Section 151 approval authority determined by three-year timeline from assessment year end, not TOLA provisions

Delhi HC held that determination of specified authority under Section 151 for approval of Section 148 notices depends on whether notice was issued within three years from end of relevant assessment year, not on TOLA provisions. Court consistently ruled TOLA irrelevant for determining mandatory approval authority under Section 151. Following precedents in Twylight Infrastructure and Abhinav Jindal cases, HC set aside impugned notice for lack of proper approval and allowed assessee's appeal.

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The core legal questions considered by the Court in this matter include:

1. Whether the notice issued under Section 148 of the Income Tax Act, 1961 for reassessment for the Assessment Year 2017-18 is valid, particularly in light of the amendments and procedural requirements introduced by the Finance Act, 2021 and subsequent judicial pronouncements.

2. Whether the notice issued on 30.06.2021 under Section 148, which was issued under the pre-amendment regime, is sustainable given the Supreme Court's directions in Union of India & Ors. v. Ashish Agarwal.

3. Whether the Assessing Officer complied with the mandatory requirement of obtaining prior approval from the specified authority under Section 151(ii) of the Act before issuing the reassessment notice beyond three years from the end of the relevant assessment year.

4. The applicability and effect of the Taxation and Other Laws (Relaxation of Certain Provisions) Act, 2021 (TOLA) on the approval authority under Section 151 of the Act.

5. The interplay between the amended provisions of Sections 148, 148A, and 151 of the Income Tax Act and the procedural safeguards for reassessment proceedings initiated post 31.03.2021.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 Post-Amendment and Supreme Court Directions

The legal framework includes the amendments introduced by the Finance Act, 2021, which inserted Section 148A, prescribing a show-cause notice procedure prior to issuance of a notice under Section 148. The Supreme Court in Union of India & Ors. v. Ashish Agarwal clarified that notices issued under Section 148 after 01.04.2021 but before the Supreme Court's decision would be treated as show-cause notices under Section 148A(b). The Assessing Officer was directed to share the material relied upon for issuance of such notices to enable the assessee to respond.

In this case, the initial notice dated 30.06.2021 was issued under the pre-amended regime and was thus unsustainable. Following the Supreme Court's directions, the Assessing Officer provided the material on 23.05.2022 and issued a subsequent notice on 02.06.2022 under Section 148A(b). The petitioner responded, contending no new material was available to justify reassessment.

The Court observed that the reassessment proceedings initiated were in compliance with the procedural safeguards mandated by the Supreme Court, including issuance of show-cause notices and providing the material relied upon. However, the validity of the subsequent notice dated 30.07.2022 under Section 148 was challenged on other grounds discussed below.

2. Mandatory Prior Approval Under Section 151(ii) of the Act

Section 151, as amended, bifurcates the specified authorities competent to grant approval for issuance of notices under Section 148 based on the time elapsed from the end of the relevant assessment year. If three years or less have elapsed, approval must be obtained from the Principal Commissioner or Commissioner. If more than three years have elapsed, approval must be obtained from the Principal Chief Commissioner or Chief Commissioner.

The notice impugned in this case was issued beyond three years from the end of the AY 2017-18 but without prior approval from the Principal Chief Commissioner or any other authority specified under Section 151(ii). The Court emphasized that such approval is mandatory and non-compliance renders the notice invalid.

The Court referred to its consistent rulings in Twylight Infrastructure Pvt. Ltd. and Abhinav Jindal HUF, where it was held that the extended limitation period under TOLA does not alter the hierarchy or distribution of power to grant approval under Section 151. The approval authority is determined solely by the time elapsed from the end of the relevant AY, not by the extended limitation period.

The Court rejected the Revenue's argument that approval by a lower authority would suffice merely because reassessment was initiated within the extended limitation period under TOLA. It held that the statutory scheme under Section 151 remains unaffected by TOLA and the Finance Act, 2021 amendments.

3. Effect of TOLA on Approval Authority

The Court analyzed the contention that TOLA's extension of limitation for reassessment proceedings impacts the authority competent to grant approval under Section 151. It held, relying on the precedent in Abhinav Jindal HUF, that TOLA does not modify or amend the distribution of power prescribed by Section 151. The bifurcation of approval authority based on whether reassessment is initiated within or beyond three years from the end of the relevant AY remains intact.

This interpretation ensures that the hierarchy and procedural safeguards envisaged by the statute are preserved, preventing unauthorized issuance of reassessment notices without requisite approval.

4. Application of Law to Facts and Treatment of Competing Arguments

The petitioner's contention that the reassessment proceedings were void ab initio due to lack of new material and invalid issuance of the notice was considered. The Court noted that the Assessing Officer had relied on alleged unexplained cash deposits during demonetization, which was treated as escapement of income. However, the Court did not delve into the sufficiency of the material but focused on the procedural flaw of non-obtaining mandatory approval under Section 151(ii).

The Revenue's argument for validating the notice based on TOLA's extended limitation and seeking liberty to initiate fresh proceedings was acknowledged. The Court granted liberty to the Revenue to initiate reassessment afresh in accordance with law, emphasizing adherence to statutory requirements.

5. Consistency with Earlier Decisions

The Court relied on its earlier decisions in Cadence Real Estates Pvt. Ltd., Twylight Infrastructure Pvt. Ltd., and Ganesh Dass Khanna, which uniformly held that the approval authority under Section 151 is determined by the time elapsed from the relevant AY and is unaffected by TOLA or other extensions.

It also referred to decisions from other High Courts, including Bombay, Madras, and Orissa, which affirmed the mandatory nature of approval from the specified authority depending on the timing of the notice issuance.

Significant Holdings:

"It would therefore be wholly incorrect to read TOLA as intending to amend the distribution of power or the categorisation envisaged and prescribed by Section 151. The additional time that the said statute provided to an authority cannot possibly be construed as altering or modifying the hierarchy or the structure set up by Section 151 of the Act."

"The bifurcation of those powers would continue unaltered and unaffected by TOLA. The issue of approval would still be liable to be answered based on whether the reassessment was commenced after or within a period of four years from the end of the relevant AY or as per the amended regime dependent upon whether action was being proposed within three years of the end of the relevant AY or thereafter."

"No notice under Section 148 shall be issued unless the Assessing Officer has obtained prior approval of the specified authority as per Section 151. Non-compliance with this mandatory requirement renders the notice invalid."

"The impugned notice is liable to be set aside on the ground that there is no approval of the specified authority, as indicated in section 151 (ii) of the Act."

"The Revenue will have liberty to take steps, if deemed necessary, albeit as per law."

In conclusion, the Court quashed the reassessment notice dated 30.07.2022 and all proceedings initiated thereunder due to the absence of mandatory prior approval from the specified authority under Section 151(ii). The Court reaffirmed that the procedural safeguards introduced by the Finance Act, 2021 and the Supreme Court's directions in Ashish Agarwal are to be strictly complied with. The extended limitation period under TOLA does not affect the distribution of powers to grant approval for reassessment notices. The Revenue was granted liberty to initiate reassessment proceedings afresh in accordance with law and after obtaining the requisite approval.

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