Reassessment proceedings were quashed because the mandatory approval for reopening the case was given by the wrong authority.

Issue

Is a reassessment proceeding legally valid if the sanction to issue the notice under Section 147 is granted by an authority other than the one specified as the competent authority under Section 151 of the Income-tax Act, 1961?

Facts

The assessee’s assessment for the Assessment Year 2006-07 was originally completed under Section 143(3).
Later, the Assessing Officer initiated reassessment proceedings on the ground that the assessee had not disclosed income as per its profit and loss account.
The assessee challenged the validity of the reopening, not on the merits of the addition, but on a procedural ground.
It was noted that the approval for reopening the assessment was granted by the Commissioner of Income Tax.
However, as per the provisions of Section 151(2) applicable to the case, the competent authority to grant such approval was the Joint Commissioner.

Decision

The High Court held that the approval granted by the Commissioner was contrary to the specific provisions of the law. Since the reopening was initiated without proper and valid approval from the competent authority as required under Section 151, the entire reassessment proceeding was illegal and without jurisdiction. Consequently, the proceedings were quashed.

Key Takeaways

Jurisdiction is Non-Negotiable: The requirement of obtaining sanction from the correct authority under Section 151 is a jurisdictional prerequisite. It is not a mere procedural formality.
Approval by a Higher Authority is Not Valid: Even if the approval is granted by an authority superior to the one prescribed (in this case, the Commissioner instead of the Joint Commissioner), it is still considered invalid. The law must be followed strictly as written.
Defective Sanction Vitiates the Entire Proceeding: An invalid sanction renders the notice for reopening void ab initio (from the beginning), and all subsequent proceedings and orders are consequently nullified.

IN THE ITAT DELHI BENCH ‘B’

Sportking India Ltd.

Joint Commissioner of Income-tax

Yogesh Kumar U.S., Judicial Member
and Avdhesh Kumar Mishra, Accountant Member

IT Appeal No. 2223 (Delhi) OF 2018
[Assessment year 2006-07]

SEPTEMBER 1, 2025

Ashwani Kumar, Ankur Agarwal and Aditya Kumar, CAs for the Appellant. Ms. Suman Malik and Surinder Pal, CIT-DRs for the Respondent.

ORDER

Avdhesh Kumar Mishra, Accountant Member. – This appeal for the Assessment Year (‘AY’) 2006-07 filed by the assessee is directed against the order dated 31.01.2018 of the Commissioner of Income Tax (Appeals)-31, New Delhi [‘CIT(A)’].

2. The assessee has raised following grounds of appeal: –

“1. That the order dated 31-01-2018 passed u/s 250 of the Income-tax Act. 1961 (hereinafter called “the Act”) by the Learned Commissioner of Income-Tax (Appeals)-31 New Delhi is against law and facts on the file in as much as he was not justified to pass the order ex-parte, on the basis of material available on record, without giving the Appellant Company an adequate opportunity of being heard in the matter.

2. That the order dated 31-01-2018 passed u/s 250 of the tax by the Learned Commissioner of Income-Tax (Appeals)-31, New Delhi is against law and facts on the file in as much as he was not justified to hold that the Appellant Company had withdrawn the argument relating to compliance with the provisions of Section 151 of the Act while initiating notice u/s 147/148 of the Act whereas the fact of the matter is that the Appellant Company had only withdrawn the ground challenging the Ld. Assessing Officer’s action u/s 147/148 of the Act and not the issue related to challenge the validity of notice u/s 147/148 of the Act on the ground of inappropriate Section 151 of the Act.

3. That the order dated 31-01-2018 passed u/s 250 of the Act by the Learned Commissioner of Income-Tax (Appeals)-31 New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned JCIT, Circle -9(1), New Delhi in passing the order u/s 148 of the Act by not appreciating the facts that the order passed by the Ld. Assessing Officer was without jurisdiction and bad in law as the notice issued u/s 148 was not in compliance with the provisions of Section 151 of the Act.

