2015 (4) TMI 304 - HC - Income Tax

Reopening of assessment - objection to show cause-notice u/s 148 has been rejected by the ITO on the reason that required sanction of Commissioner of Income Tax was not taken due to oversight that assessment of the assessee firm had already been completed under Section 143(3) - It was stated that mistake was committed inadvertently and is curable by recourse to Section 292B - Held that - Plea is liable to be rejected because when specific provision has been inserted to the proviso to Section 151 (1), as a prerequisite condition for issuance of notice, namely, sanction of the Commissioner or the Chief Commissioner, the assessing officer cannot find escape route for not doing so by relying on Section 292B. The Delhi High Court in CIT Vs. SPL s Siddhartha Limited, 2011 (9) TMI 640 - DELHI HIGH COURT has while holding that when a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and satisfaction so recorded should be independent and not borrowed or dictated satisfaction, rejected contention of the revenue that obtaining approval from the authority other than the one who was competent to grant such approval, was mere irregularity committed by the Income Tax Officer. And that it was rectifiable under Section 292B of the IT Act cannot be accepted as such irregularity is not curable under Section 292B. In the opinion of this court also, resort to Section 292B of the IT Act cannot be made to validate an action, which has been rendered illegal due to breach of mandatory condition of the sanction on satisfaction of Chief Commissioner or Commissioner under proviso to sub-section (1) of Section 151. This is an inherent lacunae affecting the very correctness of the notice under Section 148 and is such which is not curable by recourse to Section 292B of the IT Act. - Reopening notice set aside- Decided in favour of assessee.

Summary

Issues:
1. Validity of notice issued under Section 148 of the Income Tax Act, 1961.
2. Competence of the sanction obtained for initiating proceedings under Section 148.
3. Rejection of objections to the notice under Section 148.
4. Application of Section 292B of the IT Act in curing irregularities.
5. Compliance with the proviso to Section 151(1) regarding issuance of notice under Section 148.

Validity of Notice under Section 148:
The petitioner-assessee, a partnership firm, challenged a notice dated 27.03.2014 issued under Section 148 of the IT Act for assessment year 2007-08. The petitioner argued that there was no failure to disclose relevant facts, and the notice was issued beyond the prescribed limitation period. Citing Delhi High Court's ruling in Haryana Acrylic Mfg. Co. Vs. CIT, the petitioner contended that the process was invalid due to delayed reasons supply.

Competence of Sanction for Section 148 Proceedings:
The petitioner contended that the notice required sanction from the Chief Commissioner/Commissioner, not a Joint Commissioner as obtained in this case. Relying on judgments like Reliable Finhold Limited Vs. Union of India, the petitioner argued that the proceedings were vitiated due to lack of proper sanctioning authority.

Rejection of Objections to Notice under Section 148:
The Income Tax Officer rejected the petitioner's objections to the notice, citing undisclosed income through bogus purchases. The officer found the objections meritless, referring to Rajesh Jhaveri Stock Brokers Private Limited judgment to support the belief that income had escaped assessment.

Application of Section 292B in Curing Irregularities:
The revenue argued that any oversight in obtaining the required sanction could be cured under Section 292B. However, the petitioner cited CIT Vs. SPL's Siddhartha Limited judgment to counter this argument, emphasizing that such irregularities were not curable under Section 292B.

Compliance with Proviso to Section 151(1):
The court noted that the notice was issued beyond four years from the relevant assessment year, requiring sanction from the Chief Commissioner/Commissioner. Referring to judgments like Reliable Finhold Limited and CIT Vs. H.M. Constructions, the court held that the absence of proper sanction rendered the notice invalid, rejecting the revenue's argument of inadvertent mistake curable under Section 292B.

In conclusion, the High Court of Rajasthan found in favor of the petitioner, quashing the notice and order dated 27.03.2014 and 15.01.2015, respectively. The court emphasized that the lack of proper sanction from the competent authority rendered the notice under Section 148 invalid, a deficiency not curable under Section 292B of the IT Act. The judgment highlighted the importance of complying with mandatory provisions regarding the issuance of notices under the IT Act, ensuring procedural integrity and fairness in tax assessments.