2024 (3) TMI 888 - HC - Income Tax

Reassessment notices under Section 148 quashed as sanction not granted by authority under amended Section 151

The Madras HC quashed reassessment notices under Section 148 and orders under Section 148A(d) for assessment years 2016-17 and 2017-18. The court held ... Sanction for issue of notice - Specified authority for purposes of section 148 and 148A - Applicability of amended Section 151 - Proviso to Section 149 and incorporation by reference - Effect of TOLA on sanction and time limits - Quashing of notice and consequential orders for lack of valid sanctionApplicability of amended Section 151 - Specified authority for purposes of section 148 and 148A - Amended Section 151 applies to reassessment proceedings initiated after 01.04.2021 in respect of assessment years beginning before 01.04.2021. - HELD THAT: - The amendments effected by the Finance Act, 2021 came into force on 01.04.2021. The orders under Section 148A(d) and notices under Section 148 impugned in these petitions were issued on 28.07.2022. The Court examined the text of amended Section 151, which prescribes different authorities depending on whether three years or less, or more than three years, have elapsed from the end of the relevant assessment year. Given that the proceedings were initiated after the amendment came into force, the validity of sanction must be tested with reference to the amended provision. The Court concurred with the view in Siemens Financial Services and related decisions that amended Section 151 governs such sanction for notices issued post-amendment. [Paras 10, 11, 15]Amended Section 151 is applicable and governs the specified authority for sanction in these cases.Proviso to Section 149 and incorporation by reference - Sanction for issue of notice - The proviso to Section 149 does not by itself incorporate pre-amended Section 151 by reference so as to make the pre-amended sanctioning regime applicable. - HELD THAT: - The proviso to amended Section 149 makes certain pre-amendment time limits applicable to assessment years beginning on or before 01.04.2021, but it only renders the time limits of pre-amended Section 149(1)(b) applicable; it does not incorporate the entirety of the pre-amended provisionary scheme, nor expressly import pre-amended Section 151. The Court held that the proviso's limited operation on time limits cannot be stretched to revive the pre-amendment specification of sanctioning authorities; a fortiori, there is no textual basis to treat pre-amended Section 151 as incorporated by reference into the amended code governing proceedings initiated after the amendment. [Paras 11, 12, 13]The proviso to Section 149 does not operate to make pre-amended Section 151 applicable.Effect of TOLA on sanction and time limits - Quashing of notice and consequential orders for lack of valid sanction - TOLA's extension of time limits is irrelevant to the challenge based on identity of the sanctioning authority; since sanction was not accorded by an authority specified under amended Section 151, the orders under Section 148A(d), notices under Section 148 and consequential draft assessment orders are quashed. - HELD THAT: - Although TOLA extended certain limitation periods and the temporal window for grants of sanction up to specified dates, the petitioner did not challenge sanction on the basis of time-limit expiry. The determinative question was whether the sanction was granted by an authority prescribed under amended Section 151. On the admitted facts, approval was given by the Commissioner of Income Tax (International Taxes), Chennai, whereas for these assessment years (more than three years elapsed) clause (ii) of amended Section 151 requires sanction by higher specified authorities. The Court, following Siemens Financial Services and related decisions, found that sanction was not granted by the authority specified under clause (ii) and therefore was invalid. Consequently the orders and notices issued with that invalid sanction, and the draft assessment orders dependent on them, were quashed. [Paras 14, 15]TOLA does not affect the present challenge; absence of sanction by an authority under amended Section 151 renders the impugned orders and notices invalid and they are quashed, as are the consequential draft assessment orders.Final Conclusion: Writ petitions allowed: amended Section 151 applies; sanction lacked conformity with clause (ii) of Section 151 for the relevant assessment years, therefore orders under Section 148A(d), notices under Section 148 and consequent draft assessment orders are quashed; no order as to costs. Issues Involved:1. Validity of orders issued under Section 148A(d) and notices issued under Section 148 of the Income Tax Act, 1961.2. Validity of draft assessment orders issued under Section 144B of the Income Tax Act, 1961.3. Requirement of approval from the specified authority under Section 151 of the Income Tax Act, 1961.4. Applicability and impact of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA).Summary:Issue 1: Validity of Orders and Notices under Sections 148A(d) and 148Four writ petitions were filed challenging the orders issued under Section 148A(d) and notices issued under Section 148 for the assessment years 2016-2017 and 2017-2018. The petitioner contended that the approval of the specified authority, as mandated by Section 151 of the Income Tax Act, was not obtained. The court noted that the amendments to Sections 148, 148A, 149, and 151 were effected by the Finance Act 2021 with effect from 01.04.2021, and the orders and notices were issued thereafter with the prior approval of the Commissioner of Income Tax (International Taxes) Chennai.Issue 2: Validity of Draft Assessment Orders under Section 144BThe petitioner also challenged the draft assessment orders issued under Section 144B for the same assessment years. The court held that since the orders under Section 148A(d) and the notices under Section 148 were quashed, the draft assessment orders under Section 144B/144C could not survive and were also quashed.Issue 3: Requirement of Approval from Specified Authority under Section 151The petitioner argued that the approval was not obtained from the specified authority as required under Section 151. The court examined the amended Section 151, which specifies that the Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General must grant approval if more than three years have elapsed from the end of the relevant assessment year. The court found that the approval was granted by the Commissioner of Income Tax (International Taxes) Chennai, which was not the specified authority under the amended Section 151.Issue 4: Applicability and Impact of TOLAThe court considered the applicability of TOLA, which extended the time limits for completion of proceedings, issuance of orders, sanctions, or approvals up to 31.03.2021. The court concluded that TOLA was immaterial to the challenge since the petitioner did not contest the sanction concerning the time limit.Conclusion:The court quashed the orders under Section 148A(d) and the notices under Section 148 due to the lack of approval from the specified authority under the amended Section 151. Consequently, the draft assessment orders under Section 144B/144C were also quashed. The writ petitions were allowed, and there was no order as to costs.