Approval to issue Section 148 notice has to be given by JCIT & not by PCIT

Miranda Tools Pvt. Ltd. Vs ITO (Bombay High Court)

The Petitioner is a company registered under the Companies Act engaged in the business of manufacture and marketing of fabrics. The Petitioner filed its return of income for the assessment year 2014-15 on 22 September 2014 declaring nil income. The Petitioner’s case was selected for scrutiny assessment vide notice dated 18 September 2015. On 7 April 2016, the Assessing Officer issued notice under section 142(1) of the Income Tax Act, 1961 calling upon the Petitioner to submit certain details regarding share application money received by the Petitioner. The Assessing Officer thereafter passed an assessment order on 1 September 2016 under section 143(3) of the Act accepting the income offered by the Petitioner. The Assessing Officer issued a notice on 26 February 2019 under section 148 of the Act on the ground that he has reason to believe that the income chargeable to tax in respect of share application money for the relevant assessment year has escaped assessment.

As per the provisions of section 151(2) of the Act, a sanction to issue notice for reopening under section 148 of the Act has to be given by the Joint Commissioner of Income Tax in case the reassessment is sought to be done before four years. Under section 2(28C) of the Act, a Joint Commissioner also means Additional Commissioner of Income Tax. In the present case, the Assessing Officer submitted a proposal to the Principal Chief Commissioner of Income Tax for reopening the assessment under section 148 on 6 February 2019.

The question arises is whether the sanction granted by the Chief Commissioner of Income Tax would fulfill the requirement of section 151. It is long been settled that when the statute mandates the satisfaction of a particular authority for the exercise of power then it has to be done in that manner only. Adopting this principle, the Division Benches of this Court in the case of Ghanshyam K. Khabrani v. Asst. CIT¹ and CIT v. Aquatic Remedies P.Ltd.² have held that sanction for issuance of reopening notice has to be obtained from the Authority mentioned in Section 151 and not from any other officer including a superior officer. In the present case the Chief Commissioner of Income tax is not the officer specified in section 151 of the Act. There is thus a breach of requirement of section 151(2) of the Act regarding sanction for issuance of notice under section 148 of the Act. Consequently, the impugned notice and the impugned order cannot be sustained in law. The Petitioner, therefore, is entitled to succeed.

Accordingly, the impugned notice dated 26 February 2019 and the impugned order dated 15 July 2019 are quashed and set aside. The petition is disposed of accordingly.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

By this petition, the Petitioner has challenged the notice dated 26 February 2019 and the order passed on 15 July 2019. By the impugned notice, the Respondent- Assessing Officer has sought to reopen the assessment in respect of the Petitioner for the year 2014-15. By the impugned order the Assessing Officer has rejected the objections raised by the Petitioner.

2. The Petitioner is a company registered under the Companies Act engaged in the business of manufacture and marketing of fabrics. The Petitioner filed its return of income for the assessment year 2014-15 on 22 September 2014 declaring nil income. The Petitioner’s case was selected for scrutiny assessment vide notice dated 18 September 2015. On 7 April 2016, the Assessing Officer issued notice under section 142(1) of the Income Tax Act, 1961 calling upon the Petitioner to submit certain details regarding share application money received by the Petitioner. The Assessing Officer thereafter passed an assessment order on 1 September 2016 under section 143(3) of the Act accepting the income offered by the Petitioner.

3. The Assessing Officer issued a notice on 26 February 2019 under section 148 of the Act on the ground that he has reason to believe that the income chargeable to tax in respect of share application money for the relevant assessment year has escaped assessment. The Petitioner replied to the said notice stating that the return originally filed by it be treated as return filed in response to the notice. The Petitioner also requested that a copy of reasons to be supplied to it, which was supplied to the Petitioner. The Petitioner submitted its objections. The Assessing Officer rejected the objections and passed the impugned order on 15 July 2019 proceeding to reopen the assessment. Hence, the present petition.

