writ Petition No. 2778 of 2023, order dated 07/10/2023) examined the legality of reassessment proceedings initiated for Assessment Year (AY) 2019-20.

The assessee challenged three specific actions taken by the income-tax authorities under the Income Tax Act 1961:

  • Notice dated 28 March 2023 issued under Section 148A(b)
  • Order dated 19 April 2023 passed under Section 148A(d)
  • Consequential notice dated 19 April 2023 issued under Section 148

Two principal grounds were urged before the Court:

  1. The approval taken under Section 151 was mechanical and reflected complete non-application of mind by all approving authorities.
  2. The assessee’s request for personal hearing at the stage of Section 148A(b) was wrongly denied, despite the statutory requirement to provide an “opportunity of being heard”.

The Court accepted both grounds and ultimately set aside the order under Section 148A(d) and the subsequent notice under Section 148.

2. Valid Sanctioning Authority Was Not in Dispute

The notice under Section 148A(b) dated 28 March 2023 related to AY 2019-20. Since the notice was issued within three years from the end of the relevant assessment year, the reassessment fell within the time bracket governed by Section 149(1)(a).

It was common ground between the parties that, in such a case, the competent sanctioning authority under Section 151 is the Principal Commissioner of Income Tax (PCIT) and not the Principal Chief Commissioner of Income Tax (PCCIT).

The assessee did not allege that the wrong authority had granted sanction. Rather, the core contention was that the PCIT, while granting sanction, had failed to apply his mind to the basic jurisdictional parameters and factual details placed before him.

3. Errors in the Section 151 Approval Form

3.1 Misclassification of Time Limit under Section 149

The Court closely scrutinised the approval form prepared and submitted for purposes of Section 151 sanction.

Key entries in the form revealed serious mistakes:

  • In row 9, the “Time limit for current proceedings” was recorded as covered under Section 149(1)(b) – described in the form as “for more than 3 years but not more than 10 years.”
  • In row 22, it was recorded that approval was granted by Gollapinni Mallikarjuna, PCIT, on 19 April 2023.

The Court observed that, in reality:

  • The notice under Section 148A(b) was issued on 28 March 2023
  • The relevant AY was 2019-20
  • The proceedings, therefore, clearly fell within three years, making Section 149(1)(a) applicable, not Section 149(1)(b)

This misclassification was not a minor clerical issue. The Court underlined that if Section 149(1)(b) had indeed applied, then by law the sanctioning authority would have had to be the Principal Chief Commissioner and not the Principal Commissioner.

Thus, the form itself contained internal inconsistency:

  • It invoked the time bracket of Section 149(1)(b)
  • Yet recorded approval by the PCIT, who would not be the competent authority if Section 149(1)(b) in fact applied

This inconsistency was taken as a clear indicator that neither the Assessing Officer, nor the Additional/Joint Commissioner, nor the PCIT had properly examined the basic jurisdictional facts.