With effect from 01.06.2015, as per section 151(1), Notice under section 148 cannot be issued by the AO after expiry of four years from end of the relevant AY without prior approval of PCCIT or CCIT or PCIT or CIT. The authority should, on the reasons recorded by the AO, sanction that it is a fit case for the issue of such notice.
As per section 151(2), in other cases (within four years), the AO below the rank of JCIT need to take approval of JCIT.
Section 151(3) further provides that the approving authority need not issue the notice himself.
The earlier (prior to 1.4.2015) distinction between regular assessment or summary assessment is not relevant now.
The sanction of Notice under section 151 is an safeguard against the arbitrary action of the AO in reopening the assessment for earlier assessment year.
Many issues have come before Courts with respect to sanction under section 151. These are discussed below:
Opportunity of hearing before according sanction
There is no requirement in the provisions that an opportunity of being heard must be granted before according sanction.
Haji Ali Mohamed v. CIT (1940) 8 ITR 243 (Nag) – Before according a sanction there is no requirement in the provisions that an opportunity of being heard must be granted.
Cases where Notice issued without approval
CIT v Suman Waman Chaudhary 321 ITR 495 (Bom HC) – The HC held that notice issued without approval of concerned authority is without jurisdiction. Department SLP dismissed at 312 ITR (st) 339.
Cases where Notice issued with approval of authority not prescribed in section 151
As per the provisions of section 151, the competent authority, be it PCIT or JCIT, have to approve the proposal of the AO reopening an assessment for the back assessment years. When approval is given by different authority the reopening of assessment is unsustainable.
Ghanshyam Khabrani v ACIT, (2012) 346 ITR 443, [2012] 20 taxmann.com 716 (Bom HC) – The AO took approval from CIT for reopening instead of Additional CIT. The HC held that same is bad in law and unsustainable.
CIT vs. Aquatic Remedies P. Ltd. 406 ITR 545 (Bom) – The HC held that since the designated authority for sanction for issue of reassessment Notice u/s. 148 is Additional Commissioner, sanction by Commissioner is not valid. Therefore, the order of reassessment is without jurisdiction and invalid.
PCIT vs. Khushbu Industries ITA NO. 1035 OF 2017 dated December 7, 2019 (Bombay High Court) – the HC held that as the Act provides for sanction by the JCIT, the sanction by the CIT does not meet the requirement of the Act and the reopening notice is without jurisdiction. The HC observed that fact that the sanction is granted by a superior officer is not relevant.
Miranda Tools (P.) Ltd. v. ITO [2020] 114 taxmann.com 584 (Bombay) – The AO issued reassessment notice on basis of sanction granted by Chief Commissioner. The HC held that since Chief Commissioner was not specified officer under section 151(2) to grant such sanction, impugned notice was to be quashed.
Sardar Balbir Singh v. ITO [2015] 61 taxmann.com 320 (Lucknow – Trib.) – Notice under section 148 was issued after obtaining sanction from Commissioner instead of Joint Commissioner, who is competent authority to approve issuance of notice. The ITAT held that assessment framed consequent thereto was not valid and same was void ab initio.
CIT v SPL Siddhartha Ltd (2012) 345 ITR 223 (Delhi HC) – The Delhi HC held that sanction by CIT instead of JCIT or Ad. CIT is bad in law and reopening is to be set aside. Same view in DSJ Communication Ltd v DCIT (2014) 41 taxmann.com 151 (Bombay HC), Yum ! Restaurants Asia Pte Ltd v. Dy. DIT (No.1) (2017) 397 ITR 639 (Delhi) (HC) and Sunint Investment & Technologies (P.) Ltd. 26 Taxmann.com 260 (Delhi HC).
Dhadda Exports v ITO [2015] 58 taxmann.com 176 (Rajasthan HC) – Sanction taken from JCIT instead of CIT. The HC quashed 148 notice issued without sanction of CIT.
Anil Jaggi. v. CIT (2018) 168 ITD 599 (Mumbai Trib) – Failure on part of Assessing Officer to take sanction of appropriate authority would go to very root of validity of assumption of jurisdiction by Assessing Officer hence the order is bad in law.
Cases where Notice issued with mechanical sanction
Section 151(1) and (2) provide that the authority should, on the reasons recorded by the AO, sanction that it is a fit case for the issue of such notice. Therefore, the competent authority who authorize the reassessment notice, has to apply his mind and form an opinion. It is not as if the authority has to record elaborate reasons for agreeing with the reasons put up by AO. At the same time, satisfaction has to be recorded in a given case, which can be reflected in the briefest possible manner. The Courts have consistently held that mechanical approval is not sufficient.
S. Narayanappa vs. CIT 63 ITR 219 (SC) – The apex court held that the stage of obtaining approval from higher authority was administrative in character and not a quasi judicial act. Generally an administrative act cannot be brought under judicial scrutiny.
