Case Law Details
Cadence Real Estates Private Limited Vs ITO & Anr (Delhi High Court)
Delhi High Court has quashed a reassessment notice and subsequent proceedings initiated by the Income Tax Department against Cadence Real Estates Private Limited for the assessment year (AY) 2016-17. The court’s decision, delivered in a writ petition, centered on a critical procedural lapse: the reassessment notice was issued without the prior approval of the statutorily mandated authority.
The ruling aligns with a series of recent High Court judgments that have clarified the strict requirements for initiating reassessment proceedings, particularly in the aftermath of the Supreme Court’s pronouncement in the Union of India & Ors. v. Ashish Agarwal case.
Case Background: Multiple Reassessment Attempts
Cadence Real Estates Private Limited, a real estate firm, originally filed its income tax return for AY 2016-17 on October 13, 2016, declaring an income of ₹4,40,910. The first attempt at reassessment came with a notice issued under Section 148 of the Income Tax Act, 1961, on April 23, 2021. This notice was issued under the reassessment provisions that were in force prior to March 31, 2021.
However, this initial Section 148 notice faced legal challenges from numerous taxpayers, including Cadence Real Estates. The Delhi High Court, in a batch of matters led by Mon Mohan Kohli v. Assistant Commissioner of Income Tax & Anr. (Neutral Citation No.: 2021:DHC:4181-DB), set aside these old-regime Section 148 notices on December 16, 2021. Other High Courts across India also issued similar orders.
The Revenue subsequently challenged these High Court orders before the Supreme Court. In a landmark decision, Union of India & Ors. v. Ashish Agarwal (2023) 1 SCC 617, the Supreme Court, exercising its powers under Article 142 of the Constitution of India, directed that the quashed old-regime Section 148 notices should be deemed as notices issued under Section 148A(b) of the newly amended Act. The Supreme Court further instructed Assessing Officers (AOs) to provide the necessary information accompanying these deemed notices.
The Second Reassessment Attempt and the Fatal Flaw
In compliance with the Supreme Court’s Ashish Agarwal directives, the Assessing Officer in the Cadence Real Estates case provided the required information to the petitioner on May 17, 2022. The petitioner responded to this Section 148A(b) notice on May 31, 2022.
Following the petitioner’s response, the AO passed an order under Section 148A(d) of the Act on July 29, 2022, and concurrently issued a fresh notice under Section 148 of the Act, initiating reassessment. It was at this stage that the critical error occurred: the impugned Section 148 notice was issued after obtaining approval from the Principal Commissioner of Income Tax (PCIT).
The assessee contended that the PCIT was not the competent authority to grant such approval, arguing that the approval should have been obtained from the Principal Chief Commissioner of Income Tax (PCCIT) as mandated by Section 151(ii) of the Act. This procedural deviation formed the crux of Cadence Real Estates’ challenge before the Delhi High Court.
Legal Mandate for Approval Authority
The issue of the competent approval authority for reassessment notices under the amended provisions of the Income Tax Act is governed by Section 151. This section specifies different authorities whose approval is required based on the time elapsed from the end of the relevant assessment year:
- Section 151(i): If three years or less have elapsed from the end of the relevant assessment year, the approval of the Principal Commissioner or Principal Director or Commissioner or Director is sufficient.
- Section 151(ii): If more than three years have elapsed from the end of the relevant assessment year, the approval must be obtained from the Principal Chief Commissioner or Principal Director General, or where such an authority does not exist, the Chief Commissioner or Director General.
For AY 2016-17, the three-year period from the end of the relevant assessment year (March 31, 2017) would have expired on March 31, 2020. Since the impugned Section 148 notice was issued on July 29, 2022, clearly more than three years had elapsed. Therefore, the approval of the Principal Chief Commissioner of Income Tax (PCCIT) or an equivalent authority, as per Section 151(ii), was required. The AO, however, obtained approval from the PCIT, which falls under Section 151(i).
