2023 (12) TMI 1454 - HC - Income Tax

Validity of reopening of Assessment for want of valid approval - allegation of non-application of mind in granting approval u/s 151 - As allleged non-application of mind firstly by the officer who generated the approval u/s 151 secondly by Additional/Joint Commissioner of Income Tax who recommended that the draft proposal submitted by the Assessing Officer shows it is a fit case for reopening and forwarded to Principal Commissioner of Income Tax and thirdly by the said PCIT. HELD THAT - The fact that row 9 mentions Section 149(1)(b) for more than three years but not more than ten years whether it is by mistake or otherwise should have put the officers on notice that the Principal Commissioner of Income Tax could not have given the approval. Therefore we agree with the Petitioner that there has been total non-application of mind by these three officers. If only these three officers had bothered to read the form for approval and the order u/s 148A(d) of the Act certainly the notices would not have been issued the Additional/Joint Commissioner of Income Tax would not have recommended and the Principal Commissioner of Income Tax would not have granted the approval. If Section 149 (1)(b) of the Act is applicable then the approval could be granted only by the Principal Chief Commissioner of Income Tax and not by Principal Commissioner of Income Tax as in this case. Therefore in our view the Application for approval recommendation and the grant of approval have all been made by the officers mechanically and without application of mind. There is not even an attempt to explain in the affidavit in reply as to how this glaring error has been committed. Perhaps they had no explanation. We are of the opinion that if only the PCIT had read the form for approval carefully with the order that was prepared by the AO u/s 148A(d) of the Act the PCIT would not have come to the conclusion that there is any material to treat it as a fit case to issue notice under Section 148 or pass order under Section 148A(d) of the Act. So also the Additional/Joint Commissioner of Income-tax who recommended that it was a fit case overlooked the said error. We therefore quash and set aside the order passed under Section 148A(d). Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

- Whether the approval granted under Section 151 of the Income Tax Act, 1961 ("the Act") for reopening assessment was validly given, specifically whether there was application of mind by the officers involved in granting such approval.

- Whether the notices issued under Sections 148A(b), 148A(d), and 148 of the Act were valid, given the procedural and jurisdictional requirements, including the correctness of the time limits cited in the approval form.

- Whether the approval for reopening the assessment beyond three years but within ten years was properly granted by the Principal Commissioner of Income Tax (PCIT), or whether such approval should have been granted by the Principal Chief Commissioner of Income Tax, as mandated by the Act.

- Whether the errors in the approval form, specifically reference to Section 149(1)(b) instead of the correct provision, could be rectified under Section 292B of the Act, and if such errors affect the validity of the reopening proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Approval under Section 151 of the Act and Application of Mind

Relevant Legal Framework and Precedents: Section 151 of the Income Tax Act requires that reopening of an assessment must be sanctioned by the prescribed authority after due consideration of the facts and circumstances. The approval process demands application of mind by the officers involved to ensure that reopening is justified and legally sustainable. The principle of "application of mind" is well-established in administrative law and tax jurisprudence, requiring that decisions must be made after due deliberation and not mechanically or perfunctorily.

Court's Interpretation and Reasoning: The Court observed that the approval granted under Section 151 was done without any application of mind by the three officers involved: the officer generating the approval, the Additional/Joint Commissioner of Income Tax who recommended the reopening, and the Principal Commissioner of Income Tax who granted the approval. The Court found that the approval form itself contained a glaring error in row 9, referring to Section 149(1)(b) of the Act (which pertains to reopening beyond three years but not more than ten years), which should have alerted the officers to the inapplicability of the Principal Commissioner's authority to grant approval.

Key Evidence and Findings: The affidavit filed by the Deputy Commissioner of Income Tax did not deny the allegation of non-application of mind but instead attempted to justify the sanction. The Court found this justification unconvincing and noted the absence of any explanation for the error. The failure to notice and correct the error in the approval form indicated a mechanical and unconsidered approach.

Application of Law to Facts: The Court held that the approval process was flawed because the officers did not properly consider the legal requirements, particularly the authority competent to grant approval in cases where the time limit exceeds three years. The presence of an incorrect reference to Section 149(1)(b) should have prevented the Principal Commissioner from granting approval, as only the Principal Chief Commissioner has jurisdiction in such cases.

Treatment of Competing Arguments: The Revenue's argument that the error was inadvertent and rectifiable under Section 292B was rejected by the Court on the ground that the issue was not mere rectification but the fundamental absence of application of mind. The Court emphasized that the error was so significant that it undermined the validity of the entire approval process.

Conclusion: The Court concluded that the approval under Section 151 was invalid due to total non-application of mind by the officers involved, rendering the reopening proceedings unsustainable.

Issue 2: Validity of Notices Issued under Sections 148A(b), 148A(d), and 148 of the Act

Relevant Legal Framework and Precedents: Notices under Sections 148A(b), 148A(d), and 148 must comply with the procedural requirements and time limits prescribed under the Income Tax Act. The validity of such notices depends on the correctness of the approval for reopening and adherence to jurisdictional limits.

Court's Interpretation and Reasoning: The Court noted that the initial notice under Section 148A(b) dated 30th March 2023 was not served on the petitioner, and a fresh notice was generated on 13th April 2023. The reopening pertained to Assessment Year 2019-20, which was beyond three years. The approval form's incorrect reference to Section 149(1)(b) indicated that the reopening was beyond the three-year limit.

Key Evidence and Findings: The approval form and the order under Section 148A(d) were inconsistent with the procedural requirements, and the officers failed to consider these discrepancies. The Court found that if the officers had applied their minds, the notices would not have been issued.

Application of Law to Facts: Since the approval was invalid, the consequential notices issued under Sections 148A(d) and 148 were also invalid. The Court emphasized that the procedural irregularity in granting approval taints the validity of the notices.

Treatment of Competing Arguments: The Revenue's attempt to justify the notices based on the approval was rejected due to the fundamental flaw in the approval process.

Conclusion: The notices issued under Sections 148A(d) and 148 were quashed as they were issued without valid approval and in violation of procedural safeguards.

Issue 3: Jurisdiction of Principal Commissioner of Income Tax versus Principal Chief Commissioner of Income Tax

Relevant Legal Framework and Precedents: The Income Tax Act mandates that reopening of assessments beyond three years but within ten years requires approval from the Principal Chief Commissioner of Income Tax, not the Principal Commissioner of Income Tax. This jurisdictional distinction is critical to ensure proper oversight and compliance with statutory limits.

Court's Interpretation and Reasoning: The Court found that the approval was granted by the Principal Commissioner of Income Tax despite the reopening being beyond three years, which is outside his jurisdiction. The incorrect mention of Section 149(1)(b) in the approval form should have alerted the officers to this jurisdictional error.

Key Evidence and Findings: The approval form and the order under Section 148A(d) clearly showed the reopening was beyond three years, making the Principal Commissioner's approval invalid.

Application of Law to Facts: The Court held that the Principal Commissioner lacked jurisdiction to approve reopening beyond three years, making the entire approval and consequent notices invalid.

Treatment of Competing Arguments: The Revenue did not provide a satisfactory explanation for this jurisdictional error.

Conclusion: The approval granted by the Principal Commissioner was invalid due to lack of jurisdiction, and only the Principal Chief Commissioner could have granted such approval.

3. SIGNIFICANT HOLDINGS

- "There has been total non-application of mind by these