2019 (11) TMI 1107 - HC - Income Tax

Reopening of assessment u/s 147 - addition u/s 68 - approval of the Chief Commissioner of Income Tax taken or not? - proposal placed on record shows that it bears Inward Stamp of the Additional Commissioner of Income Tax, Mumbai - HELD THAT - Whether the communication dated 13 February 2019 accords a final approval. This question we answer in the negative. Though the words I feel that this is a fit case are used in the communication, the further part of the communication seeks an approval of the Chief Commissioner of Income Tax, Therefore, this opinion was subject to the approval of the Chief Commissioner of Income Tax. The communication dated 13 February 2019 cannot, therefore, be considered as a final sanction. Whether the sanction granted by the Chief Commissioner of Income Tax would fulfill the requirement of section 151 - whether the sanction granted by the Chief Commissioner of Income Tax would fulfill the requirement of section 151? - HELD THAT - It is long been settled that when the statute mandates the satisfaction of a particular authority for the exercise of power then it has to be done in that manner only. Adopting this principle, the Division Benches of this Court in the case of Ghanshyam K. Khabrani v. Asst. CIT 2012 (3) TMI 266 - BOMBAY HIGH COURT and CIT v. Aquatic Remedies P.Ltd. 2018 (8) TMI 135 - BOMBAY HIGH COURT have held that sanction for issuance of reopening notice has to be obtained from the Authority mentioned in Section 151 and not from any other officer including a superior officer. In the present case the Chief Commissioner of Income tax is not the officer specified in section 151 of the Act. There is thus a breach of requirement of section 151(2) of the Act regarding sanction for issuance of notice under section 148 of the Act. Consequently, the impugned notice and the impugned order cannot be sustained in law. The Petitioner, therefore, is entitled to succeed.

Summary

Issues:
1. Validity of notice for reopening assessment under section 148 of the Income Tax Act, 1961.
2. Grounds for challenging the notice and order passed by the Assessing Officer.

Analysis:

Issue 1: Validity of Notice for Reopening Assessment
The Assessing Officer issued a notice under section 148 of the Act on 26 February 2019, alleging that the income chargeable to tax in respect of share application money for the assessment year 2014-15 had escaped assessment. The Petitioner contended that the sanction obtained by the Assessing Officer from the Chief Commissioner of Income Tax did not fulfill the requirements of section 151(2) of the Act. The Additional Commissioner of Income Tax had endorsed the proposal for reopening the assessment, but it was subject to final approval by the Chief Commissioner. The court held that the Chief Commissioner's sanction was not in accordance with the statutory requirement of section 151(2) as the Chief Commissioner is not the specified authority under the Act. Citing previous judgments, the court emphasized that the satisfaction of a particular authority as mandated by the statute must be strictly adhered to. Therefore, the notice and order based on the invalid sanction were deemed unsustainable in law.

Issue 2: Grounds for Challenging the Notice and Order
The Petitioner raised multiple grounds to challenge the impugned order, including that the share application money was on capital account, no new tangible material was presented by the Assessing Officer, it was a case of a clear change of opinion, the notice was addressed to a non-existing entity, and the sanction obtained was legally flawed. The court decided to address the issue of the validity of the sanction first, as success on this ground would render the other grounds academic. After thorough examination, the court concluded that the sanction granted by the Chief Commissioner did not meet the requirements of section 151(2) and, therefore, invalidated both the notice and the order. Consequently, the court quashed the impugned notice dated 26 February 2019 and the order dated 15 July 2019, thereby disposing of the petition in favor of the Petitioner.

In conclusion, the High Court of Bombay, through a detailed analysis, found the sanction for reopening the assessment to be invalid due to non-compliance with the statutory provisions, leading to the quashing of the notice and order issued by the Assessing Officer. The judgment highlighted the importance of strict adherence to statutory requirements in matters of reassessment under the Income Tax Act, ultimately ruling in favor of the Petitioner based on the legal inadequacy of the sanction obtained.