ITO Vs Nikhil Chandrakant Dharia (Supreme Court of India)
The litigation concerned reassessment proceedings for Assessment Year (AY) 2019-20 initiated through a notice dated 28th March 2023 under Section 148A(b) of the Income-tax Act, 1961, followed by an order dated 19th April 2023 under Section 148A(d) and a consequential notice dated 19th April 2023 under Section 148.
Before the Bombay High Court, the petitioner principally challenged the approval granted under Section 151, alleging total non-application of mind. The Court noted that the notice under Section 148A(b) related to AY 2019-20 and was issued within three years. Accordingly, the petitioner did not dispute that approval was required from the Principal Commissioner of Income Tax (PCIT), rather than the Principal Chief Commissioner of Income Tax (PCCIT).
The Court found material errors in the approval form. Row 9 stated that the proceedings were covered under Section 149(1)(b), namely proceedings for more than three years but not more than ten years, whereas the notice concerned AY 2019-20 and was dated 28th March 2023, i.e. within three years. Row 22 recorded approval by the PCIT on 19th April 2023. The Court observed that, if Section 149(1)(b) were applicable, approval could be granted only by the Principal Chief Commissioner and not the Principal Commissioner.
The Court further noted that Row 16 of the approval form recorded that no personal hearing had been requested. However, the Section 148A(d) order itself stated that a request for personal hearing had been made but was not granted on the ground that it was premature. The Court therefore held that the application for approval, the recommendation and the grant of approval had been made mechanically and without application of mind.
The High Court also considered the denial of personal hearing. It rejected the Revenue’s contention that Section 148A(b) contemplated only an opportunity of being heard and not personal hearing. The Court held that, where personal hearing was requested, Section 148A(b) required such hearing before passing the order under Section 148A(d). The Court also relied on the fact that the approval form itself specifically contained a column asking whether personal hearing had been requested.
The Bombay High Court consequently quashed and set aside the order dated 19th April 2023 passed under Section 148A(d) and the consequential notice dated 19th April 2023 issued under Section 148, and disposed of the petition.
The Revenue thereafter approached the Supreme Court in ITO Vs Nikhil Chandrakant Dharia. The Supreme Court’s order records that there was a delay of 201 days in filing the Special Leave Petition. The Court found that the reasons given for seeking condonation of that delay were neither satisfactory nor sufficient in law and therefore dismissed the application seeking condonation of delay.
Consequently, the Supreme Court dismissed the Special Leave Petition. Pending application(s) were also disposed of.
Thus, the Supreme Court did not decide the underlying reassessment issues on their merits or independently rule on the Bombay High Court’s reasoning concerning Section 151 approval, mechanical application of mind or personal hearing. Its recorded disposition was confined to refusing condonation of the 201-day delay and, consequently, dismissing the Special Leave Petition.
The Supreme Court’s dismissal left the Bombay High Court proceedings undisturbed. The supplied Supreme Court order does not record any merits adjudication or any broader affirmation or adoption of the High Court’s reasoning. The operative Supreme Court outcome was dismissal of the delayed Special Leave Petition after refusal to condone the 201-day delay.
Read HC Order in this case: Bombay HC Quashes Reassessment Notice Over Mechanical Section 151 Approval & Denied Personal Hearing
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay in refiling is condoned.
There is a delay of 201 days in filing the special leave petition. The reasons assigned for seeking condonation of delay are neither satisfactory nor sufficient in law to condone the same. Hence, the application seeking condonation is dismissed.
Consequently, the Special Leave Petition is also dismissed.
Pending application(s) shall stand disposed of.
Nikhil Chandrakant Dharia Vs ITO (Bombay High Court)
Bombay HC Quashes Reassessment Notice Over Mechanical Section 151 Approval & Denied Personal Hearing
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This Petition has been filed impugning a notice dated 28th March 2023 issued under Section 148A(b) of the Income-tax Act, 1961 (“Act”), an order dated 19th April 2023 passed under Section 148A(d) of the Act and consequent notice also dated 19th April 2023 issued under Section 148 of the Act.
2. One of the main grounds raised in the Petition is that there has been total non application of mind in granting approval under Section 151 of the Act and that is evident from the approval itself. In the affidavit in reply filed through one Vatslaa Zha, Principal Commissioner of Income-Tax Officer-19 affirmed on 11th September 2023, there is no denial to the specific allegation that there has been non application of mind. Only an attempt to justify the sanction is made. According to Respondent, sanction, since it pertains to Assessment Year (“AY”) 2019-20 and the notice has been issued within 3 years, sanction has to be accorded by the Principal Commissioner of Income-Tax Officer-19 (“PCIT”) and not the Principal Chief Commissioner of Income Tax (“PCCIT”). There can be no dispute on this. But it is not Petitioner’s case that the sanction has to be granted by the PCCIT. Petitioner also agrees that the sanction should have been given by the PCIT only but the PCIT has not applied his mind while according the sanction. We would agree with Petitioner.