4. That the order dated 31-01-2018 passed u/s 250 of the Act by the Learned Commissioner of Income-Tax (Appeals) -31 New Delhi is against law and facts on the file in as much as he was not justified to uphold the action of the Learned JCIT, Circle -9(1), New Delhi in making an addition of the following amounts, which have been treated below the line in the Profit and Loss Account, to the book profit for computing MAT liability u/s 115JB of the Act: –

(a)

Rs.11,89,39,802/- on account of Depreciation adjustment related to earlier years;

(b)

Rs.4,48,38,000/- on account of Deferred Tax related to earlier years

(c)

Rs.16,077/- on account of excess provision of income tax related to earlier years.”

3. The relevant facts giving rise to this appeal are that the appellant assessee filed its return declaring income of Rs.35,13,830/- on 31.11.2006. However, the appellant assessee whose income taxable under section 115JB of the Income Tax Act, 196I (‘Act’) on the profit of Rs.2,91,77,210/- as per the Profit & Loss Account had not disclosed taxable income under section 115JB of the Act. The case was picked up for scrutiny and the assessment was completed at returned income under section 143(3) of the Act vide order dated 23.12.2008. Subsequently, the case was reopened vide notice, dated 31.03.2011, under section 148 of the Act by the Deputy Commissioner of Income Tax, Circle-9(1), New Delhi. The re-assessment was completed at income of Rs.14,75,17,011/- vide order dated 30.12.2011, wherein additions in book profit were made on account of depreciation and deferred tax of earlier years amounting to Re.11,89,39,802/- & Rs.4,48,38,000/-, provision of income tax of Rs.27,00,000/- & deferred tax of Rs.49,69,000/- respectively and deduction of Rs.16,16,077/- was allowed on account of MAT credit and prior year income tax. Aggrieved with the original assessment order dated 30.12.2011, the assessee filed appeal before the CIT(A) who dismissed the appeal vide order dated 28.02.2013. wherein the proceedings were adjudicated vide order dated 28.02.2013, wherein grounds challenging the validity of reopening of assessment under section 148 of the Act was dismissed as withdrawn and other grounds were decided against the appellant assessee.

3.1 Aggrieved with the order dated 28.02.2013 of the Ld. CIT(A), the appellant assessee filed appeal before the Tribunal, who vide Sportking India Ltd v. JCIT [IT Appeal No. 3405 (Delhi) of 2013, dated 25-7-2014], remanded the appeal back to the file of the Ld. CIT(A) as under:

“Since the Jurisdictional issue is to be first decided and only there after the appeal on merits can be decided in view of the same, we set aside the entire impugned order directing the CIT(A) to first decide the jurisdiction issue and if still so warranted on facts decide the appeal on merit denovo after giving the assessee a reasonable opportunity of being heard “

3.2Vide the above-mentioned order, the Tribunal remanded both issues; jurisdictional as well as merit of additions to the Ld. CIT(A) to decide the case de-novo. Admittedly, the jurisdictional grounds were withdrawn by the assessee through its counsel during the appellate proceedings against the original assessment order before the Ld. CIT(A). Hence, the Ld. CIT(A) did not adjudicate this issue in the first round of appellate proceedings. However, the Tribunal, vide its order dated 25.07.2014 in ITA No.3405/Del/2013, revived the jurisdictional issue to be decided first in the remanded appellate proceedings. Thus, the technical issue of validity of reopening of the assessment revived by the Tribunal is broadly categorized under three sub-heads as under:

whether the approval granted under section 151 of the Act is valid,

ii.

whether the appellant assessee had failed to disclose fully and truly all material facts necessary for the original assessment and

iii.

whether the reasons so recorded by the AO hold merit.

3.3 In the remanded appellate proceeding, the Ld. CIT(A) did not decide the issue of sufficiency of reasons recorded by the AO for reopening the assessment and its approval thereof under section 151 of the Act on the reasoning that the assessee had withdrawn the said ground of appeal earlier; hence, this limited issue was decided accordingly. However, the issue that whether the assessee had failed to disclose fully and truly all material facts necessary for the original assessment, has been dealt in para 10.3 to 10.7 of the impugned order. Remaining grounds, on merit, were also decided against the assessee. Therefore, the assessee is before us.