Judicial Precedents Reinforce Strict Compliance
The Delhi High Court, in its judgment, referred to its own consistent stance on this matter, citing several binding precedents:
- Ganesh Dass Khanna v. Income Tax Officer & Anr. (Neutral Citation No.: 2023:DHC:8187-DB): In this case, the Delhi High Court had previously considered the provisions of Section 149 (dealing with time limits for notice) alongside Section 151 (dealing with approval authorities). The court held that if the income escaping assessment was less than ₹50,00,000, Section 149(1)(a) would apply, but crucially, the question of limitation was “intertwined” with the competence of the specified authority to grant approval under Section 151.
- Twilight Infrastructure Pvt. Ltd. v. Income Tax Officer Ward 25 3 Delhi & Ors. (Neutral Citation No.: 2024:DHC:259-DB): This decision elaborated on the “interlinkage” between limitation and the competent approval authority. The court explicitly stated that the plain language of the amended Section 151, when read with the first proviso to Section 148, brings this inextricable link to the forefront. The judgment clearly distinguished between the authorities specified in clauses (i) and (ii) of Section 151 based on whether three years had elapsed from the end of the relevant assessment year. In the Twilight Infrastructure case, similar to Cadence Real Estates, more than three years had elapsed, but approval was sought from the authority specified in clause (i) instead of clause (ii) of Section 151.
- Abhinav Jindal HUF v. Income Tax Officer Ward 54(1) Delhi & Ors. (Neutral Citation No.: 2024:DHC:7238-DB): The Delhi High Court explicitly stated that the issue in the Cadence Real Estates case was “covered by the earlier decision of this court” in Abhinav Jindal HUF, indicating a consistent judicial stance on this procedural requirement.
High Court’s Decision
In light of the clear statutory mandate under Section 151(ii) and the established judicial precedents, the Delhi High Court concluded that the approval obtained from the PCIT was not from the competent authority for the given time frame. This rendered the impugned Section 148 notice legally unsound.
Consequently, the petition filed by Cadence Real Estates Private Limited was allowed. The Delhi High Court set aside the impugned notice issued under Section 148 of the Act and all proceedings initiated pursuant to it.
The court, however, clarified that its order would “not preclude the Revenue from initiating any further proceedings afresh albeit in accordance with law.” This standard clarification ensures that while the current faulty proceedings are quashed, the Income Tax Department retains the right to initiate new, legally compliant reassessment actions if they deem it necessary.
The judgment underscores the judiciary’s emphasis on strict adherence to procedural requirements in tax administration, particularly concerning reassessment. It sends a clear message that proper approvals from the designated authorities are not mere technicalities but fundamental prerequisites for valid reassessment proceedings under the Income Tax Act.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner has filed the present petition, inter alia, praying as under:
“a) Issue writ of certiorari or writ, order or direction in the nature of certiorari, or any other appropriate writ, order or direction under Article 226/227 of the Constitution of India, quashing notice dated 17.05.2022 issued under section 148A(b) of the Act;
b) Issue writ of certiorari or writ, order or direction in the nature of certiorari, or any other appropriate writ, order or direction under Article 226 / 227 of the Constitution of India quashing impugned order dated 29.06.2022 passed under section 148A(d) and consequential proceedings initiated under section 148 of the Act;
c) Issue writ of certiorari or writ, order or direction in the nature of mandamus, or any other appropriate writ, order or direction under Article 226 / 227 of the Constitution of India retraining the Respondents from continuing with the assessment proceedings pursuant to the impugned order dated 29.06.2022 passed under section 148A(d) of the Act, for assessment year 2016-17 and all actions/ proceedings consequential.”
