Court quashes tax notice issued without mandatory prior approval - procedural violation fatal

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Case Name

River Valley Meadows and Township § Limited vs Deputy Commissioner of Income Tax & Anr. (High Court of Bombay)

Writ Petition No. 2216 of 2021

Date: 16th November 2021

Key Takeaways

• Procedural compliance is mandatory: Tax authorities must obtain proper approvals before issuing reassessment notices
• Timing matters: Getting approval after issuing a notice doesn’t cure the procedural defect
• Non-application of mind: Discrepancies in dates show lack of proper consideration by authorities
• Consequential relief: When the foundational notice is quashed, all subsequent orders based on it must also fall

Issue

Was the notice under Section 148 of the Income Tax Act dated 25/06/2019 valid when it was issued without the mandatory prior approval required under Section 151(2) of the Act?

Facts

1. The Notice: On June 25, 2019, the Deputy Commissioner of Income Tax issued a notice under Section 148 to River Valley Meadows for reassessment
2. The Approval Problem: The notice claimed it was issued “after obtaining the necessary satisfaction of the RANGE 1(3), MUMBAI,” but the actual approval was dated June 26, 2019 - one day AFTER the notice was issued
3. The Petition: The company filed a writ petition challenging this notice
4. Subsequent Orders: During the case, the tax department issued an interim order on September 21, 2021, and a final assessment order on September 28, 2021. The company amended their petition to challenge these orders too
5. The Objection: The company had raised objections on September 17, 2021, pointing out that the approval dated June 26, 2019, was an “afterthought to cover up” the illegal action

Arguments

Petitioner’s (Company’s) Arguments:

• The notice under Section 148 was issued on June 25, 2019, without the mandatory prior approval required under Section 151(2)
• The approval dated June 26, 2019, came after the notice, making it an “afterthought to cover up the action”
• This procedural violation made the entire reassessment process illegal

Respondent’s (Tax Department’s) Arguments:

• The tax officer claimed there were two copies - one erroneously showing June 26, 2019, and another showing June 25, 2019
• They argued that the reason for escapement of income was sent for approval on June 14, 2019, much before the notice was issued
• However, they didn’t deny that the formal approval was dated after the notice was issued

Key Legal Precedents

The judgment doesn’t cite specific case law precedents, but it relies heavily on the statutory requirements under:

• Section 148 of the Income Tax Act, 1961 - regarding reassessment notices
• Section 151(2) of the Income Tax Act, 1961 - requiring mandatory approval before issuing reassessment notices
• Section 147 of the Income Tax Act, 1961 - regarding reassessment proceedings

Judgement

The court ruled in favor of the petitioner (River Valley Meadows). Here’s the court’s reasoning:

1. Clear Procedural Violation: The court found that there was indeed no mandatory approval in place before the notice was issued
2. Timing is Critical: The court rejected the tax department’s explanation about having two different dates, noting this showed “non-application of mind while granting the approval”
3. Consequential Orders Must Fall: Since the foundational notice was illegal, all subsequent orders based on it had to be quashed

Orders Made:

• Quashed the notice dated June 25, 2019, under Section 148
• Quashed all consequent proceedings under Section 147
• Quashed the interim order dated September 21, 2021
• Quashed the assessment order dated September 28, 2021

The court also noted that it’s open to the tax authorities to take fresh steps as advised in law, and the company can raise objections to any fresh notice

FAQs

Q1: What does this mean for other taxpayers facing similar situations?

A: This judgment reinforces that tax authorities must strictly follow procedural requirements. If they issue notices without proper prior approvals, those notices can be challenged and quashed.

Q2: Can the tax department start the process again?

A: Yes, the court specifically mentioned that “it is open to Respondents to take such steps as advised in law,” meaning they can issue a fresh notice if they follow proper procedures.

Q3: What if the tax department had obtained approval on the same day as the notice?

A: The law requires “prior” approval under Section 151(2), so the approval must come before, not on the same day as the notice.

Q4: Why didn’t the court consider other grounds raised by the petitioner?

A: The court found the procedural violation so fundamental that it didn’t need to examine other grounds, stating “for the sake of brevity, we do not wish to go into the other grounds”.

