Court halts reassessment due to flawed sanction process

Case Name:

Multi Commodity Exchange of India Ltd. vs. Deputy Commissioner of Income Tax

Writ Pettion No. 451 of 2018

Key Takeaways

- The High Court found that the sanction for reopening the assessment was given without proper application of mind.

- The court relied on the precedent set in Smt. Kalpana Shantilal Haria v. Assistant Commissioner of Income Tax.

- The court ruled that the issue of proper sanction goes to the root of the jurisdiction and can be raised at any time.

- The impugned notice was deemed prima facie without jurisdiction due to the flawed sanction process.

Issue

Did the Joint Commissioner of Income Tax grant the sanction for reopening the assessment without proper application of mind, thereby making the notice issued under Section 148 of the Income Tax Act, 1961, invalid?

Facts

- The petitioner, Multi Commodity Exchange of India Ltd., challenged a notice dated 1st June 2017 issued under Section 148 of the Income Tax Act, 1961, seeking to reopen their assessment for the 2013-14 tax year.

- The notice was issued after obtaining the necessary sanction from the Joint Commissioner of Income Tax as per Section 151(2) of the Act.

- The petitioner argued that the sanction was granted mechanically without due application of mind, as the proforma furnished incorrectly stated that the proviso to Section 147 was applicable, which was not the case.

Arguments

-Petitioner’s Argument:

The petitioner argued that the sanction was granted without proper application of mind, as evidenced by the incorrect reference to the proviso to Section 147 in the proforma. They relied on the precedent set in Smt. Kalpana Shantilal Haria v. Assistant Commissioner of Income Tax

-Respondent’s Argument:

The respondent did not dispute the applicability of the precedent but argued that the petitioner did not raise this objection initially and that the incorrect reference to the proviso was an inadvertent error that did not affect the merits of the case.

Key Legal Precedents

Smt. Kalpana Shantilal Haria v. Assistant Commissioner of Income Tax:

In this case, the court found that the sanction for issuing a notice was granted without proper application of mind, as the Assessing Officer sought approval under a provision that was not on the statute book at the time.

Judgement

The High Court ruled in favor of the petitioner, finding that the sanction for issuing the notice was given without proper application of mind. The court held that the issue of proper sanction goes to the root of the jurisdiction and can be raised at any time. The impugned notice was deemed prima facie without jurisdiction, and an interim stay was granted.

FAQs

Q1.What was the main issue in this case?

A1.The main issue was whether the Joint Commissioner of Income Tax granted the sanction for reopening the assessment without proper application of mind, making the notice issued under Section 148 of the Income Tax Act, 1961, invalid.

Q2.What was the court’s decision?

A2.The court ruled in favor of the petitioner, finding that the sanction was granted without proper application of mind and that the notice was prima facie without jurisdiction.

Q3.What precedent did the court rely on?

A3.The court relied on the precedent set in Smt. Kalpana Shantilal Haria v. Assistant Commissioner of Income Tax.

Q4.Can the issue of proper sanction be raised at any time?

A4.Yes, the court held that the issue of proper sanction goes to the root of the jurisdiction and can be raised at any time.

Q5.What was the outcome for the petitioner?

A5.The court granted an interim stay on the impugned notice, effectively halting the reassessment process.

1. Heard. Admit.

2. This Petition under Article 226 of the Constitution of India challenges a notice dated 1st June 2017 issued under Section 148 of the Income Tax Act, 1961 (the Act) seeking to reopen assessment for Assessment Year 2013-14. The impugned notice was issued after having obtained the necessary sanction from the Joint Commissioner of Income Tax in terms of Section 151(2) of the Act.

3. The Petitioners grievance is that the sanction granted by the Jt. Commissioner of Income Tax in terms of Section 151(2) was a mechanical sanction without due application of mind. The basis of the grievance is that the impugned notice has been admittedly issued within the period of four years from the end of the relevant assessment year. Nevertheless, the proforma furnished by the Deputy Commissioner of Income Tax to the Joint Commissioner of Income Tax for seeking approval / sanction to issue the notice specifically stated that the Section 147 of the Act and the proviso thereto is applicable. Undisputedly, the proviso has no application in the facts of this case.

4. Mr. Riyaz Padvekar, the learned counsel appearing for the Petitioner states that this evidences non application of mind to the reasons recorded while granting the sanction. In support he placed reliance upon the decision of this Court in Smt. Kalpana Shantilal Haria v. Assistant Commissioner of Income Tax1. wherein in almost similar circumstances, the Assessing Officer had sought approval of a notice claiming to have been issued under Section 147(d) of the Act, when that provision was not on the statute book at the time when the notice was issued.

5. Mr. Mohanty, the learned counsel for the Revenue does not dispute that the principle laid down in Smt. Kalpana Shantilal Haria (Supra) is applicable to the present facts. However, his objection to grant of any interim reliefs are two fold as under:-

(i) this objection was not taken by the Petitioner while objecting to the reasons recorded in respect of the impugned notice, and

(ii) overall the words “that the proviso to Section 147 is applicable” in the sanction application is an inadvertent error as it does not in any manner affect the merits of the case.

6. So far as the first objection of the Revenue that this objection on the part of the Petitioner was not taken as part of their objections filed with the Assessing Officer and therefore, they should not be allowed cannot be accepted. This for the reason that the issue of proper sanction goes to the root of the issue of jurisdiction. Therefore, it can be raised at any time. So far as the second objection of the Revenue that the statement that the proviso to Section 147of the Act is applicable is an inadvertent error and it does not affect the merits of the case, cannot be accepted. This in view of the fact that whether or not the Jt. CIT had applied his mind to the reasons recorded by the Assessing Officer while granting sanction or just mechanically granted it can only be inferred from surrounding circumstances. This is more particularly in cases like this, where sanction is accorded by the sanctioning authority without giving separate reasons. Therefore, whether there was due application of mind or mechanical grant of sanction is evident from the surrounding circumstances such as overlooking the reliance upon the proviso when it is clearly inapplicable to in the facts of the case.

7. In the above view, prima facie the sanction appears to be without due application of mind on the part of the sanctioning authority. Therefore, in the above view, the impugned notice prima facie is without jurisdiction.

8. Hence there shall be interim stay in terms of the prayer clause (c).

9. To be heard along with ITXA No. 60 of 2018.

( RIYAZ I. CHAGLA J. ) (M.S.SANKLECHA, J.)