2022 (7) TMI 685 - AT - Income Tax

Validity of reopening of assessment u/s 147 - Mandation of obtaining sanction of JCIT - addition made u/s 68 - HELD THAT - Admittedly before initiation of proceeding under section 147 of the Act there was no assessment made either under section 143(3) or section 147 of the Act. Therefore assessee s case falls under sub-section (2) of section 151 of the Act. Thus before issuance of notice under section 148 sanction of JCIT was required to be obtained. However on perusal of the form for recording the reasons for initiating the proceedings under section 148 and obtaining sanction/approval for issuance of notice u/s 148 of the Act a copy of which was submitted before us by learned Departmental Representative it is very much evident that the AO has obtained the approval/sanction of the Commissioner of Income Tax on 28.03.2011 for issuance of notice under section 148 - Therefore it is very much clear the sanction/approval obtained by the AO for issuance of notice under section 148 of the Act is not by the competent authority in terms with section 151(2) of the Act. In fact in the reasons recorded the Assessing Officer has clearly stated that he has obtained approval/sanction from the Commissioner of Income Tax. It is a well settled legal principle that when a statutory provision requires a certain act to be done by a particular authority in a particular manner it should be done by that authority in that manner only. Any other authority be it higher or inferior cannot substitute the authority prescribed under the statute. The legal principle on this aspect is very much clear and leaves no room for doubt. Merely because the approval/sanction is granted by a superior authority it will not make the proceeding valid. Though there are host of other decisions laying down the same legal principle however for avoiding multiplicity we desist from discussing all the case laws. Thus considering the fact that sanction/approval for issuance of notice under section 148 of the Act has not been granted by the prescribed authority in terms with section 151(2) of the Act the notice issued under section 148 of the Act has to be declared as invalid. As a natural corollary assessment order passed in pursuance thereof is also invalid. The said assessment order being legally unsustainable has to be quashed. Accordingly we do so.

Summary

Issues Involved:
1. Validity of reopening of assessment under section 147 of the Income-tax Act.
2. Merits of addition made under section 68 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147 of the Income-tax Act:

The primary issue raised by the assessee in grounds 1 and 2 concerns the validity of the reopening of the assessment under section 147 of the Income-tax Act. The assessee contended that the approval for reopening the assessment was not granted by the competent authority as required under sub-section (2) of section 151 of the Act. It was argued that since the original assessment was made under section 143(1) of the Act, the Joint Commissioner of Income Tax (JCIT) was the competent authority to grant sanction for the issuance of notice under section 148. However, in this case, the sanction was granted by the Commissioner of Income Tax (CIT), which the assessee claimed invalidated the entire proceeding under section 147.

The Departmental Representative acknowledged that the sanction was indeed granted by the CIT but argued that since a superior authority had granted the sanction, it should not be considered invalid.

Upon examining the rival submissions and the materials on record, the Tribunal noted that the original return of income filed by the assessee was processed under section 143(1) and not subjected to scrutiny assessment. Therefore, as per section 151(2) of the Act, the sanction for issuance of notice under section 148 should have been obtained from the JCIT. The Tribunal found that the approval for the issuance of notice under section 148 was obtained from the CIT, not the JCIT, thus violating the statutory requirement.

The Tribunal cited several judicial precedents, including the decision of the Hon'ble Delhi High Court in the case of Yum! Restaurants Asia Pte Ltd. Vs. DDIT & Ors., which emphasized that when a statutory provision requires a certain act to be done by a particular authority in a particular manner, it should be done by that authority in that manner only. Any deviation from this prescribed procedure renders the action invalid.

Given the clear legal principle and the facts of the case, the Tribunal concluded that the sanction for the issuance of notice under section 148 was not granted by the competent authority as required under section 151(2) of the Act. Consequently, the notice issued under section 148 was declared invalid, and the assessment order passed in pursuance thereof was also deemed legally unsustainable and quashed.

2. Merits of Addition Made under Section 68 of the Income-tax Act:

Since the Tribunal found the reopening of the assessment under section 147 to be invalid, the merits of the addition made under section 68 of the Income-tax Act became academic and were not adjudicated. The Tribunal set aside the impugned order of the learned Commissioner (Appeals) and allowed the appeal in favor of the assessee.

Conclusion:

The Tribunal allowed the appeal, declaring the reopening of the assessment under section 147 invalid due to the sanction for the issuance of notice under section 148 not being granted by the competent authority as required under section 151(2) of the Act. Consequently, the assessment order passed was quashed, and the merits of the addition under section 68 were not examined. The decision was pronounced in the open court on 14th July, 2022.