Q5: What’s the practical impact of this decision?

A: This case serves as a reminder to tax authorities to ensure all procedural requirements are met before issuing notices, and gives taxpayers a strong ground to challenge notices issued without proper approvals.

1. When the Petition was filed, Petitioner had sought quashing of a notice dated 25/06/2019 issued by Respondent No.1 under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) and consequent proceedings initiated pursuant thereto under Section 147 of the Act. During the pendency of this Petition, an interim order dated 21/09/2021 came to be passed followed by a final Assessment Order dated 28/09/2021. With the leave of the Court, Petition was amended and both these orders dated 21/09/2021 and 28/09/2021 were also sought to be quashed.

2. There are various grounds raised in the Petition, the first of which is that the notice dated 25/06/2019 itself was issued without having prior mandatory approval of the Additional CIT which was required in law under Section 151(2) of the Act. We are satisfied that no such mandatory approval was in place before the issuance of this notice and for the sake of brevity, we do not wish to go into the other grounds.

3. The notice under Section 148 of the Act dated 25/06/2019

states, ‘This notice is being issued after obtaining the necessary

satisfaction of the RANGE 1(3), MUMBAI’. Copy of approval at Exh.E to

the Petition in which the Additional CIT, Range 1(3), Mumbai has, by

hand noted, "Yes, I am satisfied that it is fit case for the issue of notice u/s 147 of the Act - Sd/- 26/06/2019".

4. Mr. Kamat submitted that if this necessary satisfaction /

approval was granted only on 26/06/2019, how did Respondent No.1

issue notice under Section 148 on 25/06/2019, i.e., a day prior thereto.

5. Mr. Suresh Kumar requested for some more time to file reply.

Since we were satisfied with the submissions of Mr. Kamat, we found no

purpose would be served by adjourning the matter to file a reply and in

any event Respondents had sufficient time and they could have filed the

reply earlier.

6. Mr. Suresh Kumar submitted that his instructions are that in

one copy it is erroneously written ‘26/06/2019’ whereas in the other copy

in the file of Respondent, it is ‘25/06/2019’. In our view, that also shows

that there was non-application of mind while granting the approval.

Moreover, in the order dated 21/09/2021 passed by Respondent dealing

with the objections filed by Petitioner, the stand of the Assessing Officer is not what Mr. Suresh Kumar stated in Court today. In the objection dated

17/09/2021, Petitioner has brought to the notice of the Assessing Officer

that notice issued under Section 148 dated 25/06/2019 was illegal and

was issued without approval of competent authority and approval dated

26/06/2019 was an afterthought to cover up the action of the learned

Deputy CIT. In the order dated 21/09/2021 rejecting this objection, the

Assessing Officer does not deny that the approval was dated 26/06/2019

whereas the notice was dated 25/06/2019 but simply states that the

reason of escapement of income was sent for approval to learned

Additional CIT on 14/06/2019 much before the notice under Section 148

was issued.

7. In our view, therefore, the Petitioner’s submission that the

notice dated 25/06/2019 issued under Section 148 of the Act was illegal

since there was no prior approval as required under Section 151(2) of the

Act has to be accepted.

8. In the circumstances, that notice itself has to be quashed and

set aside. In such a case, the consequential orders also have to be set

aside. Therefore, prayers (a) and (a1) which read as under, are granted.

“(a) a writ in the nature of mandamus, prohibition,

certiorari, or any other appropriate writ, direction or

order quashing the notice dated 25.06.2019 issued by

the Respondent No.1 under section 148 and

consequent proceedings initiated pursuant thereto

under section 147 of the Act;

(a1) issue a writ of Certiorari or any other appropriate writ,

direction, or order thereby quashing and setting aside

the impugned order dated 21.09.2021 (Exhibit G) and

impugned assessment order dated 28.09.2021 (Exhibit

N) passed by the Respondents.”

9. It is open to Respondents to take such steps as advised in law

and it is open to Petitioner to raise such objections as and when they

receive a fresh notice.

10. Petition disposed.

(AMIT B. BORKAR, J.) (K. R. SHRIRAM, J.)