2023 (10) TMI 1532 - HC - Income Tax

Reopening of assessment - improper sanction u/s 151 - Counsels state that in all these Petitions the issue of improper sanction having been obtained has been raised among other grounds in the petition as well as during the hearing - HELD THAT - This Court in the case of Siemens Financial Services Private Limited 2023 (9) TMI 552 - BOMBAY HIGH COURT wherein the Court has held that for Assessment Year 2016- 2017 the sanction should have been given under Section 151(ii) and not under Section 151(i) of the Income Tax Act 1961 and consequently the sanction is invalid. The Court has stated that in view of the invalid sanction the notice issued itself will be invalid and has to be quashed. We would also add if the notice has to be quashed if there is an assessment order passed subsequently those assessment orders having been passed relying on an incorrect sanction will also have to be quashed. Ordered accordingly. Counsels further state that the findings in Siemens Financial Services Private Limited (supra) will squarely apply to the Assessment Year 2017-2018 as well. Therefore all such notices issued for Assessment Year 2017-2018 the assessment orders and the consequential orders are also quashed and set aside. In view of the above all consequential notices/demands issued under Section 156 or 271 of the Act will also have to be quashed.

Summary

ISSUES:

• Whether the sanction obtained under Section 151(i) of the Income Tax Act, 1961 for Assessment Year 2016-2017 is valid.
• Whether the notice issued under an invalid sanction is itself invalid and liable to be quashed.
• Whether assessment orders passed relying on an invalid sanction are liable to be quashed.
• Whether the findings regarding invalid sanction for Assessment Year 2016-2017 apply similarly to Assessment Year 2017-2018.
• Whether consequential notices/demands issued under Section 156 or Section 271 of the Income Tax Act, 1961, based on invalid assessments, are liable to be quashed.

RULINGS / HOLDINGS:

• The sanction for Assessment Year 2016-2017 should have been given under Section 151(ii) and not under Section 151(i) of the Income Tax Act, 1961; hence, the sanction obtained under Section 151(i) is invalid.
• In view of the invalid sanction, the notice issued is itself invalid and "has to be quashed."
• Assessment orders passed relying on an incorrect sanction "will also have to be quashed."
• The findings regarding the invalid sanction for Assessment Year 2016-2017 "will squarely apply to the Assessment Year 2017-2018" and accordingly, notices, assessment orders, and consequential orders for 2017-2018 are quashed and set aside.
• All consequential notices/demands issued under Section 156 or Section 271 of the Act, being based on invalid assessments, "will also have to be quashed."

RATIONALE:

• The Court relied on the precedent established in Siemens Financial Services Private Limited v. Deputy Commissioner of Income Tax, which held that the proper legal sanction for the relevant assessment years must be under Section 151(ii) rather than Section 151(i) of the Income Tax Act, 1961.
• The legal framework mandates that a valid sanction is a prerequisite for issuing notices under the Act; an invalid sanction renders the notice itself invalid.
• The Court applied the principle that subsequent assessment orders and consequential proceedings dependent on an invalid notice and sanction cannot stand and must be quashed.
• The Court extended the reasoning in the precedent to the Assessment Year 2017-2018, indicating no doctrinal shift but a consistent application of the statutory provisions.
• The Court clarified that other grounds not related to the sanction issue may be raised by parties in appropriate proceedings, maintaining procedural fairness.