3. The notice under Section 148A(b) of the Act dated 28th March 2023 was issued for AY 2019-2020. Therefore, it was within 3 years. In the form submitted for approval under Section 151 of the Act, in row 9, it is mentioned “Time limit for current proceedings covered under Section 149(1)(b) – for more than 3 years but not more than 10 years.” And row 22 states that the approval has been granted by one Gollapinni Mallikarjuna, PCIT on 19th April 2023. In row 16 “whether personal hearing was requested by Assessee”, the answer is shown as “No”. At page 197 is a copy of the assessment order prepared under Section 148A(d) of the Act which was annexed to the approval form as mentioned in row 18. In the order at paragraph 7.6, it is mentioned a request for personal hearing has been sought but is not being granted because it is premature. Therefore what is stated in row 16 that no request of personal hearing was made, is a false statement.
4. As regards rows 9 and 22 are concerned, we also agree with Petitioner that there has been total non application of mind by the officer seeking approval, the Additional/Joint Commissioner of Income-tax who recommended it was a fit case as well as the PCIT, who granted approval because the time limit for current proceedings should be covered under Section 149(1)(a) of the Act, i.e., for less than 3 years because the AY is 2019-20 and the notice issued under Section 148A(b) of the Act is dated 28th March 2023. In the form, in row 9 it is mentioned “under Section 149(1)(b)-for more than 3 years but not more than 10 years.” If only all three officers had bothered to read the form for approval and the order under Section 148A(d) of the Act, certainly the notice would not have been issued, the Additional/Joint Commissioner of Tax would not have recommended and the PCIT would not have granted the approval. If Section 149(1) (b) of the Act is applicable then the approval could be granted only by the Principal Chief Commissioner and not the Principal Commissioner as in this case.
5. Therefore, in our view, the application for approval, recommendation and the grant of approval have all been made by the officers mechanically and without application of mind. There is not even an attempt to explain in the affidavit in reply as to how this glaring error has been committed. Perhaps they had not explanation. We are of the opinion that if only the PCIT had read the form for approval carefully with the order that was prepared by the Assessing Officer under Section 148A(d), the PCIT would not have come to the conclusion that there is any material to treat it as a fit case to issue notice under Section 148 or pass order under Section 148A(d) of the Act. So also the Additional/Joint Commissioner of Income-tax, who recommended that it was a fit case. It is obvious that they have not bothered to read anything. It is rather unfortunate that someone of the rank of PCIT, in the affidavit in reply, is trying to justify the glaring error.
6. On the issue of personal hearing not being granted and what is stated in row 16, in ground (j) Petitioner has specifically alleged that Respondent No. 1 has refused to grant personal hearing on the ground that it was premature and it will be granted during the further assessment proceedings. In the affidavit in reply there is no specific denial to ground (j) but it is stated that the provisions of Section 148A(b) of the Act clearly states opportunity of hearing and not opportunity of personal hearing. This averment defies sense. Section 148A(b) clearly says “provide an opportunity of being heard to the assessee” and that means ‘personal hearing’. If a hearing was not envisaged at the stage after issuance of notice under Section 148A(b) of the Act then the said sub-section need not have provided for “provide an opportunity of being heard to the assessee ….”.It would have simply stated “by serving upon him a notice to showcause within such time…. as to why a notice under Section 148 should not be issued on the basis of…”
This view of ours is also the view of department because in the approval form 151, row 16 provides “Whether personal hearing requested by assessee”. This certainly pertains to the stage of 148A(b) because if what Mr. Chandrashekhar states that the personal hearing stage comes only after the notice under Section 148 of the Act is issued, the question of row 16 being put in the approval form would not arise. This also indicates total non application of mind even by the officer, who has filed the affidavit in reply.
7. Therefore we make it clear that in every case, before passing an order under Section 148A(d) of the Act, Respondents shall give a personal hearing if requested for by Petitioner. That would also be beneficial to Respondent because if a Petitioner or an assessee is able to satisfy as to why it was not a fit case to pass order under Section 148A(d) of the Act and issue notice under Section 148 of the Act, the department can close the file. We should also note that we have come across many matters where personal hearing has been given and we find it rather strange that the PCIT in the affidavit in reply has taken such an unacceptable stand.
8. We, therefore, quash and set aside the order dated 19th April 2023 passed under Section 148A(d) of the Act and the notice also dated 19th April 2023 issued under Section 148 of the Act.
9. Petition disposed.