2. The petitioner is a private limited company and is engaged in the business of real estate. The petitioner filed its return for the assessment year [AY] 2016-17 on 13.10.2016 declaring an income of ₹4,40,910/-. The Assessing Officer [AO] issued a notice dated 23.04.2021 under Section 148 of the Income Tax Act, 1961 [Act] seeking to initiate the reassessment proceedings in respect of AY 2016-17. The said notice was issued for reassessment under the provisions of the Act as were in force prior to 31.03.2021. The said notice was challenged by the petitioner by filing a writ petition before this court [being W.P.(C) No.7584/2021], inter alia, for the aforesaid reason. The impugned notice was set aside by this court by an order dated 16.12.2021 passed in a batch of matters with the lead matter being Mon Mohan Kohli v. Assistant Commissioner of Income Tax & Anr.: Neutral Citation No.: 2021:DHC:4181-DB.
3. Similar notices were also set aside by the various High Courts in India. The Revenue had assailed the orders passed by the High Courts before the Supreme Court in a batch of matters. In Union of India & Ors. v. Ashish Agarwal: (2023) 1 SCC 617 and other connected appeals, the Supreme Court issued directions under Article 142 of the Constitution of India directing that such notices be construed as notices under Section 148A(b) of the Act with a further direction to the AOs to provide the information as required to be accompanied by the said orders.
4. In compliance of the directions issued by the Supreme Court in Union of India & Ors. v. Ashish Agarwal (supra), the AO provided the information to the petitioner on 17.05.2022 and the petitioner responded to the said notice on 31.05.2022.
5. Thereafter, the AO passed the order under Section 148A(d) of the Act on 29.07.2022 and issued the notice under Section 148 of the Act [the impugned notice]. The AO had proceeded to issue notice after approval of Principal Commissioner of Income Tax [PCIT] who is not the competent authority to grant such approval. Concededly, the impugned notice was not issued with prior approval of the Principal Chief Commissioner of Income Tax [PCCIT] as mandated under Section 151(ii) of the Act.
6. In Ganesh Dass Khanna v. Income Tax Officer & Anr.: Neutral Citation No.: 2023:DHC:8187-DB, this court considered the provisions of Section 149 of the Act and held that, since the income that had escaped assessment was less than ₹50,00,000/-, the time limit prescribed under Section 149(1)(a) of the Act would be applicable, as the question concerning the limitation and the competence of the specified authority to grant approval were intertwined.
7. In Twilight Infrastructure Pvt. Ltd. v. Income Tax Officer Ward 25 3 Delhi & Ors.: Neutral Citation No.: 2024:DHC:259-DB, this court referred to the stand of the Revenue in Ganesh Dass Khanna v. Income Tax Officer & Anr. (supra) and held as under:
“12. Clearly, the revenue advanced the argument of interlinkage between limitation and the ascertainment of the specified authority due to the plain language of the amended Section 151 of the Act. Section 151, when read alongside the first proviso to Section 148, brings the aspect of inextricable linkage to the fore.
12.1. Clauses (i) and (ii) of Section 151 of the amended Act (which has been extracted hereinabove) clearly specify the authority whose approval can trigger the reassessment proceedings. Thus, if three (3) years or less have elapsed from the end of the relevant AY, the specified authority who would grant approval for initiation of reassessment proceedings will be the Principal Commissioner or Principal Director or Commissioner or Director. However, if more than three (3) years from the end of the relevant AY have elapsed, the specified authority for according approval for reassessment shall be the Principal Chief Commissioner or Principal Director General or, where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General.
*** *** ***
12.3. In these cases, there is no dispute that although three (3) years had elapsed from of the end of the relevant AY, the approval was sought from authorities specified in clause (i), as against clause (ii) of Section 151.”
8. In view of the above, the impugned notice is liable to be set aside.
9. Concededly, the said issue is covered by the earlier decision of this court in Abhinav Jindal HUF v. Income Tax Officer Ward 54(1) Delhi & Ors.: Neutral Citation No.:2024:DHC:7238-DB.
10. In view of the above, the petition is allowed and the impugned notice issued under Section 148 of the Act is set aside. All proceedings initiated pursuant to the impugned notice are also set aside. It is, however, clarified that this order will not preclude the Revenue from initiating any further proceedings afresh albeit in accordance with law.
11. The petition is disposed of in the aforesaid terms.
Author Bio
