Reopening invalid where approval came from wrong authority under amended Section 151; Section 148A(d) and 148 notices quashed

Bombay HC held that reassessment proceedings for the relevant AY were invalid because approval for reopening was obtained from an improper authority under the amended Section 151 after the TOLA period. The three-year limitation expired during the TOLA window, requiring sanction by the authority specified in Section 151(ii); instead approval from Section 151(i) was obtained. Non-compliance with Section 148A(d) read with Section 151(ii) vitiated jurisdiction, and the HC, following established SC precedent, quashed the order under Section 148A(d) and the consequent Section 148 notice.

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ISSUES PRESENTED AND CONSIDERED

1. Whether an order under section 148A(d) and a consequential notice under section 148 of the Income-tax Act, 1961, issued after the expiry of three years from the end of the relevant assessment year, is valid if prior approval was obtained from an authority other than that specified in section 151(ii).

2. Whether the temporal extension under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 ("TOLA") affects the identity of the specified authority required to grant sanction under section 151 for the assessment year in question.

3. Whether non-compliance with the requirement of prior sanction by the specified authority under section 151 (read with section 148A(d)) vitiates the Assessing Officer's jurisdiction to issue a notice under section 148.

ISSUE-WISE DETAILED ANALYSIS

Issue 1 - Correct authority for sanction when notice/order issued after three years

Legal framework: Section 148A(d) requires the Assessing Officer to pass an order whether it is a fit case to issue a notice under section 148. Section 151 prescribes the 'specified authority' whose prior sanction is required; under the substituted (post-Finance Act, 2021) regime section 151(ii) governs cases where more than three years have elapsed from the end of the relevant assessment year, requiring sanction by higher authorities (e.g., Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General).

Precedent treatment: The Court applied the binding guidance of the Supreme Court which construed the new regime to require higher-level sanction where more than three years have elapsed, and which treated earlier notices (issued under the old regime) as show-cause notices under the new regime but did not waive the requirement of sanction under section 148A(d) and section 148.

Interpretation and reasoning: The Court held that the identity of the specified authority under section 151 is directly linked to the time when the order/notice is passed/issued. Since the impugned order under section 148A(d) and the notice under section 148 were passed/issued after the three-year period expired, the Assessing Officer was required to obtain sanction from the higher authority specified in section 151(ii). Obtaining sanction from a lower authority specified under section 151(i) does not satisfy the statutory precondition once the three-year threshold is crossed.

Ratio vs. Obiter: Ratio - where the statutory time threshold is crossed, prior sanction must be from the authorities listed in section 151(ii); sanction from authorities listed in section 151(i) is insufficient and vitiates jurisdiction. Obiter - explanatory remarks on comparative benefit to the assessee under the new regime.

Conclusions: The order under section 148A(d) and the notice under section 148 are invalid because prior approval was obtained from an authority specified under section 151(i) instead of that prescribed under section 151(ii) where more than three years had elapsed.

Issue 2 - Effect of TOLA extension on the identity of the specified authority required under section 151

Legal framework: TOLA s.3(1) relaxed/computed certain time-limits for actions falling for completion between 20.03.2020 and 31.03.2021, extending prescribed timelines; the new reassessment regime (Finance Act, 2021) set three-year cut-offs for section 151(i) applicability.

Precedent treatment: The Court followed the Supreme Court's illustration that where the three-year expiry fell within the TOLA window, the authority specified under section 151(i) could grant sanction up to 30.06.2021 for the assessment year implicated (not beyond), and that the TOLA extension does not alter which class of authority must ultimately grant sanction after the extended date elapses.

Interpretation and reasoning: For the assessment year in question, the three-year period normally expired on 31.03.2021, which fell within the TOLA window; therefore, the lower specified authority (section 151(i)) could grant sanction only up to 30.06.2021. Any sanction granted after that date for an order/notice issued post 30.06.2021 required the higher authority under section 151(ii). The Court reasoned that TOLA only extends the time within which the applicable authority (as determined by the statutory time-bar) may act; it does not reassign authority in respect of notices issued after the extended date.

Ratio vs. Obiter: Ratio - TOLA extends the time available to the authority identified by the time-based test, but does not change which class of authority is the specified authority once the extended period lapses. Obiter - examples illustrating the operation of TOLA timelines.

Conclusions: The TOLA extension permitted sanction by the section 151(i) authority only up to 30.06.2021; sanction obtained from a section 151(i) authority after that date is insufficient where the order/notice was passed/issued thereafter, and the section 151(ii) authority's sanction was required.

Issue 3 - Jurisdictional consequence of non-compliance with section 151 (and section 148A(d))

Legal framework: Section 151 (in the substituted regime) makes grant of sanction by the specified authority a precondition to the Assessing Officer assuming jurisdiction to issue a notice under section 148; section 148A(d) is one stage at which such sanction is required.

Precedent treatment: The Court relied on Supreme Court authority holding that failure to obtain the prescribed sanction in accordance with section 151 affects the jurisdiction of the Assessing Officer and renders subsequent notices/orders invalid.

Interpretation and reasoning: Because the statutory prescription ties jurisdiction to compliance with the sanction requirement, an Assessing Officer who proceeds without appropriate sanction (i.e., from the authority specified by the statute for the relevant temporal category) acts without jurisdiction. The Court found no factual dispute that sanction was obtained from an incorrect (lower) authority for actions taken after the allowable period, and thus the jurisdictional precondition was not met.

Ratio vs. Obiter: Ratio - non-compliance with the prescribed sanction requirement under section 151 vitiates the Assessing Officer's jurisdiction to issue a section 148 notice; Obiter - none material beyond confirmation of the principle.

Conclusions: The impugned order and consequential notice were held to be void for want of jurisdiction; they were quashed and all proceedings emanating therefrom were set aside.

Cross-reference

Issues 1-3 are interlinked: the time at which the order/notice is passed (Issue 1) determines which specified authority must grant sanction; TOLA affects the temporal window but not the identity of the authority beyond the extended date (Issue 2); and failure to obtain sanction from the correct authority deprives the Assessing Officer of jurisdiction, rendering the action void (Issue 3).

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