Validity of reopening of income tax assessment beyond three years requires approval by higher competent authority; Principal Commissioner approval invalid, relief granted

Reopening of assessment beyond the three-year limitation requires sanction from the competent higher authority; approval must come from the Principal Chief Commissioner, Principal Director General, or Chief Commissioner, not from a Principal Commissioner. A reopening notice issued after the three-year period without requisite competent-authority approval is invalid, and consequent orders based on such reopening are unsustainable. The absence of proper sanction vitiates the reassessment process and results in quashing of the resulting assessment actions and relief to the assessee.

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Issues: Whether the reassessment notice issued under section 148 for assessment year 2017-18 is valid where it was issued after three years from the end of the relevant assessment year and the prior approval/sanction was obtained from the Principal Commissioner instead of the authority specified in section 151(ii) of the Income-tax Act, 1961.

Analysis: The notice under section 148 was issued beyond the three-year period from the end of the relevant assessment year. Section 151(ii) prescribes that where more than three years have lapsed, prior approval for issuing a notice must be obtained from the Principal Chief Commissioner of Income-tax or Principal Director General or, where no such authority exists, from the Chief Commissioner or Director General. In the present case, prior approval was obtained from the Principal Commissioner, who is not the authority specified by section 151(ii). Prior judicial decisions applying the amended reassessment regime and section 151(ii) have been followed in assessing the competence of the sanctioning authority and the consequence of its absence or defect on the validity of reassessment proceedings. Given the defect in the sanctioning authority when notice was issued after three years, the legal defect in sanction renders the reassessment proceedings invalid and any additions made in the reassessment become unsustainable. Consequential or factual grounds dependent on the validity of reassessment are rendered academic once the reopening is held invalid.

Conclusion: The reassessment notice issued under section 148 is invalid for want of competent prior approval under section 151(ii); therefore the reassessment and consequential additions are set aside and the appeal of the revenue is dismissed while the cross-objection of the assessee is allowed.

Ratio Decidendi: Where a notice under section 148 is issued after the three-year period, prior approval must be obtained from the authorities specified in section 151(ii); absence of such competent sanction invalidates the reassessment proceedings.

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