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Commissioner Of Income Tax v. Spl'S Siddhartha Ltd.
Factual and Procedural Background
The Income Tax Appellate Tribunal set aside the notice issued by the Assessing Officer (AO) under Section 147 read with Section 148 of the Income Tax Act for reopening the assessment for Assessment Year 2002-03. The original income tax return was filed on 26.9.2002 showing a loss of Rs. 27.63 lacs and was processed under Section 143(1) on 26.2.2003. The reassessment notice was issued on 12.3.2009, beyond the four-year period from the end of the relevant assessment year. The reopening was based on investigations revealing that three bogus parties provided accommodation entries totaling Rs. 5 lacs to the assessee. Since the notice was issued after four years, the AO was required to obtain mandatory approval from the Competent Authority under Section 151(1) of the Act. The Tribunal quashed the proceedings on the ground that the requisite approval was not obtained from the Joint Commissioner or Additional Commissioner but instead from the Commissioner, who was not competent to grant such approval under the statute.
Legal Issues Presented
- Whether the approval for issuing a notice under Section 148 of the Income Tax Act after four years from the end of the relevant assessment year must be granted exclusively by the Joint Commissioner or Additional Commissioner, as mandated by Section 151(1) of the Act?
- Whether approval granted by the Commissioner, who is not the designated Competent Authority under Section 151(1), is valid for the purpose of reopening assessments?
- Whether the irregularity in obtaining approval from an unauthorized authority can be cured under Section 292B of the Income Tax Act?
- Whether the satisfaction required to issue a notice under Section 148 must be recorded independently by the designated authority and cannot be borrowed or dictated from another authority?
Arguments of the Parties
Respondent-Assessee's Arguments
- The approval for reopening the assessment was not granted by the Joint Commissioner as required but by the Commissioner, who was not competent under Section 151 of the Act.
- The proceedings for reassessment should be quashed on this ground.
Revenue's Arguments
- The matter was routed through the Additional Commissioner of Income Tax, and thus it should be treated as if the Additional Commissioner had granted the requisite sanction.
- The irregularity in approval was a procedural defect that could be rectified under Section 292B of the Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Naveen Khanna (dated 18.11.2009 in ITA No. 21/2009 (DHC)) | Requirement that statutory powers must be exercised by the authority designated by law and not by others. | Supported the principle that the satisfaction for issuing notice must be recorded by the competent authority only. |
| State of Bihar v. J.A.C Saldanna, AIR (1980) SC 326 | Statutory authorities must act within the scope of their delegated powers and hierarchy must be respected. | Reinforced the court’s view that unauthorized exercise of power creates administrative chaos and is impermissible. |
| State of Gujarat v. Shantilal Mangaldas, AIR (1969) SCN 634 | Statutory powers are to be exercised strictly in accordance with the law. | Supported the principle that satisfaction must be independent and not borrowed from another authority. |
| Sheo Narain Jaiswal v. ITO, 176 ITR 35 (Pat.) | Where the Assessing Officer acts at the behest of a superior authority without independent satisfaction, jurisdiction is invalid. | Applied to emphasize that satisfaction must be independently recorded by the designated authority. |
| Anirudh Sinhji Karan Sinhji Jadeja v. State of Gujarat, (1995) 5 SCC 302 | A statutory authority must exercise its jurisdiction according to its own discretion and not under directions of a superior authority. | Reinforced that discretion exercised under direction amounts to failure to exercise discretion. |
Court's Reasoning and Analysis
The Court analyzed Section 151 of the Income Tax Act, which mandates that approval for issuing a notice under Section 148 after four years must be granted by the Joint Commissioner or Additional Commissioner. The Court found that the AO had sought approval from the Commissioner, not the Joint Commissioner or Additional Commissioner, and that the Additional Commissioner merely forwarded the file to the Commissioner without applying independent mind or granting sanction. The Court emphasized that the powers and satisfaction required under the statute are to be exercised strictly by the designated authority, and cannot be substituted or borrowed from another authority. The Court relied on established precedents to affirm that statutory discretion must be exercised independently and in accordance with the law. Consequently, the Tribunal's decision to quash the reassessment proceedings on the ground of lack of valid approval was upheld.
Holding and Implications
The appeal was dismissed.
The Court upheld the Tribunal's decision quashing the reassessment proceedings due to the absence of mandatory approval from the designated Competent Authority under Section 151(1) of the Income Tax Act. This decision directly affects the parties by invalidating the reopening of assessment for the relevant year. No new legal question arises, and no broader precedent beyond the strict application of statutory provisions and established principles regarding delegation and exercise of statutory powers was set.
