Sara Wines Vs ITO (ITAT Chandigarh)
Chandigarh ITAT: Reassessment Quashed — Approval by Wrong Authority Is a Jurisdictional Defect; TOLA Cannot Cure Non-Compliance With Section 151
The assessee’s original assessment for AY 2017-18 was completed under Section 143(3). Reassessment was subsequently initiated concerning ₹2.19 crore of licence fee, which the AO considered unpaid before the return-filing due date and therefore disallowable under Section 43B. The assessee explained that, due to a dispute with the Excise Department, it had furnished an FDR-backed bank guarantee, which was subsequently encashed after disposal of the dispute.
Before the ITAT, the assessee raised an additional jurisdictional ground challenging the validity of reassessment on the ground that the Section 148 notice dated 28.07.2022 had been issued with approval of the Principal CIT, whereas more than three years had elapsed from the end of AY 2017-18. The Tribunal admitted the legal ground following NTPC Ltd. v. CIT.
The crucial issue was therefore who was competent to grant sanction under Section 151. Since three years from the end of AY 2017-18 had expired on 31.03.2021, and the consequential Section 148 notice was issued on 28.07.2022, the Tribunal held that the competent authority under Section 151(ii) was the Principal Chief Commissioner/Principal Director General or, where applicable, Chief Commissioner/Director General, and not the Principal CIT.
The Revenue argued that the proceedings had originally commenced with the Section 148 notice dated 22.04.2021, which, pursuant to Union of India v. Ashish Agarwal, became a deemed Section 148A(b) notice. It further relied upon TOLA and Rajeev Bansal to contend that limitation and the competent sanctioning authority had to be determined after giving effect to the statutory extensions.
The ITAT rejected this argument. It held that TOLA may affect computation of the period within which sanction can be obtained, but it cannot be used to disregard the identity of the “specified authority” expressly prescribed by Section 151. The fundamental question was not merely whether the time for sanction stood extended, but whether the authority actually granting sanction possessed statutory power to do so. On the admitted facts, it did not.
The Tribunal emphasised that the identity of the sanctioning authority is an integral statutory safeguard and not an inconsequential procedural requirement. Where Parliament requires a particular authority to exercise the supervisory jurisdiction, approval by another authority cannot amount to substantial compliance.
Importantly, the ITAT held that this defect goes to the very root of jurisdiction and cannot be cured under Sections 292B or 292BB. An approval from an authority other than the statutorily prescribed authority cannot confer jurisdiction that the statute itself has withheld.
Accordingly, the Tribunal quashed the Section 148 notice dated 28.07.2022 and the entire reassessment, including the consequential ₹2.19 crore Section 43B addition. The other grounds on merits became academic and the assessee’s appeal was allowed.
Key takeaway: Approval by the correct “specified authority” under Section 151 is a condition precedent to reassessment jurisdiction. TOLA may extend timelines, but it cannot convert an incompetent authority into the statutorily competent sanctioning authority. Approval by the wrong authority is a jurisdictional defect-not a procedural irregularity capable of cure under Sections 292B/292BB.
Cases Discussed:
- Union of India v. Rajeev Bansal (Supreme Court)
- Union of India v. Ashish Agarwal (Supreme Court)
- NTPC Ltd. Vs CIT, 229 ITR page 393
- Kamla Properties v. Inspecting Assistant Commissioner of Income-tax, 1994 Tax LR 468 (Cal)
- Nazir Ahmad v. King-Emperor, AIR 1936 PC 253 (2) : (1935–36) 63 IA 372
FULL TEXT OF THE ORDER OF ITAT CHANDIGARH
This is an appeal filed by the assessee feeling aggrieved by the order passed by the ld. Commissioner of Income Tax (Appeals) NFAC [in short ‘the CIT (A)’] dated 13.12.2024 passed for assessment year 2017-18.
