By TIOL News Service

NEW DELHI, FEB 12, 2018: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether reopening proceedings after expiry of limitation period of four years, can be initiated before obtaining necessary sanction u/s 151. NO IS THE VERDICT.

Facts of the case:

The Assessee-company, engaged in carrying and undertaking the business of finance, investment and trading, had filed its return for the relevant AY declaring its loss which was processed u/s 143(1). However, later a scrutiny assessment was completed at certain amount of losses. Accordingly, notice u/s 148 was issued by the AO(Dy.CIT) which was effectively objected by the Assessee. Nonetheless, the AO after rejecting the Assessee's objections, proceeded to complete the re-assessment and added back substantial amounts u/s 68. On appeal, the CIT(A) affirmed the order passed by the AO. On further appeal before the Tribunal, the Assessee contended that the issuance of notice u/s 148 was without jurisdiction as the concerned AO proceeded to re-open the assessment without the sanction of the CIT as required u/s 151(1). Following the two decisions of both Allahabad and Calcutta High Courts, the Assessee's appeal was allowed.

High Court held that,

++ it is noted that the notice u/s 148 beyond the 04 years after the end of relevant assessment year was bad in law as the necessary approval of Chief Commissioner or Commissioner of Income Tax as per the provisions of Section 151 (1) had not been obtained by the AO. It is quite obvious from a reading of the Board's circular issued on Oct 31, 1989 that the Revenue authorities at a higher level existed and interpreted the amendments in the manner that the Calcutta High Court did in the case of East India Hotels Ltd. wherein, it stated that "....the satisfaction of the Chief Commissioner or the Commissioner is a sine qua non before issuance of a notice u/s 148 by the AO. The AO may be of the rank of an ITO or the Astt. Commissioner or the Dy. Commissioner, but when such notice is to be issued after the expiry of 4 years after the end of the relevant AY, the sanction of the Chief Commissioner or the Commissioner is a pre-condition....";

++ the arguments of the Revenue by laying emphasis on the expression 'as aforesaid' appeared to have some force. However, a closer reflection would reveal that 'as aforesaid' is capable of two interpretations –narrow– textual one and a broader one. In the contention of section 151(1), the proviso when it refers to an AO, could also mean not merely an AO below the rank of Assistant Commissioner and Deputy Commissioner but also all AOs. The latter interpretation has been clearly followed by the Calcutta High Court – as well as the Revenue authorities. There is yet one more reason which persuades this Court to reject the Revenue's submission to disagree with the Calcutta High Court's judgment which is that in the case of a non-assessment (i.e. when the assessment is framed u/s 143(1)), a higher standard of approval of the Joint Commissioner is insisted upon;

++ the interpretation given by the Calcutta High Court places even scrutiny assessment at par with such assessments and ensures that there is no disconnect and a minimum safeguard, by way of an opinion by the higher official expressing satisfaction is on the record before a notice is issued u/s 148, in respect of a period beyond 4 years from the end of the relevant assessment.

(See 2018-TIOL-251-HC-DEL-IT)