Prior approval requirement for post-three-year reopenings invalidates reassessment and quashes consequential penalty orders.

For reopenings beyond the three-year period, prior approval must come from the specific authorities designated by statute; approval from an authority not so designated renders any notice issued for reopening and the consequent reassessment invalid, and the reassessment is quashed. Penalty proceedings founded on that reassessment do not survive independently; where the reassessment is set aside, consequential penalty orders premised on the reassessment are vitiated and are quashed. The statutory allocation of authority for prior approval is mandatory and governs the validity of post-three-year reopenings and related penalties.

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Issues: (i) Whether the notice under section 148 and the reopening under section 147 issued after the three-year period are valid where prior approval was obtained from an authority other than those specified in section 151(2) of the Income-tax Act, 1961; (ii) Whether penalties imposed under sections 272A(1)(d), 271AAC(1) and 270A of the Income-tax Act, 1961 survive where the reassessment order under section 147 is quashed.

Issue (i): Validity of notice under section 148 and reopening under section 147 when prior approval was granted by Principal Commissioner of Income Tax instead of the authorities specified in section 151(2) for reopenings beyond three years.

Analysis: The reopening related to an assessment year beyond three years from the end of the relevant assessment year, thereby bringing section 151(2) into application. Under the statutory scheme the specified higher authorities identified in section 151(2) must grant prior approval for issuance of a notice under section 148 in cases reopened after the three-year period. The approval obtained from an authority not listed in section 151(2) is therefore not in conformity with the statutory requirement. The Tribunal applied the statutory allocation of authority for approval and relied on the mandatory nature of the provision for reopenings beyond three years.

Conclusion: The notice under section 148 and the consequent reassessment under section 147 are invalid because the prior approval was not obtained from an authority specified in section 151(2) of the Income-tax Act, 1961; reopening and assessment are quashed.

Issue (ii): Validity of penalties under sections 272A(1)(d), 271AAC(1) and 270A consequent to the quashing of the reassessment order.

Analysis: The penalties and penalty proceedings were founded on the reassessment order and the satisfaction recorded in that order. Where the foundational reassessment is quashed as invalid, the consequential penalty orders lack a valid basis. The Tribunal addressed whether penalties can subsist independently of a quashed reassessment and concluded that the penalty orders are vitiated when their foundational reassessment is set aside.

Conclusion: Penalty orders under sections 272A(1)(d), 271AAC(1) and 270A of the Income-tax Act, 1961 are quashed as they are consequential on and dependent upon the quashed reassessment.

Final Conclusion: The reassessment and all consequential penalty orders are set aside; the appeals are allowed and the statutory scheme governing prior approval for reopenings beyond three years is upheld.

Ratio Decidendi: For reopenings beyond three years from the end of the relevant assessment year, prior approval must be obtained from the authorities specified in section 151(2) of the Income-tax Act, 1961, and any approval granted by an authority not so specified renders the subsequent notice under section 148, the reassessment under section 147 and consequential penalty orders invalid.

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