4. At the outset, the Ld. AR pressed for adjudication of jurisdictional issue first and other grounds, if required, thereafter. The case was therefore, heard only on the jurisdictional issue. The Ld. AR submitted that the Jurisdictional issue could be revived at this stage even after the withdrawal of the said issue by the assessee’s Counsel as the said issue was at the heart of the matter as a jurisdictional defect or a legal defect could not be cured by consent. The Ld. AR thus prayed that the issue of jurisdiction should be decided on merit. He placed reliance on the decision of the Hon’ble Supreme Court in the case of S Kuldeep Singh v. S. Prithpal Singh [Civil Appeal No. 81 of 2011, dated 2-8- 2022] Our attention was drawn towards the following part of the decision:

“In cases where the authority lacked jurisdiction under a special Act and yet exercises powers, without authority of law, any order or decree so passed through such unlawful exercise of power, will be a legal nullity. The deficiency of jurisdiction of the authority cannot be cured by the consent of the parties. The challenge to such an incompetent order could be set up wherever it is sought to be enforced or relied upon, even in execution or in collateral proceedings.”

4.1 The Ld. AR thus submitted that the withdrawal of any legal ground would not cure the illegality of the order and that was why the Tribunal,vide its order dated 25.07.2014 in ITA No.3405/Del/2013, revived the jurisdictional issue. Thus, the issue of withdrawal of jurisdictional issue did not have any locus standi in the second round of the appellate proceedings and in particular the present appeal. The Ld. AR, drawing our attention to page 28 of the impugned order, submitted that the notice for re-assessment had been undoubtedly issued by the Deputy Commissioner of Income Tax, Circle-9(1), New Delhi (below the rank of Joint Commissioner of Income Tax). Therefore, the Deputy Commissioner of Income Tax, Circle-9(1), New Delhi/Assessing Officer (‘AO’) was required to take administrative approval of the Joint Commissioner of Income Tax as the case was reopened within the period of four years from the end of the relevant AY. However, in the present case, the approval under section 151(2) of the Act of the Commissioner of Income Tax was there instead of the Joint Commissioner of Income Tax. Accordingly, the Ld. AR contended that the notice issued under section 148 of the Act was invalid and beyond jurisdiction.

4.2 The Ld. AR, drawing our attention to page 28 of the impugned order, further submitted that the AO had not established the failure of appellant assessee to disclose fully and truly all material facts necessary for the original assessment while recording the reasons for reopening the assessment. There was no whisper in this regard in the reasons recorded under section 147 of the Act. However, the Ld. CIT (A) in his findings had stated that it was the duty of the appellant assessee to inform the AO while completing the assessment order about a law that was introduced retrospectively, which as per the Ld. CIT (A) tantamounted to the appellant assessee’s failure in not disclosing full and true material facts before the AO which were necessary for the original assessment. The Ld. AR further submitted that the phrase used in the section is material facts, which could not be equated with the law. The case laws relied upon by the Ld. CIT(A) revolve around the disclosure of material facts by the assessee and not the disclosure of material laws by the assessee. The law had to be interpreted by the AO and under no circumstances was the appellant’s obligation to inform the AO about the amendment, which in any case as per the appellant was not applicable or relevant for the matter, submitted the Ld. AR. It was further contended that if it was merely an issue of the AO having made a mistake by not applying the relevant provisions of law, then it did not become a case of income escaping assessment but a simple issue of rectification of a mistake, which the AO had not exercised. The Ld. AR submitted that the Ld. CIT(A) could not improve upon to the reasons recorded by the AO as it was his satisfaction and not of the any other income tax authority including supervisory and appellate both. Accordingly, the Ld. AR argued that the impugned order passed by the Ld. CIT(A) should be set aside.

5. The Ld. CIT-DR argued vehemently and defended the order of Authorities below. However, he failed to point out any factual inconsistency in the submission of the Ld. AR.

