Reopening of income tax assessment invalid due to defective sanction; reassessment, notices and demands quashed.

Reopening of assessment was invalid because the sanction authorising reassessment was granted under the incorrect provision and therefore defective; the defective sanction renders the reassessment notice invalid and liable to be quashed. The court held that any assessment orders subsequently passed relying on that incorrect sanction are also liable to be quashed, and all consequential notices or demands issued under the tax statute, including demand and penalty notices, must be set aside. The reasoning rests on the premise that reliance on a defective sanction vitiates the entire reassessment process and its consequences.

---

---

Issues: (i) Whether notices issued for Assessment Year 2016-2017 are invalid because sanction was granted under Section 151(i) instead of Section 151(ii) and consequences thereof; (ii) Whether the same reasoning applies to Assessment Year 2017-2018 resulting in quashing of notices, assessment orders and consequential demands/penalty orders.

Issue (i): Validity of sanction and resultant notices for Assessment Year 2016-2017.

Analysis: The issue examines whether sanction given under Section 151(i) instead of Section 151(ii) renders the sanction invalid, and if an invalid sanction invalidates the notice issued under the Income-tax Act, 1961. The ruling in Siemens Financial Services Private Limited (referenced) is applied to determine the correct form of sanction required for the assessment year and the legal effect of an incorrect sanction on subsequent notices and orders.

Conclusion: The sanction granted under Section 151(i) in respect of Assessment Year 2016-2017 is invalid; consequently the notice issued is quashed and any assessment orders passed relying on that incorrect sanction are quashed.

Issue (ii): Applicability of the same reasoning to Assessment Year 2017-2018 and consequential orders.

Analysis: The question is whether the principle applied to Assessment Year 2016-2017 squarely applies to Assessment Year 2017-2018, including notices, assessment orders and consequential demands or penalty orders under Sections 156 and 271. The Court extends the prior conclusion to the subsequent assessment year where the factual and legal defect in sanction is the same.

Conclusion: The notices, assessment orders, and consequential orders issued for Assessment Year 2017-2018 are quashed and set aside on the same grounds.

Final Conclusion: Petitions relating to Assessment Years 2016-2017 and 2017-2018 are allowed to the extent indicated, resulting in quashing of the defective sanction-based notices, the assessment orders made thereon, and all consequential demands and penalty orders; other grounds are left open for consideration in appropriate proceedings.

Ratio Decidendi: A sanction granted under an incorrect provision of Section 151 of the Income-tax Act, 1961 is invalid and renders notices and any proceedings or orders founded on that sanction liable to be quashed, with consequential orders under Sections 156 and 271 also liable to be set aside.

---