4. The Petitioner assailed the impugned order on various grounds. These grounds are: that share application money received by the Petitioner is on capital account and there cannot be a belief that the income has escaped assessment; no new tangible material is placed on record by the Assessing Officer; it is a case of clear change of opinion; the impugned notice issued is to the non-existing person; and, lastly, the sanction obtained by the Assessing Officer from the Principal Commissioner of Income Tax is bad in law. Reply affidavit has been filed by the Respondent. By the order dated 13 November 2019 we had indicated that we would take up the petition for final disposal today.

5. We have heard Mr. Agarwal for the Petitioner and Mr. Mohanty for the Respondent.

6. We will take up the ground of invalidity of sanction first for consideration as, if the Petitioner succeeds on this ground, it is not necessary to decide the other grounds raised as they would be rendered academic.

7. As per the provisions of section 151(2) of the Act, a sanction to issue notice for reopening under section 148 of the Act has to be given by the Joint Commissioner of Income Tax in case the reassessment is sought to be done before four years. Under section 2(28C) of the Act, a Joint Commissioner also means Additional Commissioner of Income Tax. In the present case, the Assessing Officer submitted a proposal to the Principal Chief Commissioner of Income Tax for reopening the assessment under section 148 on 6 February 2019. A copy of the proposal placed on record shows that it bears Inward Stamp of the Additional Commissioner of Income Tax, Mumbai. The Additional Commissioner of Income Tax endorsed on 13 February 2019 as under:

“To
The Chief Commissioner of Income-tax (OSD)-7,
Mumbai.

Sir,

Sub: Request for approval u/s 151(1) of the IT Act for issue of Notice u/s 148 in the case of M/s Morarjee Gokuldas Spg and Wvg Pvt Ltd. A.Y. 2014-15 PAN: AAACM3642H-reg-

Kindly refer to the above.

Kindly find enclosed herewith the proposals for reopening the assessment in the above mentioned case received from ITO 7(2)(3), Mumbai.

On the basis of reason recorded by the AO. I feel that this is a fit case for reopening of assessment u/s 147 of the IT Act as there is clear case of escapement of income for A.Y. 2014-15.

In view of the provision of Section 151(2) of the IT Act, your kind approval is solicited for re-opening the assessment in above mentioned cases. The reason recorded for reopening the assessment is enclosed in prescribed format.

Submitted for kind perusal.

Yours faithfully,

Addl. Commissioner of Income Tax,
Rg.7(2), Mumbai.”

According to the Petitioner, this course of action was not permissible. According to the learned counsel for the Revenue, the Additional Commissioner of Income Tax had recorded his satisfaction that it is a fit case for reopening of the assessment on the ground that there is clear case of escapement of income.

8. Two questions arise. Firstly, whether the communication dated 13 February 2019 accords a final approval. This question we answer in the negative. Though the words “I feel that this is a fit case” are used in the communication, the further part of the communication seeks an approval of the Chief Commissioner of Income Tax, Therefore, this opinion was subject to the approval of the Chief Commissioner of Income Tax. The communication dated 13 February 2019 cannot, therefore, be considered as a final sanction.

9. The next question arises is whether the sanction granted by the Chief Commissioner of Income Tax would fulfill the requirement of section 151. It is long been settled that when the statute mandates the satisfaction of a particular authority for the exercise of power then it has to be done in that manner only. Adopting this principle, the Division Benches of this Court in the case of Ghanshyam K. Khabrani v. Asst. CIT¹ and CIT v. Aquatic Remedies P.Ltd.² have held that sanction for issuance of reopening notice has to be obtained from the Authority mentioned in Section 151 and not from any other officer including a superior officer. In the present case the Chief Commissioner of Income tax is not the officer specified in section 151 of the Act. There is thus a breach of requirement of section 151(2) of the Act regarding sanction for issuance of notice under section 148 of the Act. Consequently, the impugned notice and the impugned order cannot be sustained in law. The Petitioner, therefore, is entitled to succeed.

10. Accordingly, the impugned notice dated 26 February 2019 and the impugned order dated 15 July 2019 are quashed and set aside. The petition is disposed of accordingly.

Notes: 

1  (2012) 346 ITR 443 (Bom)

2  (2018) 406 ITR 545 (Bom.)