Case Law Details
Twylight Infrastructure Pvt Ltd Vs ITO (Delhi High Court)
Introduction: The Delhi High Court has quashed income tax reassessment notices in the case of Twylight Infrastructure Pvt Ltd for Assessment Years 2016-17 and 2017-18. The court emphasized the lack of approval from the specified authority, as mandated by the amended provisions of the Income Tax Act.
Detailed Analysis:
1. The writ petitions concern the assessment years 2016-17 and 2017-18, questioning the sustainability of notices and orders due to the absence of specified authority approval.
2. The core issue revolves around whether the notices and orders are legally valid, considering the petitioners’ argument that they lack the required approval from the specified authority.
3. The court refers to a specific case, Rajesh Gupta HUF v Assistant Commissioner of Income Tax, among the writ petitions to illustrate the common issue. The petitioner filed its return for AY 2017-18, received a notice, and subsequently faced reassessment proceedings.
4. The revenue, in defense, relies on the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, and relevant instructions issued by the Central Board of Direct Taxes (CBDT).
5. The court notes that the reassessment proceedings were initiated without the approval of the specified authority, as mandated by Section 151 of the Income Tax Act.
6. Referring to a previous judgment (Ganesh Dass Khanna), the court had ruled in favor of assessees concerning the issue of limitation. However, it highlights that the present batch involves escaped income exceeding Rs.50,00,000.
7. The court rejects the revenue’s argument that approval from the specified authority is not mandatory, emphasizing the clear provisions of the amended Section 151.
8. Sections 148, 149, and 151, before and after amendment, are examined, demonstrating the mandatory nature of specified authority approval for issuing reassessment notices.
9. The court observes that the approval is integral to the reassessment process, and the lack thereof renders the impugned notices and orders unsustainable.
10. The court cites the first proviso to Section 148 and Section 151, highlighting the mandatory requirement of specified authority approval for issuing reassessment notices.
11. Considering the specified authorities based on the applicable timeframe, the court quashes the notices and orders due to the absence of specified authority approval, granting the revenue liberty to take lawful steps if necessary.
12. The writ petitions are disposed of, keeping the rights and contentions open for both parties in case reassessment proceedings are initiated.
Conclusion: The Delhi High Court’s decision underscores the mandatory nature of obtaining approval from the specified authority for initiating income tax reassessment proceedings. The quashing of notices due to the absence of such approval reaffirms the significance of adhering to statutory requirements in tax matters.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The above-captioned writ petitions concern Assessment Year (AY) 2016-17 and AY 2017-18.
2. The core issue involved in the writ petitions is whether the impugned notices and orders are sustainable in law, having regard to the contention of the petitioners that they are not backed by the approval of the specified authority.
3. Since the issue is common to the above-captioned writ petitions, the broad facts concerning one of the matters e., WP(C) 7289/2023, titled Rajesh Gupta HUF v Assistant Commissioner of Income Tax and Ors. are noted hereafter.
3.1 The petitioner/Hindu Undivided Family (HUF) filed its return of income (ROI) qua AY 2017-18 on 06.2017 declaring an income of Rs.66,88,500/-. The ROI was processed by the revenue and an intimation was issued to the petitioner/HUF under Section 143(1) of the Act on 21.11.2017.
3.2 In the aftermath of the judgement in Union of India v Ashish Agarwal (2023) 1 SCC 617, the revenue issued a notice dated 26.05.2022 under Section 148A(b) of the Act to the petitioner.
3.3 The petitioner filed a reply dated 06.2022 qua the said notice.
3.4 Thereafter, the revenue passed an order under Section 148A(d) of the Act dated 29.07.2022 holding that income amounting to Rs.4,37,56,000/- had escaped A consequential notice of even date i.e., 29.07.2022 was also issued to the petitioner under Section 148 of the Act.
3.5 A perusal of the order under Section 148A(d) and the notice under Section 148 would show that they have been passed/issued after obtaining the prior approval of the Principal Commissioner of Income Tax-10, Delhi.
3.6 The petitioner approached the court via the aforementioned writ petition on 18.05.2023, inter alia, raising the issue with regard the approval of the specified authority being absent.
3.7 The petition came up for hearing before a coordinate bench [which included one of us i.e., Rajiv Shakdher J.] on 25.05.2023 and it was directed that there shall be a stay on the continuation of reassessment proceedings.
3.8 Thereafter, the petition was listed with the above-captioned batch of petitions on several dates and arguments were heard on behalf of the assessees and the revenue.
4. Counsel for the parties state that the reassessment proceedings were triggered by an authority not specified, as per the provisions of Section 151(ii) of the Income Tax Act, 1961 [in short, “Act”].
