Notice under section 148 invalid where mandatory prior approval under section 151(ii) was not obtained for reopening

HC held that a notice under section 148 was invalidly issued because approval prior to issuance was required from the Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General under section 151(ii), not from the Principal Commissioner as obtained. The notice dated 25.07.2022 was beyond three years and concerned more than ?50 lakh, so mandatory approval under section 151(ii) was lacking, rendering the reopening without jurisdiction. Proceedings were quashed and the assessee's appeal allowed.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the Assessing Officer had jurisdiction to issue a notice under Section 148 of the Income Tax Act for the assessment year 2016-17, given the procedural requirements for prior approval under Section 151 of the Act;

(b) Whether the approval for issuance of the Section 148 notice was validly obtained from the appropriate specified authority as mandated by Section 151, considering the amount involved and the time elapsed since the end of the relevant assessment year;

(c) Whether the assessment order passed pursuant to the Section 148 notice is liable to be quashed on grounds of jurisdictional defect arising from improper approval for issuance of the notice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Jurisdiction and Validity of Approval for Issuance of Notice under Section 148

Relevant Legal Framework and Precedents:

The Court analyzed the provisions of Section 148 of the Income Tax Act, which mandates that before making an assessment, reassessment, or recomputation under Section 147, the Assessing Officer must serve a notice requiring the assessee to furnish a return. The issuance of such notice is conditional upon the Assessing Officer having information suggesting that income chargeable to tax has escaped assessment and having obtained prior approval from the specified authority as per Section 151.

Section 151 delineates the specified authorities for approval based on the time elapsed since the end of the relevant assessment year:

• Section 151(i): Principal Commissioner or Principal Director or Commissioner or Director, if three years or less have elapsed;
• Section 151(ii): Principal Chief Commissioner or Principal Director General or Chief Commissioner or Director General, if more than three years have elapsed.

Section 149 prescribes the time limits for issuance of the Section 148 notice, with a three-year period generally applicable for amounts below Rs. 50 Lakhs, and a longer period for amounts exceeding Rs. 50 Lakhs.

The Court also referred to observations from the Supreme Court in a recent judgment, which emphasized strict compliance with the procedural requirements for issuance of notices under Section 148.

Court's Interpretation and Reasoning:

The Court noted that the amount involved in the present case was Rs. 3,65,09,748/-, which exceeds Rs. 50 Lakhs. The Section 148 notice was issued on 25.07.2022 for the assessment year 2016-17, which is beyond three years from the end of the relevant assessment year. Therefore, as per Section 151(ii), the approval for issuance of the notice ought to have been obtained from the higher specified authority, i.e., Principal Chief Commissioner or equivalent.

However, the approval was obtained only from the Principal Commissioner under Section 151(i), which is applicable only if three years or less have elapsed. The Court held that this was a clear violation of the mandatory provisions of Section 151(ii).

Key Evidence and Findings:

The record showed that the approval for issuing the Section 148 notice was obtained under Section 151(i), not Section 151(ii), despite the fact that the relevant time period exceeded three years and the amount was above Rs. 50 Lakhs.

Application of Law to Facts:

Applying the statutory provisions, the Court concluded that the Assessing Officer lacked jurisdiction to issue the Section 148 notice without obtaining valid approval from the specified authority under Section 151(ii). The procedural lapse rendered the notice invalid.

Treatment of Competing Arguments:

The respondents relied on the Supreme Court's observations in the cited case to justify the issuance of the notice. However, the Court distinguished the present facts, emphasizing the strict statutory mandate that approval must be obtained from the correct specified authority based on the time elapsed and the amount involved. The respondents' contention that approval under Section 151(i) sufficed was rejected.

Conclusions:

The Court held that the issuance of the Section 148 notice without proper approval under Section 151(ii) was without jurisdiction and void.

Issue (c): Validity of Assessment Order Passed Pursuant to the Section 148 Notice

Relevant Legal Framework and Precedents:

Since the assessment order dated 30.05.2023 was passed pursuant to the Section 148 notice, its validity is contingent on the validity of the notice itself. The principle that an order passed without jurisdiction is liable to be quashed was applied.

Court's Interpretation and Reasoning:

The Court reasoned that as the issuance of the Section 148 notice was invalid due to non-compliance with Section 151(ii), the entire reassessment proceeding and the resulting order were without jurisdiction.

Key Evidence and Findings:

The impugned assessment order was passed following the invalid Section 148 notice.

Application of Law to Facts:

The Court applied the principle that jurisdictional defects in the initiation of proceedings vitiate subsequent orders and proceedings.

Treatment of Competing Arguments:

Respondents did not provide any substantive argument to uphold the assessment order independent of the notice's validity.

Conclusions:

The assessment order was quashed as it was passed without jurisdiction.

3. SIGNIFICANT HOLDINGS

The Court succinctly held: "In the present case, the approval was obtained from the Principal Commissioner in terms of Section 151(i) and no approval was obtained before issuance of 148 notice in terms of provision of Section 151(ii), which is mandatory. Therefore, the notice under Section 148 was issued in the present case in violation of provision of Section 151(ii) of the Income Tax Act. In view thereof, the initiation of proceedings itself is without any jurisdiction. Hence, the same is liable to be quashed."

Core principles established include:

• Strict compliance with the procedural requirements of Section 151 is mandatory for valid issuance of notices under Section 148;
• The specified authority for approval depends on the time elapsed since the end of the relevant assessment year and the amount involved;
• Issuance of a Section 148 notice without proper approval is jurisdictionally invalid;
• Assessment orders passed pursuant to such invalid notices are liable to be quashed.

Final determinations:

• The Section 148 notice issued without proper approval under Section 151(ii) is invalid;
• The reassessment proceedings and the assessment order dated 30.05.2023 are quashed;
• The writ petition is allowed accordingly.

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