Notice u/s 148 quashed as passed without application of mind for quoting wrong section while seeking approval for reopening u/s 151 of the Act – SLP dismissed
In a recent judgment, Hon’ble Supreme Court has upheld the judgment of Bombay High Court quashing the order quashing order passed under section 148A(d) and notice u/s 148 being passed without application of mind for quoting wrong section while seeking approval for reopening u/s 151 of the Act.
ABCAUS Case Law Citation:
4321 (2024) (11) abcaus.in SC
In the instant case, the Income Tax Department had challenged the order passed by the Hon’ble Bombay High Court quashing order passed under section 148A(d) and notice issued under Section 148 of the Income Tax Act, 1961 (the Act).
The respondent assessee received notice under Section 148A(b) of the Act calling upon to show cause as to why notice under Section 148 of the Act should not be issued. The notice was accompanied by a two page note stating details of third party information. The notice mentioned that it was based on insight portal of the department in relation to a donation made by the assessee during the relevant Assessment Year to a charitable organisation.
The assessee filed his objections under Section 148A(c) of the Act. The Assessing Officer (AO) rejected the objections and passed order under Section 148A(d) of the Act.
Aggrieved by the order, the asessee challenged it before the Hon’ble High Court alleging that the impugned order was passed under Section 148A(d) of the Act without application of mind. It was submitted that the quantum of alleged income escaping assessment was stated as Rs. 5 lakhs. However, the assessee had claimed deduction under Section 80G of the Act where only 50% deduction was allowable. Therefore, the alleged amount of Rs. 5 lakhs was factually incorrect because petitioner has only been allowed to claim as deduction an amount of Rs.2,50,000/-. This indicated non application of mind.
However, the main grievance of the assessee was that the approving authority had granted approval for issuance of the impugned notice under Section 148 and order under Section 148A(d) of the Act in a mechanical manner.
It was submitted that while granting approval under Section 151 of the Act, it was obligatory on the approving authority to verify the material available on record. The purpose of Section 151 of the Act is to introduce a supervisory check over the work of the Assessing Officer particularly, in the context of reopening of assessment. If an error has crept in while the Assessing Officer exercises his jurisdiction, the law expects the superior officer to be able to correct that error. In the case at hand, instead of correcting such an error, the approving authority had certified the errors committed as correct without even applying his mind.
Relying on a judgment of the Allahabad High Court, the assessee further contended that the approving authority not having digitally signed the approval granted under Section 151 of the Act, the effect thereof would be that no valid sanction has been granted.
Further, the assessee submitted that in the approval sought under Section 151 of the Act, the AO submitting for approval stated that time limit for proceedings covered u/s 149(1)(b) – for more than 3 years but not more than 10 years” and this was the document which was approved by the Principal Commissioner of Income Tax (PCIT). However, if the reopening was within three years, the governing provisions would be as per Section 149(1)(a) and not Section 149(1)(b) of the Act. If at all Section 149(1)(b) was applicable, the sanctioning authority would have been Principal Chief Commissioner or Principal Director General and where there is no Principal Chief Commissioner or Principal Director General, then Chief Commissioner or Director General, if more than three years have elapsed from the end of the relevant assessment year. This would mean that the sanctioning authority, PCIT, could not have granted the sanction in this case.
Thus, it was contended that there was a clear non application of mind by the sanctioning authority and it evidenced that the sanctioning authority had mechanically signed the sanction. Therefore, on this ground also the sanction granted had to be held as invalid and, therefore, the notice issued, relying on this sanction, had to be quashed.
The Hon’ble High Court observed that there was no explanation as to how the PCIT granted the sanction when in the approval the time limit for current proceedings was stated to be under Section 149(1)(b) i.e. for more than 3 years but not more than 10 years.
The Hon’ble High Court further observed that in the affidavit filed by the Revenue, it was stated that the reopening was within three years and the specified authority was PCIT under Section 151 of the Act. In that case, the applicable provision would be Section 149(1)(a) and not Section 149(1)(b) of the Act. Therefore, it was clear that neither the AO, nor the sanctioning authority, i.e., PCIT had applied their mind but have simply issued the notice mechanically.
The Hon’ble High Court opined that if only PCIT had read the report carefully, he would have never come to the conclusion that there was any material before him to treat it as a fit case to issue notice under Section 148 of the Act or pass order under Section 148A(d) of the Act. The safeguards provided in Sections 148 and 151 were lightly treated by AO and PCIT. Both of them took the duty imposed on them under these provisions as of little importance
In view of the above, the Hon’ble High Court on this ground alone and without going to other issue of want of digital signature, quashed and set aside the order order passed under Section 148A(d) and notice issued under Section 148 of the Act.
Not satisfied by the order of the Hon’ble High Court, the Revenue after 351 days challenged it before the Hon’ble Supreme Court by way of filing a Special Leave Petition (SLP).
The Hon’ble Supreme Court dismissed the SLP observing, “we have gone through the Special Leave Petition and do not find any merit in the same.”
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