Bombay High Court Quashes Reassessment Notice: Sanction Not Obtained as Per Statutory Requirement

High Court Invalidates Income Tax Reassessment for 2016-17 Due to Improper Sanction under Section 151 of Income Tax Act - The Bombay High Court has quashed the reassessment notice issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2016-17, citing improper sanction obtained under Section 151. The judgment, delivered by a bench comprising Justices G. S. Kulkarni and Somasekhar Sundaresan, underscores the necessity of statutory compliance in reassessment proceedings.

Umang Mahendra Shah, the petitioner, challenged the reassessment notice and subsequent procedural orders issued under Section 148 and Section 148A(d) of the Income Tax Act, pertaining to the assessment year 2016-17. The core of Shah’s contention was that the sanction for reassessment was improperly obtained under Section 151(i) instead of Section 151(ii), which is a mandatory requirement for proceedings initiated beyond three years from the relevant assessment year.

The court emphasized the critical need for adhering to statutory provisions when obtaining sanctions for reassessment. “For actions initiated beyond three years from the end of the relevant assessment year, sanction must be obtained from the Chief Commissioner or Director General as per Section 151(ii),” the bench noted.

In the present case, the sanction was obtained under Section 151(i), which is applicable for proceedings within three years from the relevant assessment year. The court observed, “The approval in the present case was improperly granted under Section 151(i) despite more than three years having elapsed from the relevant assessment year.”

The judgment extensively discussed the legal framework governing reassessment procedures under the Income Tax Act. The bench referenced the precedent set by Siemens Financial Services Pvt. Ltd. Vs. Deputy Commissioner of Income Tax, which held that reassessment orders without proper sanction under the correct provision are illegal. “The impugned order under Section 148A(d) as also the consequent notice under Section 148 would be required to be held illegal,” the court stated.

Justice G. S. Kulkarni remarked, “If an order is passed under Section 148A(d) in the absence of an appropriate sanction in terms of the provisions of Section 151, such order as also the consequent notice under Section 148 would be required to be declared as illegal.”

The Bombay High Court’s decision to quash the reassessment notice highlights the judiciary’s commitment to ensuring strict adherence to statutory requirements in tax proceedings. This judgment reinforces the necessity for proper sanctioning procedures and is expected to influence future cases involving reassessment under the Income Tax Act. The ruling sends a clear message about the importance of compliance with legislative mandates, thereby strengthening the legal framework governing tax assessments.

Date of Decision: July 2, 2024

Umang Mahendra Shah vs. Union of India and Others