6. We have heard both parties and have considered the material available on the record. We are of the considered view that the issue of jurisdiction in this case, even after withdrawal of the said issue in the first round of appellate proceedings before the Ld. CIT(A), has been revived by the Tribunal, vide its order dated 25.07.2014 in ITA No.3405/Del/2013.Therefore, we are deciding the legal ground of assumption of jurisdiction for reopening the assessment. The main issue in this case revolves around the validity of the reopening under section 147 of the Act. The assessee has challenged the assumption of jurisdiction for reopening the assessment. We take note of the fact that the approval under section 151(2) of the Act has been granted by the Commissioner of Income Tax instead of the Joint Commissioner of Income Tax. Such approval is contrary to the provisions of the law. the Hon’ble Bombay High Court in the case of Ghanshyam K. Khabrani v. Asstt. CIT 75 (Mag.)/346 ITR 443 (Bom) in Writ Petn. No.1246 of 2012 also settled that in context of section 151(2) of the Act that there is no statutory provision under which a power to be exercised by an officer can be exercised by a superior officer. Thus, where in the governing circumstances of the case, sanction was to be accorded by the Joint Commissioner of Income Tax, Commissioner of Income Tax cannot step into to play the role of Joint Commissioner of Income Tax and accord sanction. The court particularly noted that the Commissioner of Income Tax is not Joint Commissioner of Income Tax within the meaning of section 2(28C) of the Act. The Hon’ble Court observed per Para No.6 – 7 of its pronouncements as below: –

“6. The second ground upon which the reopening is sought to be challenged is that the mandatory requirement of Section 151(2) has not been fulfilled. Section 151 requires a sanction to be taken for the issuance of a notice under Section 148 in certain cases. In the present case, an assessment had not been made under Section 143(3) or Section 147 for A.Y. 2004_-05. Hence, under sub section 2 of Section 151,no notice can be issued under Section 148 by an Assessing officer who is below the rank of Joint Commissioner after the expiry of 4 years from the end of the relevant Assessment Year unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. The expression “Joint Commissioner” is defined in Section 2(28C) to mean a person appointed to be a Joint Commissioner of Income Tax or an Additional Commissioner of Income Tax under Section 117(1). In the present case, the record before the Court indicate that the Assessing Officer submitted a proposal on 28 March 2011 to the CIT(1) Thane through the Additional Commissioner of Income Tax Range (I) Thane. On 28 March 2011, the Additional CIT forwarded the proposal to the CIT and after recording a gist of the communication of the Assessing Officer stated that: “As requested by the A.O. Necessary approval for issue of notice u/s. 148 may kindly be granted in the case, if approved.”

On this a communication was issued on 29 March 2011 from the office of the CIT (1) conveying approval to the proposal submitted by the Assessing officer. There is merit in the contention raised on behalf of the Assessee that the requirement of Section 151(2) could have only been fulfilled by the satisfaction of the Joint Commissioner that this is a fit case for the issuance of a notice under Section 148. Section 151(2) mandates that the satisfaction has to be of the Joint Commissioner. That expression has a distinct meaning by virtue of the definition in Section 2(28C). The Commissioner of Income Tax is not a Joint Commissioner within the meaning of Section 2(28C). In the present case, the Additional Commissioner of Income Tax forwarded the proposal submitted by the Assessing Officer to the Commissioner of Income Tax. The approval which has been granted is not by the Additional Commissioner of Income Tax but by the Commissioner of Income Tax. There is no statutory provision here under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner. In a similar situation the Delhi High Court in Commissioner of Income Tax v. SPL’S Siddhartha Ltd. (ITA No.836 of 2011 decided on 14 September 2011) held that powers which are conferred upon a particular authority have to be exercised by that authority and the satisfaction which the statute mandates of a distinct authority cannot be substituted by the satisfaction of another. We are in respectful agreement with the judgment of the Delhi High Court.

7. In view of the findings which we have recorded on submissions (i), (ii) and (iv), it is not necessary for the Court to consider submission (iii) which has been urged on behalf of the Assessee. Once the Court has come to the conclusion that there was no compliance of the mandatory requirements of Section 147 and 151(2), the notice reopening the assessment cannot be sustained in law.”

7. In light of the above judicial precedents, we are of the considered view that the reopening in the present case has been done without proper approval from the competent authority, as required under section 151 of the Act. Consequently, the entire reassessment proceedings are hereby quashed and the impugned order thus stands set aside. Since the reassessment was invalidated, we did not need to address the other grounds raised by the assessee on merits.

8. The appeal of the assessee is allowed as above.