Court Upholds AO's Authority to Issue Notice with JCIT Approval

Case Name**: COMMISSIONER OF INCOME TAX VS RESHMA ARIF

**Key Takeaways**:

1. An Assessing Officer can issue a notice under Section 148 (of Income Tax Act, 1961) with the approval of the Joint Commissioner.

2. The explanation added to Section 151 (of Income Tax Act, 1961) by the Finance Act, 2008 (effective from 1/10/1998) clarifies that the JCIT need not issue the notice himself.

3. The court's decision emphasizes the importance of proper supervision by superior officers in the Income Tax Department.

**Issue**: 

Was the Assessing Officer justified in issuing a notice under Section 148 (of Income Tax Act, 1961) with the approval of the Joint Commissioner, or should the Joint Commissioner have issued the notice himself?

**Facts**:

1. The case pertains to the Assessment Year 1995-96.

2. The Assessing Officer issued a notice under Section 148 (of Income Tax Act, 1961) on 22/5/2000 with the prior approval of the Joint Commissioner of Income Tax.

3. The assessment was completed, and a notice of demand was issued.

4. The assessee filed an appeal before the CIT(Appeals).

5. The Revenue filed an appeal before the ITAT, against which the assessee filed a cross-objection.

6. The ITAT quashed the reassessment proceedings, citing a lack of jurisdiction.

7. The Revenue filed an appeal against the ITAT's order in the High Court.

**Arguments**:

- Revenue: The Assessing Officer obtained approval from the Joint Commissioner before issuing the notice, which is sufficient under the law.

- Assessee: The notice should have been issued by the Joint Commissioner himself, not the Assessing Officer.

**Key Legal Precedents**:

1. Dr. Shashi Kant Garg Vs. Commissioner of Income-Tax & Ors, [(2006) 285 ITR 158 (All)] - Initially relied upon by the ITAT to quash the proceedings.

2. Ajai Verma Vs. Commissioner of Income-Tax & Anr, (2008) 304 ITR 30 (All) - The High Court referred to this case, which clarified that the Assessing Officer was empowered to issue notice under Section 148 (of Income Tax Act, 1961) when approved by the Joint Commissioner.

**Judgement**:

1. The High Court allowed the appeal in favor of the Revenue.

2. It held that the Assessing Officer was justified in issuing the notice under Section 148 (of Income Tax Act, 1961) with the approval of the Joint Commissioner.

3. The court relied on the explanation added to Section 151 (of Income Tax Act, 1961) by the Finance Act, 2008, which clarifies that the Joint Commissioner need not issue the notice himself if satisfied with the reasons recorded by the Assessing Officer.

4. The court set aside the ITAT's order and remitted the matter back to the ITAT for fresh consideration on merits.

**FAQs**:

1. Q: What was the main issue in this case?

  A: The main issue was whether an Assessing Officer could issue a notice under Section 148 (of Income Tax Act, 1961) with the approval of the Joint Commissioner, or if the Joint Commissioner had to issue it personally.

2. Q: Why did the High Court overturn the ITAT's decision?

  A: The High Court relied on the explanation added to Section 151 (of Income Tax Act, 1961), which clarifies that the Joint Commissioner doesn't need to issue the notice himself if satisfied with the Assessing Officer's reasons.

3. Q: What is the significance of the Finance Act, 2008 in this case?

  A: The Finance Act, 2008 added an explanation to Section 151 (of Income Tax Act, 1961) (effective from 1/10/1998) that clarified the procedure for issuing notices under Section 148 (of Income Tax Act, 1961), which was crucial to the court's decision.

4. Q: Does this judgment change any existing legal interpretations?

  A: Yes, it clarifies that previous interpretations requiring the Joint Commissioner to personally issue notices were incorrect, as long as the Joint Commissioner approves the Assessing Officer's reasons.

5. Q: What happens next in this case?

  A: The High Court remitted the matter back to the ITAT for fresh consideration on the merits of the case, now that the jurisdictional issue has been resolved.

The appeal is admitted on the question nos. 1 and 2 as framed in the memo of appeal and is being heard with the consent of the parties. Heard Shri Shambhu Chopra, learned counsel for the appellant and Shri S.D. Singh for the respondent.

