Section 151- Income Tax Act, 1961

The Assessing Officer has to take approval from higher authorities before issue of notice u/s 148 of the Act. How important is application of mind by the Assessing Officer to record the reasons and more important  is grant of approval u/s 151(1)&(2), of the Act with full application of mind. The higher authorities has to go through the reasons recorded and with full application of mind they have to say “yes” to the document sent for approval, otherwise the entire exercise of the revenue will go vitiated.

SANCTION FOR ISSUE OF NOTICE BY THE HIGHER AUTHORITIES

Text of Section 151

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.

151(2)

In a case other than a case falling under section 151(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.

151(3)

For the purposes of section 151(1) and section 151(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.

No requirement in the provisions that an opportunity of being heard must be granted before according sanction.

Before according a sanction there is no requirement in the provisions that an opportunity of being heard must be granted. [Haji Ali Mohamed v. CIT (1940) 8 ITR 243 (Nag).]

“To enable the Income-tax Officer to initiate proceedings under section 34 of the Income Tax Act, 1922, it is enough that the Income-Tax Officer on the information which he has before him and in good faith considers that he has good ground for believing that the assessee’s profits have for some reason escaped assessment or have been assessed at too low a rate.

 The Income-Tax Officer is not required by the section to convene the assessee, or to intimate to him the nature of alleged escapement, or to give him an opportunity of being heard before he decides to operate the powers conferred by the section.-“[Indian National Tannery, In re (1941) 9 ITR 618 (All.)]

Proper sanction is necessary

SANCTION OF COMMISSIONER INSTEAD OF JCIT RENDERS REOPENING IS VOID

There is not statutory provision under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise  of a power, the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. where a statute requires something to be done in a particular manner, it has to be done in that manner (SPL’s) Siddharata Ltd. followed)

Satisfaction of one authority cannot be substituted by the satisfaction of the other authority

Sanction of CIT instead of JCIT renders reopening invalid

The Assessing Officer issued a notice under section 148 to reopen an assessment. As a section 143(3) order had not been passed and 4 year had elapsed, the Assessing Officer ought to heave obtained the sanction of the Joint/ Additional CIT under section 151(2). Instead, he routed the file through the additional CIT and obtained the sanction of the CIT. On appeal by the assessee, the Tribunal struck down the reopening on the ground that correct sanction had not been obtained. On appeal by the department, HELD upholding the Tribunal:

The different authorities specified in section 116 have to exercise their power in accordance with law. If powers conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. if the statue requires a thing to be done in a certain manner it has to be done in that manner alone. Also, the designated authority should apply his independent mind to record his satisfaction and it should not be in the behest of a superior authority.

The argument of the assessee before the Tribunal was that the approval was not granted by the Joint Commissioner for reopening under section 147. Instead, it was taken from the CIT, who was not competent to approve even when he was a higher Authority inasmuch as section 151 of the Act specifically mentions Joint Commissioner as the Competent Authority. This contention of the respondent-assessee has been accepted by the Tribunal thereby quashing the assessment proceedings. The contention of the Revenue that it was merely an irregularity committed by the Assessing Officer and was rectifiable under section 292B of the Act, has not been found convincing by the Tribunal. Where the Assessing Officer does not himself exercise his jurisdiction under section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent.

It was held that it is an established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be “independent” and not “borrowed” or “dictated” satisfaction.-[CIT v. SPL’s Siddhartha LTD (2012) 345 ITR ITR 223 (Del.)]
It was held that if the approval is obtained from the CIT instead of JCIT, the reopening itself is invalid. Therefore, the assessment framed consequent thereto deserves to be quashed.-[Jai Prakash Ahuja v. ITO in ITA No. 341/LKW/2014]
It was held that when section 151(2) of the Act mandates satisfaction of Jt. Commissioner of Income tax for issuance of notice under section 148 of the Act, the reopening of assessment with the approval of the Commissioner of Income-tax is not sustainable.[Ghanshyam K. Khabrani v. ACIT (2012) 346 ITR 443: 249 CTR 370: 20 taxmann.com 716(Bom.)]

Satisfaction required and not merely approval

MERELY SIGN AND STAMP OF APPROVING AUTHORITY WILL NOT AMOUNT TO SATISFACTION

It was held that where a mere stamp is affixed and signed by an Under Secretary underneath a stamped “Yes” against the column which  queried as to whether the approval of the Board had been taken. Rubber stamping of underlying material is hardly a process which can get the imprimatur of this Court as it suggests that the decision has been taken in a mechanical manner as such, the same was not a sufficient compliance under section 151 of the Act. Even if the reasoning set out by the ITO was to be agreed upon, the least, which is expected, is that an appropriate  endorsement is made in this behalf setting out brief reasons. Reasons are the link between the material placed on record and the conclusion reached by an authority in respect of an issue, since they help in discerning the manner in which conclusion is reached by the concerned authority. Thus, we find force in the contention of learned counsel for the appellant that there has not been proper application of mind by the Board.-[Central India Electric Supply Co. Ltd vs . ITO (2011) 333 ITR 237 (Del.): 51 DTR 51 (Del.)]

Record “Satisfaction” on the file put up for approval

CIT having mechanically granted approval for reopening ofassessment without application of mind, the same is invalid andnot sustainable.-[German Remedies Ltd. v. DCIT (2006) 287 ITR494 (Bom.)]
Where in the Delhi High Court held that the power vested inthe Commissioner under Section 151 to grant or not to grantapproval to the Assessing Officer to reopen an assessment iscoupled with a duty. The Commissioner was duty bound toapply his mind to the proposal put up to him for approval in thelight of the material relied upon by the Assessing Officer. Thatpower cannot be exercised casually, in a routine andperfunctory manner.-[United Electrical Co. P. Ltd. v. CIT (2002)258 ITR 317 (Del.)]

Merely stating “approved” is not sufficient sanction of CIT

Merely stating ” Approved” is not sufficient sanction of CIT and renders reopening void. Commissioner has to apply mind and due diligence before according sanction to the reasons recorded by the Assessing Officer.

A simple reading of the provisions of section 151(1) with the proviso clearly show that no such notice shall be issued unless the Commissioner is satisfied on the reason recorded by the Assessing Officer that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the Assessing Officer. In the present case, the order sheet which is placed on record show that the Commissioner has simply affixed “approved” at the bottom of the note sheet prepared by the ITO. Nowhere the CIT has recorded his satisfaction. In the case before the Hon’ble Supreme Court (supra) that on Assessing Officer’s report the Commissioner against the question “whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148 merely noted “Yes” and affixed his signature thereunder. On these facts, the Hon’ble Supreme Court observed that the important safeguard provided in section 147 and 151 were lightly treated by the officer and the Commissioner. The Hon’ble  Supreme Court further observed that the ITO could not have had reason to believe that income had escaped assessment by reasons of the appellant-firm’s failure to disclose material facts and if the Commissioner had read the report carefully he could not have come to the conclusion that this was a fit case for issuing a notice under section 148.

 The notice issued under section 148 was therefore, invalid (ITOv. N.C. Cables Ltd. (ITAT Delhi) followed). – [ITO v. Direct sales(P) Ltd. (2015) ITAT Delhi]

Sanction by the CIT with word “approved” without recording satisfaction note renders reopening invalid

In the instant case, from the perusal of the order sheet which is on record, the Commissioner has simply put “approved” and signed  the report thereby giving sanction to the Assessing Officer. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction.

Non-mentioning in the reasons that approval has been obtained from the CIT vitiates the reopening and become bad in law.-[ITO v. N.C. Cables Ltd. (2014) (ITAT Delhi)]
It was further held that another major discrepancy noticed during the course of arguments is that there is no mention of authorization of a higher authority to initiate the current reassessment proceedings.

Hon’ble Bombay High Court in the case of DSJ Communicationsv. DCIT, reported in 222 Taxman 129 (Bom.), held that approvalof CIT is mandatory.

Since there is no mention of the approval sought from the CIT on the reasons, as recorded by the Assessing Officer to initiate reassessment proceedings, the entire initiation has been vitiated and become bad in law. Considering the facts along with the decisions of the Hon’ble Bombay High Court and the Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (Supra), we are of the opinion M/s GTL Limited ITA 6416/M/2010 ITA 6971/M/2010 ITA 1246/M/2012 that the initiation of reassessment proceedings was bad in law, which we strike it down as null and void and therefore all consequential proceeding are annulled.-[GTL Ltd. v. ACIT (2015) 37 ITR 376 (Mum.Trib.)]

Non-application of mind- Reassessment was held to be bad in law.

Additional Commissioner of Income-tax and the Commissionerof Income-tax having simply written” yes, I am satisfied” on the same while according sanction under section 151, it does not in any manner shed any light as to whether there was anyapplication of mind at all by the two senior officers. Therefore,sanction granted by the Commissioner of Income-tax is invalidand consequently, the notice under section 148 issued by the tax is invalid and consequent, the notice under section 148 issued by the Assessing Officer is bad in law. (Assessment Year 2004-05).-[DCIT v. Dharampal Satyapal Ltd. (2006) 175 TTJ 663:130 DTR 241(ITAT Delhi)]
It was held that where the Assessing Officer does nothimself exercise his jurisdiction under section 147 but merelyacts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent.-[Sheo Narain Jaiswal & Ors. v. ITO(1989) 176 ITR 352 (Pat.)]

Order passed without following mandatory of sanction of chief Commissioner or Commissioner-Cannot be cured by resorting to provisions of section 292B 

After the expiry of four years- Sanction for issue of notice-Order passed without following mandatory of sanction of Chief Commissioner or Commissioner under the proviso is inherent lacuna which is not curable hence bad in law. The assessee objected to the reassessment on the ground that required sanction of commissioner was not taken. Assessing Officer rejected the objection of the assessee on the ground that required sanction was not taken due to oversight. On writ allowing the petition the court held that as per proviso to section 151(1) sanction of Commissioner or Chief Commissioner is pre-requisite condition for issuance of notice under section 148 and, therefore, notice issued with sanction of joint Commissioner would be invalid and such invalidity cannot be cured by resorting to provisions of section 292B. [Dhadda Exports v. ITO (2015) 377 ITR 347: 278  CTR 258 (Raj.)]

Sanction under section 151 cannot be given mechanically, by merely stating yes before reasons recorded by Assessing Officer.

The Supreme Court was dealing with a case where the Assessing Officer had received certain communications from the Commissioner of Income Tax showing that the alleged creditors of the Assessee were ” name-lenders and the transactions are bogus.” The Assessing Officer came to the conclusion that there were reasons to believe that income of the Assessee had escaped assessment. The Supreme Court disagreed and observed that the Assessing Officer “had not even come to prima facie conclusion that the transactions to which he referred were not genuine transactions. He appeared to have had only a vague feeling that they may be “bogus transactions”. It was further explained by the Supreme Court that before issuing a notice under section 148, the ITO must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the ITO has no jurisdiction to issue a notice under section 148.” The Supreme Court concluded that it was not satisfied that the ITO had any material before him which could satisfy the requirements under section 147 and therefore  could not have issued notice under section 148.

It was further held that “We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirement of either clause (a) or clause (b) of section 147. Therefore he could not have issued a notice under section 148. Further the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under section 148. To question No. 8 in the report which of notice under section 148”,  he just noted the word “yes” and affixed his signatures thereunder. We are of the opinion that if only he had read the important safeguards provided in section 147 and 151 were lightly treated by the Income-Tax Officer as well as by the Commissioner. Both of them, appear to have taken the duty imposed on them under those provisions as of little importance. They have substituted the form for the substance.-

[Chhugamal Rajpal v. SP Chaliha (1971) 79 ITR 603 (SC)]

CIT having mechanically granted approval for reopening of assessment without application of mind, the same is invalid and not sustainable

Sanction for issue of notice- Recording of satisfaction – SLP dismissed against High Court’s ruling that where Joint Commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice under section 148, reopening of assessment was invalid.-[CIT v. S. Goyanka Lines  & Chemical Ltd. (2016) 237 Taxman 378 (SC)]
Sanction based on wrong facts stated by the Assessing Officer cannot be sustained
Where for obtaining sanction under section 151, the Assessing Officer has not given the correct facts and sanction has been accorded on that basis, the same cannot be sustained becausethe sanction sought on the basis of the wrong facts also vitiatesanction so accorded.-[CIT v. Man Mohan Das (1996) 218 ITR 730 (MP)]
Section 151- Sanction for Issue of Notice
With effect from 01.06.2015, notice under section 148 can beissued only after the Assessing Officer takes the permission asfollows:-

AMENDMENT WITH EFFECT FROM 01.06.2015

♦ Notice under section 148 cannot be issued by Assessing Officer after expiry of four years from end of the assessment year without approval of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

♦ Within four years- Assessing Officer below the rank of Jt. Commissioner need to take approval of Jt. Commissioner.