4.1 In defence of the writ petitions, the revenue, inter alia, has relied upon Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [in short, “TOLA”] and paragraphs 6.1 and 6.2(ii) of the Instruction 1 of 2022 dated 11.05.2022 issued by the Central Board of Direct Taxes [in short, “CBDT”].
5. In Ganesh Dass Khanna v. Income Tax Officer & Anr. 2023: DHC: 8187-DB, we have ruled in favour of the assessees and against the revenue insofar as the issue concerning limitation was concerned.
5.1 Insofar as the batch which was considered in the aforementioned judgment, the alleged escaped income was less than Rs.50,00,000/-. As far as the current batch of writ petitions is concerned, concededly, the escaped income is more than Rs.50,00,000/-.
6. A faint argument is made on behalf of the revenue that the approval of the specified authority is not mandatory, which, in our opinion, is in the teeth of the provisions of the Act. In this behalf, the old Section 151 and the amended version of the provision (after Finance Act 2021) are made reference to.
6.1 For the sake of convenience, the provisions of Sections 148, 149 and 151, before and after amendment are extracted hereafter:
Prior to Finance Act 2021
“148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 :
Provided that in a case—
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub- section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice:
Provided further that in a case—
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and
(b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice….
xxx xxx xxx
149. (1) No notice under section 148 shall be issued for the relevant assessment year,—
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c);
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year;
(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment….
xxx xxx xxx
151. (1) No notice shall be issued under section 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.”
Post Finance Act 2021
“148. Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice…
xxx xxx xxx
149. (1) No notice under section 148 shall be issued for the relevant assessment year—
(a) if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b);
(b) if three years, but not more than ten years, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence which reveal that the income chargeable to tax, represented in the form of asset, which has escaped assessment amounts to or is likely to amount to fifty lakh rupees or more for that year…
xxx xxx xxx
151. Specified authority for the purposes of section 148 and section 148A shall be,—
(i) Principal Commissioner or Principal Director or Commissioner or Director, if three years or less than three years have elapsed from the end of the relevant assessment year;
(ii) Principal Chief Commissioner or Principal Director General or where there is no Principal Chief Commissioner or Principal Director General, Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment ..”
[Emphasis is ours]
7. A careful perusal of the above extract would show that after amendment, Section 151 has been split and the part which enjoins that the approval of the specified authority is mandatory stands embedded in the first proviso to Section 148.
7.1 The concerned specified authorities, depending on the applicable timeframe, are adverted to in Section 151 of the Act.
8. The first proviso to Section 148 and Section 151, when read conjointly, demonstrate the untenability of the submission made on behalf of the revenue.
9. We may also note that in Ganesh Dass Khanna, we were considering the provision of Section 149 of the Act and have taken the view that since the escaped income was less than 50,00,000/-, the time limit as prescribed in Section 149(1)(a) of the Act would apply.
10. As indicated above, the specified authority changes depending on the time limit prescribed in Section 151 of the It is on this account that there is linkage between ruling rendered in Ganesh Dass Khanna and the instant matters.
11. It may also be noted that in Ganesh Dass Khanna, we had recorded the stand of the revenue that the issue concerning limitation and the specified authority are “intertwined”. For convenience, the relevant part of the judgement is extracted hereafter:
“24. On behalf of the revenue, the following broad submissions were made:…
…(viii) Both under the unamended 1961 Act and amended 1961 Act, the issue concerning limitation is inextricably intertwined with two aspects:
(a) First, the rank of the authority granting approval/sanction for triggering reassessment proceedings.
(b) Second, the quantum of income which has escaped assessment.”
[Emphasis is ours]
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. That the approval is mandatory is plainly evident on perusal of the first proviso appended to Section 148 of the Act. the said proviso, at the risk of repetition, reads as follows:
“…Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice….”
12.3In 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.
12.4 Before us, the counsel for the revenue continue to hold this position. The only liberty that they seek is that if, based on the judgement in Ganesh Dass Khanna, the impugned orders and notices are set aside, liberty be given to the revenue to commence reassessment proceedings afresh.
13. Therefore, having regard to the aforesaid, the impugned notices and orders in each of the above-captioned writ petitions are quashed on the ground that there is no approval of the specified authority, as indicated in Section 151(ii) of the Act. The direction is issued with the caveat that the revenue will have liberty to take steps, if deemed necessary, albeit as per law.
14. Needless to add, the rights and contentions of both the sides will remain open, in the event the revenue triggers reassessment proceedings.
15. The above-captioned writ petitions are disposed of, in the aforesaid terms.
16. Consequently, the pending applications shall stand closed.
17. Parties will act based on the digitally signed copy of the order
