prpri Sanctity of Approval of Higher Authority u/s. 151 of Income Tax Act, 1961 Sanctity of Approval of Higher Authority u/s. 151 of Income Tax Act, 1961

The sanctity of the approval of the higher authority cannot be countenanced under the Income Tax Act 1961. The legislature has provided for many kind of safeguards against the action taken by the field officers one of them being  in the form of approval from higher authority. 

One such approval is provided under section 151 of the Act. As per the provisions of section 151 the competent authority be it Commissioner of income tax or additional Commissioner of income tax, they have to approve the proposal of the assessing officer reopening an assessment for the back assessment years. It’s an additional safeguard against the arbitrary action of the AO in addition to the reasons to be recorded in writing. 

A question was initially raised in the case of S. Narayanappa vs. CIT’, 63 ITR 219 (SC) as to whether such approval is merely an administrative act or whether such approval can be brought under judicial scrutiny. The apex court held that the stage of obtaining approval from higher authority was administrative in character and not a quasi judicial act.

In a subsequent decision of  Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha’, 79 ITR 603 (SC), it has been held that where the Commissioner, while granting the sanction just noted the word “Yes” and affixed his signature thereunder, he had only mechanically accorded permission, and that the important safe-guards provided in section 151 were lightly treated. Therefore it was held that such approval has to be after due application of mind as they are not mere empty formality but an important safeguard against improper action of the assessing officer. 

Subsequent decisions of various courts went ahead and observed that even though detailed reasons are not required to be given by the approving authority however there has to be some discussion which reflects application of mind after considering the facts of the case. The Delhi High Court in the case of Pr. CIT vs. M/s NC Cables Ltd. in ITA No. 335/2015 has held as under:-

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.

Accordingly, the department has introduced a proper form and a method of seeking approval of the higher authority by the assessing officer. The AO is required to fill the form containing the facts of the case and append the reasons recorded and other material before him on the basis of which the approving authority grants approval after examining such details. 

However, it is repeatedly observed that the higher authorities have merely been signing the approval without any discussion or without displaying any application of mind either the facts of the case or whether such reasons recorded pass the test which is required for reopening an assessment.

Recently the Mumbai High Court has in the case of MY CAR (PUNE) PVT. LTD. VERSUS INCOME-TAX OFFICER 14 (4) AND ORS. 2019 (3) TMI 394 – BOMBAY HIGH COURT– had the occasion to deal with an approval granted by the principal CIT to the assessing officer . The assessee challenged the reopening of assessment in a writ petition arguing that the approval granted by the CIT was not in conformity with the facts recorded by the assessing officer in the reasons recorded. Accordingly, the assessee argued that since the approval itself is incorrect, the mandatory condition as provided under section 151 of the act has not been fulfilled and therefore the notice issued under section 148 of the Act decors such approval is invalid and proceedings cannot be upheld.

While adjudicating the matter Mumbai High Court reproduced the approval granted by the CIT and observed that such approval is factually erroneous. There were two instances which were pointed out by the honourable court to highlight that the Approval was erroneous. Accordingly, the court held that approval was not granted in a proper manner. The court held:

“It is a settled position in law that grant of the sanction by the Commissioner of Income Tax under Section 151 of the Act, is not a mechanical act on his part but it requires due application of mind to the reasons recorded before granting the sanction. This has been so provided as to safeguard against issue of reopening notice (which seek to disturb the settled position) to ensure that assessee is not troubled with reopening issues without satisfactory reasons. Therefore, it must pass muster of the Superior Officer in the context of Sections 147 and 148 of the Act, before it is issued to the party.”

Accordingly it held that the notice under section 148 and consequent proceedings were liable to be quashed merely because of approval granted by the CIT in an improper manner.

This case highlights the importance of the approval to be granted by the higher authorities and any erroneous or insufficient approval can destroy the very validity of the proceedings which could have been otherwise initiated validly. It would be in the fitness of things if the CBDT issues proper instructions to the higher authorities to record their approval or rejection after verification of complete records so as not to risk otherwise valid proceedings.

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July 2021