Source:  Bombay High Court 

Why in News? 

Recently in case of Umang Mahendra Shah v. Union of India & Ors.  Bombay High Court highlights a significant legal issue where an order under Section 148A(d) of the Income Tax Act, lacking proper sanction under Section 151(2), renders both the order and subsequent notice under Section 148 illegal. This Judgment underscores the critical adherence to procedural requirements in tax reassessment cases, affecting assessments for the year 2016-17. 

What was the Background of Umang Mahendra Shah v. Union of India & Ors.? 

• The petitioner challenged a notice issued under Section 148 of the Income Tax Act for assessment year 2016-17. 
• This notice was based on a prior notice under Section 148A(b) and an order under Section 148A(d), which were also challenged. 
• The approval for the Section 148A(d) order was granted by the Principal CIT under Section 151(i). 
• However, since more than 3 years had elapsed since the end of the relevant assessment year, approval should have been obtained under Section 151(ii) from higher authorities. 
• The petitioner argued this made the approval and subsequent notices illegal, citing a previous Bombay High Court ruling in the Siemens Financial Services case. 
• The court agreed that for cases where more than 3 years have passed, approval must be under Section 151(ii), not 151(i). 

What were the Court’s Observations? 

• The court noted that sanction for passing an order under Section 148A(d) was required to be obtained under clause (ii) of Section 151. 
  • This requirement applies when more than three years have elapsed from the end of the relevant assessment year. 
• In this case, the relevant assessment year was 2016-17, so more than three years had indeed passed. 
• However, the sanction was incorrectly obtained under clause (i) of Section 151 instead of clause (ii). 
• The court referred to a previous Division Bench decision in Siemens Financial Services Pvt. Ltd. vs. Deputy Commissioner of Income Tax. 
  • Based on the Siemens case, the court held that if an order under Section 148A(d) is passed without appropriate sanction under Section 151, it must be declared illegal. 
• The court concluded that both the impugned order under Section 148A(d) and the consequent notice under Section 148 were illegal. 
• The court decided to allow the petition on this limited ground, without delving into other issues raised. 

What is Section 148 of the Income Tax Act? 

Section 148 of the Income Tax Act deals with the issue of notice where income has escaped assessment. The key points of this section are: 

• Notice Requirement:  
  • Before making an assessment, reassessment, or recomputation under section 147, the Assessing Officer must serve a notice to the assessee. 
  • The notice requires the assessee to furnish a return of income for the relevant assessment year within a specified period. 
• Return Specifications:  
  • The return must be in the prescribed form and verified in the prescribed manner. 
  • It should include other particulars as prescribed by the Act. 
• Application of Act:  
  • The provisions of the Income Tax Act apply to this return as if it were a return required under section 139. 
  • Validity of Notices:  
  • Certain notices served under specific conditions are deemed valid, even if they were served after the expiry of the usual 12-month period. 
  • This applies to returns furnished between October 1, 1991, and September 30, 2005, in response to notices under this section. 
• Time Limits:  
  • The validity of notices is subject to time limits specified in sub-section (2) of section 153 for making assessments, reassessments, or recomputations. 
• Section 148A:  
  • Introduced in the Budget of 2021, this section brings significant changes to taxation in India. 
  • It empowers Income Tax officers to initiate reassessment proceedings when they suspect concealed income. 
  • Section 148A(d) is specifically limited to the existence of information suggesting that income chargeable to tax has escaped assessment. 

What is Section 151 of the Income Tax Act? 

• Section 151 of the Income Tax Act: Sanction for Issue of Notice 
• Time Limit for Notice Issuance  
  • No notice under section 148 can be issued after four years from the end of the relevant assessment year. 
  • Exception: When higher authorities are satisfied with the reasons recorded by the Assessing Officer. 
• Authority Requirements  
  • For cases beyond the four-year limit:  
    • Sanction required from Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner. 
  • For other cases:  
    • Assessing Officers below Joint Commissioner rank need approval from Joint Commissioner. 
• Satisfaction of Higher Authorities  
  • The higher authorities mentioned must be satisfied with the reasons recorded by the Assessing Officer. 
  • They must deem it a fit case for issuing a notice under section 148. 
• Delegation of Notice Issuance  
  • Higher authorities, once satisfied with the Assessing Officer's reasons, need not issue the notice themselves. 
  • The Assessing Officer can issue the notice after obtaining the required sanction. 
• Purpose of the Section  
  • This section acts as a check on the powers of Assessing Officers. 
  • It ensures that notices for reassessment are issued only in deserving cases, especially for older assessment years.