2025 (9) TMI 452 - HC - Income Tax

Sanction for reopening set aside where authorization and affidavit deficient; order under section 148A(d) invalid, notice u/s 148 quashed

Calcutta HC held the sanction for reopening was given mechanically and without proper authorization: the affidavit relied on was not affirmed by the ... Reopening of assessment - Validity of approval granted u/s 151 by the sanction granting authority, in this case being CIT, Kolkata-II - HELD THAT:- It is very difficult to accept the explanation offered by the Deputy Commissioner of Income Tax Circle 11(1), Kolkata who is the deponent of the above affidavit. Incidentally, despite the petitioner alleging that the sanction granting authority had acted mechanically, find the above affidavit has not been affirmed by the sanction granting authority, in fact, the deponent to the said affidavit, being the Deputy Commissioner of Income Tax, Circle 11(1), Kolkata does not appear to have the authorization of the sanction granting authority to affirm the said affidavit. The defence set up by the respondents as regards auto population of acknowledgement of online response in the sanction granting order, appears to be incorrect. This apart, it is well settled that an order passed by an authority cannot be improved by way of an affidavit, as find that while recommending the case, as a fit case for issuance of notice u/sn 148, the sanction granting authority has only gone through the proposal of the AO and the materials on record, there is no reflection that the sanction granting authority had considered the response filed by the assessee. The above order appears to be mechanical. Since, the order u/s 148A(d) of the said Act was passed with the approval of the sanctioning authority, by reasons of the sanction being issued in a mechanical manner, the above order u/s 148A(d) of the said Act, also stands vitiated. The same cannot be sustained and the same is set aside. Consequentially, the notice issued under Section 148for the assessment year 2018-19 is also set aside. ISSUES PRESENTED AND CONSIDERED 1. Whether the approval granted under Section 151 of the Income Tax Act, 1961 (sanctioning approval for issuance of notice under Section 148) is valid where the sanction order records that the assessee did not file a response to the notice under Section 148A(b) although an online response was in fact filed. 2. Whether an assessing officer's order under Section 148A(d), which is rendered after receiving sanction under Section 151 that appears to have been granted mechanically (without consideration of the assessee's response), stands vitiated. 3. Whether the notice under Section 148 issued consequent to the impugned sanction and Section 148A(d) order must be set aside, and if so, whether fresh proceedings may be initiated and what limitation period applies for passing the order under Section 148A(d) on re-initiation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of sanction under Section 151 where sanction order incorrectly records non-filing of Section 148A(b) response Legal framework: Section 148 empowers issuance of income-tax reassessment notices; Section 148A(b) requires furnishing of response by the assessee to the notice proposing reassessment; Section 148A(d) contemplates passing of an order after considering the assessee's response; Section 151 requires prior approval of the prescribed authority to issue notice under Section 148 in specified circumstances. Precedent Treatment: The Court relied on the established principle that administrative records and sanction orders must reflect that the sanctioning authority applied its mind to relevant materials including the assessee's response; an order cannot be corrected or validated solely by a subsequent affidavit or explanation by a subordinate official. Interpretation and reasoning: The sanction order's Column No.15 expressly recorded non-filing of a response whereas the petitioner produced an e-proceedings response acknowledgement showing an online response. The explanation offered by the Revenue - that online acknowledgements auto-populate and manual filings do not - was found improbable because the response was filed online. The affidavit filed by a Deputy Commissioner did not bear the sanctioning authority's affirmation or demonstrate that the sanctioning authority personally considered the response. The Court emphasized that a sanctioning authority's approval must show consideration of the assessee's response; mere perusal of the assessing officer's proposal without any reflection of the assessee's reply indicates mechanical action. Ratio vs. Obiter: Ratio - A sanction under Section 151 is invalid if the sanctioning authority's order shows it did not consider an existing response under Section 148A(b) and the approval is thus recorded in a mechanical manner; such sanction cannot be validated by subsequent affidavits or explanations from subordinate officers. Obiter - Comments on administrative auto-population practices and the form of online acknowledgements. Conclusions: The sanction under Section 151 was held invalid because the sanctioning authority's order did not reflect consideration of the assessee's filed response and therefore demonstrated a mechanical exercise of power. The sanction is vitiated. Issue 2 - Validity of the Section 148A(d) order when made with an invalid sanction Legal framework: Section 148A(d) requires consideration of the assessee's response before passing an order; the validity of such order is linked to the validity of prior sanction under Section 151 where required. Precedent Treatment: Courts have recognized that orders passed pursuant to defective or mechanically granted sanctions stand vitiated if the fundamental requirement of consideration of relevant materials (including the assessee's response) is not met. Interpretation and reasoning: Because the Section 148A(d) order was passed with the approval of a sanctioning authority whose approval was vitiated for mechanical action, the consequential order under Section 148A(d) could not be sustained. The Court reiterated that administrative irregularity in the sanctioning process that deprives the assessee's response of consideration undermines the statutory scheme under Sections 148A and 148. Ratio vs. Obiter: Ratio - An order under Section 148A(d) passed with approval that was granted mechanically and without considering the assessee's response is vitiated. Obiter - The Court's observation that an order cannot be 'improved' by way of an affidavit. Conclusions: The order under Section 148A(d) is set aside as it is founded on a defective sanction; it is invalid and cannot be sustained. Issue 3 - Consequences for the Section 148 notice and scope for fresh proceedings including limitation Legal framework: A notice under Section 148 is consequential to the process under Sections 148A and Section 151 approval; statutory limitation for passing orders under Section 148A(d) must be observed upon any fresh initiation. Precedent Treatment: It is permissible to quash defective proceedings while preserving the Revenue's right to initiate fresh proceedings lawfully, subject to limitation and observance of due process including consideration of the assessee's submissions and entitlement to documents. Interpretation and reasoning: The notice issued under Section 148 was set aside as consequential to the invalid sanction and vitiated Section 148A(d) order. However, the Court expressly preserved the respondents' right to initiate fresh proceedings beginning from the stage of receipt of the response filed by the assessee, mandating that the authority, when re-initiating, must consider the response in accordance with law. For the purpose of limitation for passing the order under Section 148A(d) on re-initiation, the Court directed that the one-month period shall commence when the notice in this regard is issued by the jurisdictional assessing officer, provided such notice is issued within four months from the date (implicitly from the relevant triggering event consistent with statutory timelines). Ratio vs. Obiter: Ratio - Setting aside a notice consequent to invalid sanction while allowing fresh proceedings is appropriate provided the re-initiated process properly considers the assessee's response and adheres to prescribed limitation periods. Obiter - Procedural direction that additional documents sought by the assessee, if eligible, shall be provided. Conclusions: The Section 148 notice is set aside. The Revenue may initiate fresh proceedings but must start from the stage of having regard to the assessee's response and must comply with the specified limitation prescription (one-month period to commence from issuance of the notice, which must be within four months). Other points raised remain open for consideration in fresh proceedings.