Reopening of assessment u/s 147/148 is big ticket to direct tax litigation. Almost every day a judgment is passed by the Courts anywhere in India deliberating on jurisdiction to reopen the assessment for one ground or the other. Considerable amount of revenue is lost every day only because of technical/human errors in the exercise of jurisdiction for reopening much to the cheer of the assessee.
Section 151 of the Income tax Act, 1961 calls for sanction for issue of notice u/s 148. In other words the section requires the Commissioner to provide his satisfaction on the reasons recorded by the Assessing Officer by stating that it is a fit case for issue of notice. Section 151 more so reads as follows:
Sanction for issue of notice
- (1) No notice shall be issued undersection 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.
(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.
(3) For the purposes of sub-section (1) and sub-section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.
Thus satisfaction of the Commissioner is absolutely necessary before proceeding for reassessment of income. Also section 151 is meant to provide for a procedural safeguard to prevent arbitrary misuse of power. In terms of satisfaction the Hon’ble Allahabad High Court in Gaya Ram Gabbu Lal v CIT ( 1951) 19ITR114 held that the satisfaction must be that of a reasonable man, (i.e., the definite information in AO’s possession should lead to the conclusion) that income has escaped assessment. The Court further held that legislature for the protection of the assessees, so that they may not be harrassed, and to give a certain amount of finality to the assessment already made, has provided certain safeguards and under Section 34 an Income-tax Officer cannot issue notice on mere suspicion but only when definite information has come into his possession which has led him to the conclusion, which conclusion may be tentative, that income has escaped assessment.
Nowhere does section 151 define the manner in which the Commissioner shall express his satisfaction and approval to issue of notice u/s 148. The Hon’ble Delhi High Court recently in CIT v N C Cables in ITA No 335/2015 dated 11.1.2017 held the mere appending of the expression ‘approved’ says nothing when section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression ‘approved’ says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner.
The Hon’ble High Court though mentioned CIT (A) instead of CIT who is more particularly the authority for this purpose yet there is a clear pointer that the satisfaction must be expressed in little over the one word ‘approved’. The Hon’ble Court finally held that the exercise of sanction in this case appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking office. So the Hon’ble High Court quashed the notice and assessment on this very ground without going into the merits where the amount involved was Rs. 135 lacs addition.
Mention of “yes” beneath the reasons assigned by the AO may be sufficient is what is held by Andhra Pradesh High Court in P Munirathnam Chetty and P Satya Narayan Chetty v ITO (1975) 101ITR385. The Hon’ble AP High Court then advised the Income Tax Department stating that “it would be better if the Commissioner of Income-tax assigns reasons for according sanction to obviate the contention by assessees that he has not applied his mind but has acted mechanically”.
There the Hon’ble Andhra Pradesh Court did not quash the notice /reassessment unlike what Hon’ble Delhi High Court did in N C Cables case. The message thus is loud and clear that you cannot commit same mistake twice. But whether to call it as a human error and a mere technicality is something that needs to be tested in the Courts in the time to come. Also the heading of section 151 which merely point to ‘sanction for issue of notice’ is also misleading as otherwise ‘Yes’ or ‘No’ or ‘approved’ or ‘disapproved’ could well be the briefest possible words to signify sanction.