Section 151 Sanction Valid Without Separate Reasons: Supreme Court Declines to Interfere With Patna HC Judgment

Overview of the Case

The Supreme Court of India, in Venky Steels Pvt. Ltd. Vs CIT-II & Anr., chose not to disturb the ruling delivered by the Patna High Court, which had upheld the validity of a reassessment sanction granted under Section 151 of the Income-tax Act, 1961. After condoning the delay in filing, the Supreme Court dismissed the special leave petition, recording that no sufficient ground existed to warrant interference with the impugned judgment.

This case carries significant implications for assessees facing reassessment proceedings, particularly on the question of how much independent reasoning the sanctioning authority must record while approving a notice under Section 148 of the Income-tax Act, 1961.

Background and Facts of the Case

Venky Steels Pvt. Ltd., a company engaged in the iron and steel business, received a reassessment notice dated 26 March 2019 for Assessment Year 2013-14. In response, the assessee filed a return on 24 April 2019 and subsequently sought disclosure of the reasons recorded by the Assessing Officer for reopening the assessment. This request was made in reliance on the procedure laid down in GKN Driveshafts (India) Ltd. v. Income Tax Officer and Others, (2003) 259 ITR 19 (SC), which establishes the right of an assessee to obtain recorded reasons before challenging a reassessment notice.

Although the reasons were eventually furnished, the assessee proceeded to challenge the notice before the Patna High Court. The primary ground of challenge was that the approval required under Section 151 of the Income-tax Act, 1961 had either not been properly obtained or had been granted in a mechanical and non-application-of-mind manner.

The Approval Document and the Core Dispute

During the course of the High Court proceedings, the Revenue Department placed on record the relevant approval documents. These documents revealed that the Principal Commissioner of Income Tax-I, Patna, had separately sanctioned reassessment notices for both Assessment Year 2012-13 and Assessment Year 2013-14.

The endorsement recorded by the Principal Commissioner read as follows:

"Based on the reasons recorded, I am satisfied that this is a fit case for issuing notice under Section 148."

The assessee contended that this endorsement amounted to nothing more than a mechanical approval. The argument was that the approving authority had failed to demonstrate any independent application of mind, since the endorsement did not set out separate reasons of its own — it merely referred back to the Assessing Officer's recorded reasons and expressed satisfaction in a formulaic manner.

Precedents Cited by the Assessee

To support the argument of mechanical sanction, the assessee placed reliance on the following judicial decisions: