Notice u/s 148 after four years by ACIT or DCIT requires sanction by CIT under the provisions of section 151(1) before amendment by Finance Act 2015
ABCAUS Case Law Citation:
ABCAUS 2196 (2018) (02) HC
Prelude:
Before the substitution by the Finance Act, 2015, section 151(1) of the Income tax Act, 1961 (the Act) provided that in scrutiny cases, no notice shall be issued by an Assessing Officer (AO) below the rank of Assistant/Deputy Commissioner unless Joint Commissioner is satisfied.
However the proviso to the sub section provided that after four years, no notice shall be issued unless PrCIT/CIT is satisfied on the reasons recorded by the AOs.
The present judgment interprets the above proviso to mean that for cases where four years have elapsed, notice even by ACIT/DCIT would require sanction by PrCIT/CIT.
Important Case Laws Cited/relied upon by the parties:
East India Hotels Ltd. v. Deputy Commissioner of Income Tax (1993) 204 ITR 435
Dr. Shashi Kant Garg v. Commissioner of Income Tax (2006) 285 ITR 158
Brief Facts of the Case:
The respondent assessee company had filed its return for the relevant assessment year declaring a loss which was processed under Section 143(1) of the Act. Later the return was subjected to scrutiny assessment which was completed accepting the loss declared. However, a notice was issued under Section 148 of the Act for re-assessment. The objections of the assessee with respect to reopening was rejected by the Assessing Officer (Deputy Commissioner of Income Tax/DCIT) who completed the re-assessment by adding back substantial amounts under Section 68 of the Act.
In its first appeal, the assessee contended that the issuance of notice under Section 148 of the Act, was without jurisdiction as the AO had proceeded to re-open the assessment without the sanction of the Commissioner of Income Tax, as required by Section 151(1).
However, the contentions did not find favour with CIT(A) who affirmed the order of the Assessing Officer.
The assessee agitated the issue before the Tribunal and the contentions of the assessee found approval by the ITAT which relying on the judgments of the two High Courts, allowed the appeal.
Aggrieved by the order of the Tribunal the Revenue was before the High Court in the instant case.
Contention made on behalf of the Appellant Revenue:
It was pointed out that before the 1989 amendment, the structure of the relevant provision of section 151 of the Act was entirely different. It was also the Board which could grant approval to any Assessing Officer, as a condition precedent for issuance of notice in the event of expiry of 8 years from the end of the relevant assessment year. In other cases, after 4 years of such expiry, the Chief Commissioner or Commissioner had to be satisfied that the reasons of the AO, were justified.
It was urged that with the 1989 amendment, the position changed and notices could be issued by Assessing Officers of the rank of Assistant Commissioner or Deputy Commissioner, suo moto, without the approval of a higher official provided it was within the period of four years from the end of the assessment year.
It was urged that in cases of assessments completed by Assistant Commissioners/Deputy Commissioners, there was no need for obtaining approval of the Chief Commissioner/Commissioner. Emphasis was placed upon the expressions “no such notice” and “Assessing Officer aforesaid” to say that it was only in the event of completed assessments by AOs, below the rank of Deputy Commissioner/Assistant Commissioner that sanction or approval was necessary.
It was submitted that this statutory position remained more or less unchanged except that in the case of Section 151(1), after the amendment of 1998 [Finance (No. 2) Act of 1998 with effect from 01.10.1998] approval of the Joint Commissioner was necessary, wherever completed assessments were made by officers below the rank of Assistant Commissioner or Deputy Commissioner.
The question of Law framed/urged:
The Question was if the ITAT was correct in holding that the notice issued which was beyond four years was bad in law as the required approval of Commissioner u/s 151 (1) of the Act had not been obtained ?
Observations made by the High Court:
The Hon’ble High Court observed that the changes brought about by the amendments, particularly, the amendment brought into force with effect from 01.04.1989, constituted the subject matter of CBDT circular no 549, issued on 31.10.1989.
The circular clarified that the issuing or sanctioning authorities u/s 148 would depend upon whether the case was a scrutiny case or non- scrutiny case, and also the period after which the case is being opened or re-opened as under:
| 1.Scrutiny cases (i.e., where an assessment order has been passed under section 143(3) or 147) |
Upto 4 years (ii) Assessment can be reopened whatever be the amount of income which has escaped assessment |
|
Beyond 4 years but upto 7 years (ii) Assessment can be reopened only if the income which has escaped assessment is Rs. 50,000 or more for that year (iii) Assessment can be reopened only with the approval of the Chief Commissioner or Commissioner |
|
|
Beyond 7 years but upto 10 years (ii) Assessment can be reopened only if the income which has escaped assessment is Rs. 1 lakh or more for that year. (iii) Assessment can be reopened only with the approval of the Chief Commissioner or Commissioner |
|
| 2. Non scrutiny cases (i.e. where no assessment order has been passed under section 143(3) or 147) |
Upto 4 years (ii) Assessment can be reopened whatever be the amount of income which has escaped assessment. Beyond 4 years but upto 7 years (ii) Assessment can be reopened only if the income which has escaped assessment is Rs. 25,000 or more for that year. (iii) Assessment can be reopened by Assessing Officer below the rank of Deputy Commissioner only with the approval of the Deputy Commissioner. Beyond 7 years but upto 10 years (ii) Assessment can be reopened only if the income which has escaped assessment is Rs. 50,000 or more for that year. (iii) Any Assessing Officer can reopen an assessment himself. |
The Hon’ble High Court opined that a reading of the circular makes it obvious that the Revenue authorities at a higher level existed and interpreted the amendments in the manner that the Calcutta High Court did. However with respect to emphasis laid by the Revenue on the expression “as aforesaid” the Hon’ble High Court opined that the word “as aforesaid” is capable of two interpretations – narrow – textual one as is urged on behalf of the Revenue and a broader one.
The Hon’ble High Court observed that in the context of Section 151(1), the proviso when it refers to an Assessing Officer, could also mean not merely an Assessing Officer below the rank of Assistant Commissioner and Deputy Commissioner but also all Assessing Officers. The latter interpretation has been clearly followed by the Calcutta High Court – as well as the Revenue authorities.
The Hon’ble High Court opined that the case of a non-assessment (i.e. when the assessment is framed under Section 143(1), a higher standard of approval of the Joint Commissioner is insisted upon. The interpretation given by the Calcutta High Court where endorsed places even scrutiny assessment at par with such assessments and ensures that there is no disconnect and a minimum safeguard, by way of an opinion by the higher official expressing satisfaction is on the record before a notice is issued under Section 148, in respect of a period beyond 4 years from the end of the relevant assessment.
Decision/ Conclusion/Held:
The question of law framed was answered in favour of the assessee and the appeal was dismissed.
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