However, in a subsequent decision of Supreme Court a different view was taken. In the case of Chhugamal Rajpal vs. S.P. Chaliha 79 ITR 603 (SC), it has been held that where the Commissioner, while granting the sanction just noted the word “Yes” and affixed his signature thereunder, he had only mechanically accorded permission. The SC observed that the important safeguard provided in section 151 were lightly treated by both ITO and CIT.
United Electrical Co. P. Ltd. v. CIT (2002)258 ITR 317 (Delhi HC), [2002] 125 Taxman 775 (Delhi) – The HC held that the power vested in the Commissioner under Section 151 to grant or not to grant approval to the AO to reopen an assessment is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the AO. That power cannot be exercised casually, in a routine and perfunctory manner.
PCIT v. N. C. Cables Ltd. (2017) 391 ITR 11 (Delhi HC), [2017] 88 taxmann.com 649 (Delhi) – The HC held that reassessment was not valid when there was no proper application of mind by concerned sanctioning authority under section 151. The HC observed that mere appending of the expression “approved” says nothing. The HC held that in the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer.
My Car (Pune) Pvt. Ltd. v ITO [2019] 104 taxmann.com 18 (BOMBAY HC) – The AO issued reopening notice against assessee on grounds that assessee had received accommodation entries from an entity. However while order granting sanction to reopening under section 151, CIT observed that the assessee was engaged in providing accommodation entries. Held that impugned sanction was granted without application of mind to reasons recorded for reopening and therefore impugned reopening notice was bad in law. The HC observed as follows: “It is a settled position in law that grant of the sanction by the Commissioner of Income Tax under Section 151 of the Act, is not a mechanical act on his part but it requires due application of mind to the reasons recorded before granting the sanction. This has been so provided as to safeguard against issue of reopening notice (which seek to disturb the settled position) to ensure that assessee is not troubled with reopening issues without satisfactory reasons. Therefore, it must pass muster of the Superior Officer in the context of Sections 147 and 148 of the Act, before it is issued to the party.”
Other cases wherein it is held that authorities having mechanically granted approval for reopening of assessment without application of mind is invalid and not sustainable are as follows:
- German Remedies Ltd vs. Dy. CIT (2006) 287 ITR 494 (Bombay HC)
- CIT v. S. Goyanka Lines & Chemical Ltd [2015] 56 taxmann.com 390 (Madhya Pradesh HC). SLP dismissed at (2015) 64 taxmann.com 313 (SC).
- Asiatic Oxygen Ltd.v. Dy. CIT (2015) 372 ITR 421 (Cal HC)
- Maruti Clean Coal and Power Ltd. v. ACIT (2018) 400 ITR 397 (Chhattisgarh HC)
Merely stating/affixing ‘yes’ or ‘approved’ is not sufficient
Many a times the authorities just write “yes, I am satisfied” or “approved” while according sanction under section 151. The Courts have taken a view that such action does not in any manner shed any light as to whether there was any application of mind at all by the authorities
Central India Electric Supply Co. Ltd. vs. ITO [2011] 10 taxmann.com 169, (2011) 51 DTR 51 (Delhi HC) – The HC held that what is expected, is that an appropriate endorsement is made setting out brief reasons. The HC held that mere rubber stamping ‘Yes’ of underlying material would suggest that there was no application of mind and decision had been taken in a mechanical manner.
DCIT v. Dharampal Satyapal Ltd. (2016) 130 DTR 241/ 175 TTJ 217 (Delhi)(Trib.) – The ITAt held that “the Additional Commissioner and Commissioner has simply written “Yes I am satisfied” on the same day, i.e. which does not in any manner shed any light as to whether there was any application of mind at all by the aforesaid two senior officers, who were duty bound to have looked in to carefully the reasons recorded by the Assessing Officer and seen the history behind the assessment which was proposed to be reopened by the Assessing Officer.”
Blue Chip Developers (P) Ltd vs. ITO ITA No 1061/Del/2019 (ITAT Delhi) – The ITAT held that if the PCIT, while granting approval for issue of notice u/s. 148, has only mentioned “YES”, it establishes that the approving authority has given approval to the reopening of assessment in a mechanical manner without due application of mind. The ITAT held that on this count the reassessment is not sustainable in the eyes of law and needs to be quashed.
Notice issued before Sanction not proper
Svitzer Hazira Pvt. Ltd. vs. ACIT [2021] 441 ITR 19 (Bom) – For Issue of Reassessment Notice, Sanction of prescribed authority should be obtained prior to issue of notice. Approval granted after issue of notice. No valid explanation by cogent material that physical approval was granted before issuance of notice. Further held that approval saying merely “yes, I am satisfied” is not proper. There is non-application of mind on part of specified authority. Notice is not valid.