Validity of reopening of assessment where prior approval was from lower authority, resulting in reassessment quashed and relief granted

Validity of reopening under section 147 depends on mandatory prior approval as prescribed by section 151; where reassessment notice was issued beyond three years without approval from the higher authority specified for extended-period reopenings, the approval from a lower authority is legally inadequate, vitiating the notice. The revised regime requires sanction by a Principal Chief Commissioner/Principal Director General or, if unavailable, Chief Commissioner/Director General for assessments reopened after the three-year limitation; absence of such specified-authority approval resulted in quashing of the reassessment and allowed relief to the taxpayer.

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Issues: (i) Whether the reassessment notice/order for A.Y. 2017-18 issued after three years from the end of the relevant assessment year is valid where prior sanction was granted by Principal Commissioner instead of the authority specified under section 151(ii) of the Income-tax Act, 1961, read with TOLA.

Analysis: The Tribunal examined the provisions of section 151 of the Income-tax Act, 1961 (new regime) which link the competence of the sanctioning authority to the period elapsed since the end of the relevant assessment year, and the effect of the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) in extending applicable time limits. The Tribunal relied on the Supreme Court guidance (as discussed in the cited authorities) that where the three-year period fell within 20.03.2020 to 31.03.2021, TOLA extended the time for specified authorities to grant sanction; however, where notice/order under section 148/148A(d) is issued beyond three years from the end of the assessment year, sanction must be granted by the higher authorities specified in section 151(ii). On the facts, for A.Y. 2017-18 the three-year period lapsed on 31.03.2021, TOLA applied, and the notice/order were issued after the three-year period; therefore sanction under section 151(ii) (Principal Chief Commissioner/Principal Director General/Chief Commissioner/Director General) was required. In the present case sanction was given by Principal Commissioner, who is not the competent authority under section 151(ii); consequently the issuing of notice/order lacked the required sanction and was invalid.

Conclusion: The reassessment notice and consequent proceedings are invalid for want of sanction by the authority specified under section 151(ii); appeal allowed in favour of the assessee.

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