The Delhi High Court has recently ruled that the Joint Commissioner of Income Tax (JCIT) does not have the authority to issue a sanction for initiating reassessment proceedings under the proviso to Section 151(1) of the Income Tax Act, 1961. This decision has significant implications for the procedural aspects of income tax reassessment, especially when the action is sought after a considerable lapse of time.
Background of the Case
Section 151(1) of the Income Tax Act requires a sanction from the JCIT to initiate reassessment proceedings under Section 148 against an assessee who has already undergone a scrutiny assessment. However, the proviso to Section 151(1) further adds a critical condition: if the reassessment is sought to be initiated after four years from the end of the relevant assessment year, no notice under Section 148 can be issued unless the Chief Commissioner or Commissioner of Income Tax (CIT/CCIT) is satisfied with the reasons recorded by the Assessing Officer (AO).
In this case, the JCIT had issued the sanction for initiating reassessment proceedings against the Petitioner-assessee for the assessment year (AY) 2006-07 in 2013, which was more than four years after the end of the relevant assessment year. The Petitioner had already undergone a scrutiny assessment for that year and contended that no prior approval had been obtained from the CIT or CCIT as required under the law.
The AO made an addition of ₹5,18,27,005/- on account of long-term capital gains from the sale of agricultural land, valuing it at ₹5,46,23,012/- as compared to ₹21,87,500/- declared by the assessee. The AO based the reassessment on an excel sheet recovered during a search conducted under Section 132 in respect of a third party, which indicated part payment in cash for the acquisition of the agricultural land.
After the Income Tax Appellate Tribunal (ITAT) upheld the AO’s decision, the Petitioner approached the High Court with the principal issue: whether the reassessment proceedings were invalid due to the lack of proper approval for initiation.
The Delhi High Court analyzed the provisions under Section 151(1) and the proviso that governs the sanctioning authority for initiating reassessment after four years. The Court emphasized that the scrutiny assessment had already concluded with an assessment order. Under these circumstances, no notice under Section 148 could be issued unless the CIT or CCIT was satisfied, based on the AO’s reasons, that it was a valid case for reassessment.
The bench, consisting of Justices Vibhu Bakhru and Tejas Karia, observed, “Admittedly, in the present case, no approval was obtained from the CIT or the CCIT. The notice under Section 148 of the Act was issued with the approval of the JCIT and not CCIT or CIT. Clearly, the notice under Section 148 of the Act was invalid as issued contrary to the provisions of Section 151(1) of the Act.”
As a result, the Court set aside both the impugned order and the assessment order, thereby ruling in favor of the Petitioner.
Appearance: Mr Ved Jain, Mr Nischay Kantoor, Ms Soniya Dodeja, and Mr Sarthak Abrol, Advocates for Petitioner; Mr Sunil Kumar Agarwal, SSC, Mr Shivansh B Pandya, Mr Viplav Acharya, JSCs and Mr Utkarsh Tiwari, Advocate for Respondent
Case title: Sukhbir S. Dagar v. Income Tax Officer, Ward 24(3)
Case no.: ITA 741/2023
