Invalid Sanction Under Section 151: ITAT Mumbai Invalidates Reassessment Proceedings for Want of Competent Authority's Approval

Introduction

The Income Tax Appellate Tribunal, Mumbai Bench, has delivered a significant ruling concerning the validity of reassessment proceedings initiated without obtaining approval from the appropriate authority as mandated under Section 151 of the Income Tax Act, 1961. This decision underscores the critical importance of procedural compliance in reassessment matters and reiterates that jurisdictional defects cannot be cured under Section 292B of the Act.

Case Background

The dispute in ACIT Vs Nilkamal Crates & Containers (ITAT Mumbai) pertained to Assessment Year 2016-17, where reassessment proceedings were initiated alleging that the assessee had claimed bogus donation entries under Section 35(1)(ii) of the Act. The Commissioner of Income Tax (Appeals) had ruled in favor of the assessee on merits by deleting the addition. However, the assessee raised an additional legal ground before the Tribunal challenging the foundational validity of the reassessment proceedings themselves.

The core contention centered around the fact that the reopening was initiated beyond three years from the conclusion of the relevant assessment year, yet the required approval was obtained from a Principal Commissioner instead of the "specified authority" as prescribed under the amended provisions of Section 151(ii) of the Act.

Facts of the Case

Timeline of Events

The original assessment for AY 2016-17 was reopened through notice issued under Section 148 dated 28th June 2021. Subsequently, following the directive of the Supreme Court in Union of India vs. Ashish Agarwal, the reassessment proceedings were regularized under the new regime introduced by the Finance Act 2021.

The Assessing Officer issued a notice under Section 148A(b) and passed an order under Section 148A(d) on 31st July 2022. A fresh notice under Section 148 was also issued on the same date. The impugned order mentioned that prior approval had been obtained from the Principal Commissioner of Income Tax-2, Mumbai on 30th July 2022.

Nature of Proceedings

Since the reassessment was initiated more than three years after the end of AY 2016-17 (which concluded on 31st March 2017), the approval requirement fell under the ambit of Section 151(ii) of the Act. This provision mandates that approval must be obtained from the Principal Chief Commissioner, Chief Commissioner, Principal Director General, or Director General—a higher tier of authority compared to those specified in Section 151(i).

However, in this case, approval was granted by the Principal Commissioner, an authority competent only under Section 151(i) for cases where reopening occurs within three years from the end of the relevant assessment year.

Arguments Advanced

Contentions by the Assessee

The learned counsel for the assessee submitted that:

  1. The notice under Section 148 was issued on 31st July 2022, clearly after the expiry of three years from the end of AY 2016-17
  2. The approval granted by the Principal Commissioner was contrary to the requirement under Section 151(ii) of the Act
  3. The defect was not merely procedural but struck at the root of jurisdiction
  4. Reliance was placed on Union of India vs. Rajeev Bansal and Union of India vs. Ashish Agarwal, both decisions of the Hon'ble Supreme Court
  5. Further reliance was placed on the Bombay High Court decision in Siemens Financial Services Pvt. Ltd. vs. DCIT
  6. The entire reassessment proceedings initiated on the foundation of invalid approval were bad in law and liable to be quashed

The assessee also cited the decision of the Co-ordinate Bench in Aakruti Ketan Mehta Vs NFAC where an identical issue was decided following the aforesaid judicial pronouncements.

Contentions by the Revenue

The Senior Departmental Representative representing the Revenue argued that:

  1. The notice dated 30th July 2022 was issued with requisite sanction in accordance with the process directed in Ashish Agarwal
  2. Any minor defect was curable under Section 292B of the Act
  3. The Supreme Court had held that reassessment would be valid if "reason to believe" existed
  4. The approval may be treated as having been obtained from the specified authority since the mistake was minor and curable

Analysis by the Tribunal

Examination of Statutory Provisions

The Tribunal meticulously examined the provisions of Section 148A(d), Section 148, and Section 151 of the Act as amended by the Finance Act 2021.

Section 148A(d) requires the Assessing Officer to pass an order deciding whether it is a fit case to issue notice under Section 148, and such order must be passed with prior approval of the "specified authority."

The term "specified authority" is defined in Section 151, which creates two categories:

  • Section 151(i): Where three years or less have elapsed from the end of the relevant assessment year, the specified authority is the Principal Commissioner, Principal Director, Commissioner, or Director