2022 (12) TMI 1553 - AT - Income Tax

Validity of the assessment framed u/s 147 - no valid approval obtained from the JCIT under the provisions of section 151 - HELD THAT - AO before issuing notice u/s 148 of the Act for initiation of reopening of the assessment is required to take approval from the higher authority being JCIT/CIT u/s 151 of the Act Approval from the JCIT was obtained dated 28 September 2017 whereas the reasons were recorded on 30 September 2017. Thus, it becomes evident that the approval has been granted by the ld. JCIT without verifying the reasons recorded by the AO for initiating the proceedings under section 147 of the Act which is contrary to the provisions of law. Hence, we hold that the notice u/s148 of the Act was issued without having valid approval and jurisdiction. Therefore the assessment framed u/s 147 r.w.s. 143(3) of the Act in the present facts is not sustainable. Decided in favour of assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The judgment presented revolves around the following core legal questions:

• Whether the reopening of assessment under section 147 of the Income Tax Act, 1961, was valid, considering the procedural requirements under section 151 of the Act.
• Whether the approval obtained from the Joint Commissioner of Income Tax (JCIT) for reopening the assessment was valid and in accordance with the law.
• Whether the assessment order passed under section 147 read with section 143(3) of the Act was sustainable in the absence of valid approval under section 151.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reopening of Assessment

• Relevant legal framework and precedents: Under section 147 of the Income Tax Act, an assessment can be reopened if the Assessing Officer (AO) has reasons to believe that income has escaped assessment. However, section 151 mandates obtaining prior approval from a higher authority, such as the JCIT, before issuing a notice under section 148.
• Court's interpretation and reasoning: The court emphasized the procedural requirement that the AO must record reasons to believe that income has escaped assessment before seeking approval from the JCIT. The approval process is intended to ensure that the reopening is not done arbitrarily and is based on tangible material.
• Key evidence and findings: The evidence presented showed that the approval from the JCIT was obtained on 28 September 2017, whereas the reasons for reopening were recorded on 30 September 2017, indicating a procedural lapse.
• Application of law to facts: The court applied the provisions of sections 147 and 151 and found that the JCIT's approval was granted without verifying the reasons recorded by the AO, rendering the reopening process invalid.
• Treatment of competing arguments: The learned DR suggested a typographical error in the dates, but the court found no substantial evidence to support this claim, thus siding with the assessee's argument of procedural non-compliance.
• Conclusions: The court concluded that the reopening of the assessment was invalid due to the lack of valid approval under section 151, and thus the assessment order was unsustainable.

Issue 2: Validity of the Assessment Order

• Relevant legal framework and precedents: An assessment order under section 147 read with section 143(3) must be based on valid initiation of proceedings, which includes obtaining proper sanction under section 151.
• Court's interpretation and reasoning: Since the reopening was deemed invalid, the subsequent assessment order was also considered void ab initio.
• Key evidence and findings: The procedural lapse in obtaining approval was central to the court's finding that the assessment order lacked jurisdictional validity.
• Application of law to facts: The court applied the legal requirement for valid initiation and found that the absence of proper approval invalidated the entire assessment process.
• Treatment of competing arguments: The court did not entertain further arguments on the merits of the assessment, as the procedural ground was sufficient to quash the order.
• Conclusions: The assessment order was quashed due to lack of jurisdiction, resulting from invalid initiation of proceedings.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "Thus, it becomes evident that the approval has been granted by the ld. JCIT without verifying the reasons recorded by the AO for initiating the proceedings under section 147 of the Act which is contrary to the provisions of law."
• Core principles established: The necessity of adhering to procedural requirements under sections 147 and 151 is crucial for the validity of reopening assessments. Approval must be based on verified reasons to believe that income has escaped assessment.
• Final determinations on each issue: The court determined that the reopening of assessment was invalid due to non-compliance with section 151, and consequently, the assessment order was quashed.

In conclusion, the judgment underscores the importance of procedural compliance in tax assessments, particularly regarding the requirement for valid approval before reopening an assessment. The court's decision to quash the assessment order highlights the judiciary's role in enforcing statutory safeguards to prevent arbitrary reopening of assessments.