♦ The approving authority need not issue the notice himself.

♦ Whether the original assessment was a regular assessment or summary assessment is now immaterial.

Approval should be of the authority, as required in the section and not of the higher authority

 In the reassessment within 4 years, Act requires approval of DCIT, if in that case approval of CIT or CCIT was taken instead of DCIT, entire reassessment proceedings, will be invalid and liable to be quashed.

It was held that if a statutory authority has been vested with jurisdiction, he has to exercise it according to its own discretion. If discretion is exercised under the direction or in compliance  with some higher authorities’ instruction, then itwill be a case of failure to exercise discretion altogether.-[Anirudh Sinhji Karan Sinhji Jadeja v. State of Gujarat (1995) 5SCC 302 (SC)]
It was held that there is merit in the contention raised on behalf of the Assesses that the requirement of section 151(2) could have only been fulfilled  by the satisfaction of the Joint Commissioner that this is a fit case for the issuance of a notice under section 148. Section 151 (2) mandates that the satisfaction has to be of the Joint Commissioner within the meaning of section 2(28C). In the proposal submitted by the Assessing Officer to the Commissioner of Income Tax. The approval which has been granted is not by the Additional Commissioner of Income Tax but by the Commissioner of Income Tax. There is not statutory provision hereunder which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner.-[DSJ Communication Ltd. v. DCIT & Anr.222 Taxman 129 (Bom.)]

Mere fact that Addl. CIT did not record his satisfaction would not render invalid the sanction granted under section 151 (2) when the reasons on the basis of which sanction was sought for could not be assailed.

Purpose of Section 292B is not to defeat on technicalities the object of the statute that is to assess and collect the tax legitimately due under the Act. The mere fact that the Additional Commissioner did not record his satisfaction in so many words would not render invalid the sanction granted under section 151(2) when the reasons on the basis of which sanction was sought for could not be assailed.

It was held the whole purpose of section 292B is not to defeat on technicalities the object of the statute that is to assess and collect the tax legitimately due under the Act. The mere fact that the Additional Commissioner did not record his satisfaction in so many words would not render invalid the sanction granted under Section 151(2) when the reasons on the basis of which sanction was sought for could not be assailed. Even an appellate authority is not required to give reasons when it agrees with the finding unless statute or rules so requires.-[Prem Chand Shaw (Jaiswal) v. ACIT (2016) 316 Tax pundit 3 (Cal.)]

Section 151 (2) requires the sanction to be accorded by the Joint/Additional CIT. The Assessing Officer sought the sanction of the CIT. Though the file was routed through the Addl. CIT, the latter only made an endorsement “CIT may kindly accord sanction “.  This showed  that the Addl. CIT did not apply his mind or gave any sanction. Instead, he requested the CIT to accord approval. This is not an irregularity curable under section 292B.

Notice under section 148, need not issue the notice himself [Section 151 (3)]

Section 151(3) provides that the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax or Principal Commissioner of Income Tax or the Commissioner of Income Tax 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 the notice himself.

Jurisdiction- Assessment in Kolkata- Reassessment notice inDelhi, such reassessment is held to be without jurisdiction(Section 127)
Assessment having been made by Assessing Officer in Kolkata, in the absence of any order under section 127 transferring the case, reassessment notice issued by Assessing Officer at Delhi and all subsequent proceedings based on said notice are without jurisdiction.[Smt. Smriti kedia v. Union of India (2012) 71 DTR 245 : 250 CTR 221 (Cal.)]

No requirement in the provisions that an opportunity of beingheard must be granted before according sanction
 Before according a sanction there is no requirement in theprovisions that an opportunity of being heard must be granted.[Haji Ali Mohamed v. CIT (1940) 8 ITR 243 (Nag).]

No requirement in the provisions that an opportunity of being heard must be granted before according sanction

Any above quoted judgements; if quoted anywhere, it should be read word to word, every sentence, every paragraph, every page and ultimately complete judgement .

Thanks with regards .

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2 Comments

    1. skjain1147 says:

      yes , it can be obtained from the jurisdictional assessing officer by writing a letter before the completion of assessment proceedings or even after finalization of the assessment .Assessing officer is duty bound to provide copy of the same .

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