A.K SIKRI, J. (ORAL)
1. The notice issued by the AO under Section 147 read with Section 148 of the Income Tax Act (hereinafter referred to as ‘the Act’) for reopening the assessment for the Assessment Year 2002-03 has been set aside by the Income Tax Appellate Tribunal (‘the Tribunal’ for brevity) on the ground that the requisite approval of Additional Commissioner of Income Tax, which is mandatorily required, was not taken. Income tax return in this case was filed on 26.9.2002 at the loss of Rs. 27.63 lacs. The same was processed under Section 143(1) on 26.2.2003 Thereafter, notice under Section 147 read with Section 148 of the Act for reassessment was issued on 12.3.2009 This was much after the expiry of four years from the end of the relevant assessment year. The basis for issuance of the notice was that the inquiries conducted by Investment Wing of the Department had revealed that Mr. Dipak Gupta was indulging in providing the accommodation entries and he had admitted that he had taken cash from various parties and given them Demand Drafts/Cheques by charging commission. DDs/Cheques then were introduced as share capital or loan in their books of accounts. On that basis, it was alleged that insofar as the assessee is concerned, three bogus parties had given accommodation entries for a total sum of Rs. 5 lacs. Since four years had elapsed, the AO was required to take approval of the Competent Authority under Section 151(1) of the Act. This provision reads as under:
Section 151. Sanction for Issue of Notice:
(1) In a case where an assessment under sub-section
(3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy 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:
Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.
(2) In a case other than a case falling under subsection (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Deputy Commissioner, after the expiry of four years from the end of the relevant assessment year, 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.”
2. As per the aforesaid provision, it is only Joint Commissioner or Additional Commissioner, which can grant the approval. The argument of the assessee before the Tribunal was that the approval was not granted by the Joint Commissioner. Instead, it was taken from the CIT, Delhi-III, New Delhi, 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 AO and was rectifiable under Section 292B of the Act, has not been found convincing by the Tribunal.
3. During the course of the argument, learned counsel for the appellant submitted that the matter was routed through the Additional Commissioner of Income Tax and therefore, it should be treated that the Additional Commissioner of Income Tax had granted the requisite sanction. In order to verify the contention, we had called the records. From the records, we find that the Notings dated 12.3.2009 was prepared by the AO after recording his reasons, insofar as seeking approval is concerned. Relevant portion of the Note is as under:
“Since 4 years have been elapsed, the assessment record is being submitted for kind perusal and approval of the Commissioner of Income tax, Delhi-III, New Delhi according to section 151(1) of the IT Act, 1961 for issuance of notice u/s 148 of the I.T Act.
Sd/-
(D.D YADAV)
Asstt. Commissioner of Income tax
Circle 9(1), New Delhi.
Addl. CIT, Range - 9, New Delhi
CIT may kindly accord sanction.
CIT-III, Delhi
Sd/-
12.03.09”
4. The aforesaid noting in the file does not reflect what learned counsel for the Revenue argued. In the first instance, it would be seen that the AO had specifically sought the approval of the Commissioner only. Therefore, it cannot be said that the Joint Commissioner/Additional Commissioner had granted the approval. Further, no doubt, the file was routed through Additional Commissioner. However, he also, in turn forwarded the same to the Commissioner by giving the following endorsement:
“CIT may kindly accord sanction.”
5. It is clear that the Additional CIT did not apply his mind or gave any sanction. Instead, he requested Commissioner to accord the approval. It, thus, cannot be said that it is an irregularity curable under Section 292B of the Act.
6. It is relevant to point out that sub-Section (1) and sub-Section 2 of Section 151 of the Act are two independent provisions. The definition of Joint Commissioner is contained in Section 2(28C) and the definition of Commissioner given in Section 2(16), which are as under:
“Joint Commissioner means a person appointed to be a Joint Commissioner of Income Tax or an Additional Commissioner of Income Tax under sub-section (1) of section 117.
“Commissioner” means a person appointed to be a Commissioner of Income Tax under sub-Section(1) of Section 117.”
7. Section 116 of the Act also defines the Income Tax Authorities as different and distinct Authorities. Such different and distinct authorities have to exercise their powers in accordance with law as per the powers given to them in specified circumstances. 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. It is trite that when a statute requires, a thing to be done in a certain manner, it shall be done in that manner alone and the Court would not expect its being done in some other manner. It was so held in the following decisions:
(i) CIT v. Naveen Khanna (dated 18.11.2009 in ITA No. 21/2009 (DHC).
(ii) State of Bihar v. J.A.C Saldanna AIR (1980) SC 326.
(iii) State of Gujarat v. Shantilal Mangaldas, AIR (1969) SCN 634.
8. Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also 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. Law in this regard is now sell-settled. In Sheo Narain Jaiswal v. ITO, 176 ITR 35 (Pat.), it was held:
“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.”
5. The Apex Court in the case of Anirudh Sinhji Karan Sinhji Jadeja v. State of Gujarat, (1995) 5 SCC 302 has 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 it will be a case of failure to exercise discretion altogether.
6. We are, therefore, of the opinion that the Tribunal has rightly decided the legal aspect, keeping in view well-established principles of law laid down in catena of judgments including that of the Supreme Court.
7. No question of law arises. This appeal is accordingly dismissed.
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