2013 (6) TMI 815 - AT - Income Tax

Tribunal invalidates income tax reassessment, ruling reopening not in accordance with the law.

Income Tax Officer, Ward-16 (3), New Delhi Versus Tirupati Cylidners Ltd.

Income Tax Officer, Ward-16 (3), New Delhi Versus Tirupati Cylidners Ltd. - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether a notice under section 148 issued after the expiry of four years from the end of the relevant assessment year is valid where approval for issuance was given by the Commissioner instead of the Joint Commissioner/Additional Commissioner as required under section 151. 2. Whether the satisfaction required by section 151 must be recorded independently by the designated authority (Joint/Addl. Commissioner) and whether satisfaction 'borrowed' from or supplied by a superior authority (Commissioner) is legally effective. 3. Whether an approval given by the Commissioner in lieu of the statutorily mandated approval by the Joint/Addl. Commissioner constitutes an irregularity curable under section 292B or renders the reassessment null and void. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notice under section 148 when approval under section 151 is given by Commissioner instead of Joint/Addl. Commissioner Legal framework: Section 148 permits reopening of assessment by issuing notice; section 151 prescribes mandatory sanction/approval requirements for issuing such notice where time limits have expired - sub-section (1) and the proviso require Joint Commissioner's satisfaction in certain cases and, after expiry of four years, satisfaction of Chief Commissioner or Commissioner in specified situations; sub-section (2) applies corresponding constraints where the Assessing Officer is below rank of Joint Commissioner. Precedent treatment: The Court followed the reasoning of the jurisdictional High Court in SPL's Siddhartha Ltd., which held that where the statute prescribes a particular authority to record satisfaction, that authority alone must do so and satisfaction recorded by a different authority is ineffective; decisions noted include Sheo Narain Jaiswal and Anirudhsinhji Karansinhji Jadeja on independent exercise of statutory discretion. Interpretation and reasoning: The Court examined the assessment record and found no order under section 143(3) in the original proceedings, making the post-four-years approval requirement under section 151 applicable. The Assessing Officer conceded uncertainty about whether scrutiny assessment under section 143(3) had been made and, as a matter of 'precaution,' obtained permission from the Commissioner, not the Joint/Addl. Commissioner. The Court reasoned that section 151 prescribes which authority must be satisfied in given circumstances and that substituting the Commissioner's approval for that of the Joint/Addl. Commissioner contravenes the statutory scheme. The Court emphasized the settled principle that when a statute requires an act to be done in a specified manner by a particular authority, it must be so done; substitution or borrowing of satisfaction defeats the statutory mandate and the required independence of the approving authority. Ratio vs. Obiter: Ratio - where section 151 mandates approval by Joint/Addl. Commissioner (in the factual matrix where no section 143(3) order exists and reopening is beyond four years), approval given by the Commissioner instead is ineffective and vitiates the notice under section 148. The observations about the need for independent exercise of discretion and cited authorities are ratio supporting that conclusion. Conclusion: The notice under section 148 was invalid because the approval was not obtained from the Joint/Addl. Commissioner as required by section 151; obtaining approval from the Commissioner rendered the reopening contrary to statutory requirements and liable to be quashed. Issue 2 - Requirement of independent satisfaction by the designated authority and the effect of non-independent/'borrowed' satisfaction Legal framework: General principle of administrative law and statutory interpretation that where an authority is designated to record satisfaction, the authority must independently apply its mind; section 151 requires the specified authority to be 'satisfied, on the reasons recorded' by the Assessing Officer. Precedent treatment: Courts cited (including Supreme Court authorities and the jurisdictional High Court in SPL's Siddhartha Ltd.) establish that discretion conferred on a statutory authority must be exercised independently and not in obedience to direction or dictate from a superior; where the Assessing Officer acts merely at behest of a superior, assumption of jurisdiction is bad for non-satisfaction of the condition precedent. Interpretation and reasoning: The Court noted that the Assessing Officer himself recorded that permission from the Commissioner was taken only as a precaution because he was unsure whether a scrutiny assessment had been earlier made - an admission that the statutory precondition and appropriate channel were not followed. The Court treated such permission as indicating lack of independent satisfaction by the designated authority (Joint/Addl. Commissioner) and held that such 'borrowed' or misplaced satisfaction cannot substitute for the statutorily mandated satisfaction. Ratio vs. Obiter: Ratio - statutory satisfaction required under section 151 must be independent and recorded by the designated authority; 'borrowed' satisfaction is ineffective. Supporting decisions cited are treated as authoritative ratio on this point. Conclusion: The requirement of independent satisfaction by the designated authority was not met; the approval obtained from the Commissioner did not fulfill the statutory condition and therefore could not validate the reopening. Issue 3 - Whether the irregularity is curable under section 292B or whether it renders reassessment null and void Legal framework: Section 292B permits certain irregularities to be cured; however, statutory mandates as to which authority must record satisfaction are typically regarded as mandatory conditions precedent whose non-compliance vitiates the action. Precedent treatment: The jurisdictional High Court in SPL's Siddhartha Ltd. held that approval by the wrong authority was not an irregularity curable under section 292B and that the notice was invalid; the Court of Appeal here expressly followed that holding. Interpretation and reasoning: The Court accepted the High Court's conclusion that substitution of the Commissioner's approval for the Joint/Addl. Commissioner's approval is not a mere curable irregularity but a failure to comply with a mandatory statutory precondition. The Court observed that permitting such substitution would frustrate the legislative scheme and the hierarchy of designated authorities. Ratio vs. Obiter: Ratio - approval by the wrong authority under section 151 is not curable under section 292B and renders the notice (and consequent reassessment proceedings) invalid. Conclusion: The irregularity was not curable under section 292B; the reassessment proceedings vitiated by the improper approval were null and void and had to be quashed. Overall Conclusion The Court held that, in the absence of a prior section 143(3) scrutiny assessment and with the notice issued beyond the four-year period, approval under section 151 had to be given by the Joint Commissioner/Additional Commissioner. Approval given by the Commissioner instead was ineffective; the required independent satisfaction was not recorded by the designated authority, and the irregularity was not curable under section 292B. Accordingly, the reopening under section 148 and the reassessment were held to be not in accordance with the Act and were quashed.