Rajasthan High Court Invalidates Tax Notice for Lack of Proper Sanction, Emphasizes Compliance and Procedural Integrity

The High Court of Rajasthan ruled in favor of the petitioner, quashing the notice and order dated 27.03.2014 and 15.01.2015, respectively. The court held that the lack of proper sanction from the competent authority rendered the notice under Section 148 invalid, emphasizing the importance of complying with mandatory provisions in tax assessments. The court highlighted that the deficiency was not curable under Section 292B of the IT Act, underscoring the significance of procedural integrity and fairness in tax matters.

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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.

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