This Appeal under Section 260A (of Income Tax Act, 1961) of the Income Tax,Act, 1961 (hereinafter called the “Act, 1961”) has been filed against the judgment and order of the Income Tax Appellate Tribunal, Lucknow Bench, Lucknow (hereinafter called the “Tribunal”) dated 21/9/2007 in I.T.A. No.06/LUC/2006 & C.O.No.11/Luc/2006 for the Assessment Year 1995-96. The assessment was made for the year in question by order of the Assessing Officer dated 28/3/2002. A notice under Section 148 (of Income Tax Act, 1961) dated 22/5/2000 was issued by the Assessing Officer with the previous approval of the Joint Commissioner of Income Tax. The Assessing Officer completed the assessment and issued notice of demand and Challan. Assessee filed an appeal before the CIT(Appeals) which was disposed of. Appeal was filed by the Revenue before the Tribunal against which cross objection was filed by the assessee. The assessee in her cross objection raised a ground that initiation of re-assessment proceedings under Sections 147 (of Income Tax Act, 1961)/148 of the Act, 1961 was without jurisdiction on the ground that necessary sanction as required by Section 151(2) (of Income Tax Act, 1961), was not obtained and notice under Section 148 (of Income Tax Act, 1961) has been issued by the Income Tax Officer. The Tribunal relying on a judgment of this Court in Dr. Shashi Kant Garg Vs. Commissioner of Income-Tax & Ors,(2006) 285 ITR 158 (All), held that notice having been issued by the Assessing Officer entire proceedings is vitiated. The Tribunal observed in paragraph 7 which is to the following effect:

“7.In the instant case, the notice u/s 148 (of Income Tax Act, 1961) has been issued by the IT), Ward-3(1), Kanpur and not by the Jt. C.I.T. In view of the decision of the Hon'ble Allahabad High Court (supra), the jurisdiction was not correctly assumed by the AO before issuing notice and hence, all subsequent proceedings are quashed for want of jurisdiction. Accordingly, we quash the reassessment proceedings.”

The Tribunal came to the conclusion that the jurisdiction was not correctly assumed by the Assessing Officer, hence all proceedings were quashed. Revenue has filed the appeal against the said judgment and order of the Tribunal dated 21/9/2007. In the present case, there was a approval dated 08/5/2010 by Joint Commissioner, Income Tax which has been mentioned in the assessment order itself.

Learned counsel for the appellant submits that after the approval by the Joint Commissioner of Income Tax, notice is not necessary to be issued by the Joint Commissioner, but it can be very well be issued by the Assessing Officer.

He submits that in the present case notice was issued by the Assessing Officer after obtaining approval by the Joint Commissioner and there was no error in the notice issued to the petitioner under Section 148 (of Income Tax Act, 1961), and the Tribunal while taking erroneous view of the matter held that the entire proceedings were without jurisdiction.

Shri S.D. Singh, learned counsel for the respondent submitted that the respondent is not disputing that approval was obtained from the Joint Commissioner. He has also referred to the judgment of the Division Bench of this Court in Ajai Verma Vs. Commissioner of Income-Tax & Anr, (2008) 304 ITR 30 (All) in which case this Court after referring to the judgment of Dr. Shashi Kant Garg (supra) has laid down that the Assessing Officer was empowered to issue notice under Section 148 (of Income Tax Act, 1961) when there is approval by the Joint Commissioner. Following was laid down in paragraphs 10,11,12 and 13:

“ 10.In the case before us, the Income-tax Officer, who is below the rank of the Joint Commissioner and who is an Assessing Officer according to the definition given in the Income-tax Act, 1961, was empowered to issue the notice under section 148 (of Income Tax Act, 1961) in the light of the sanction accorded for such issuance of notice by the Commissioner of Income-tax.

11. Learned counsel for the petitioner has argued that the Commissioner could not have given the sanction and only the Joint Commissioner could have given the sanction.

12. We are unable to accept the submission, considering the basic purpose for which such sanction has been provided for. The obvious purpose is to exercise proper supervision by a superior officer of the Department.

13. The other submission from the side of the petitioner is that the assessment order under section 144 (of Income Tax Act, 1961) was annulled in appeal and the Department has gone up in further appeal and, thus, the assessment should be deemed to be pending. The submission proceeds to say that when an assessment proc3eding is pending, there is no question of issue of notice under section 148 (of Income Tax Act, 1961).”

Section 151 (of Income Tax Act, 1961) provides for sanction for issue of notice. In the said section an explanation has been added by Finance Act, 2008 with effect from 1/10/1998 clarifying that if the Joint Commissioner, Commissioner or the Chief Commissioner is satisfied on the reasons recorded by the Assessing Officer about the fitness of a case for the issue of notice under section 148 (of Income Tax Act, 1961) he need not issue such notice himself. Section 151 (of Income Tax Act, 1961) along with the explanation is quoted below:

“ Sanction for issue of notice.

151. (1) In case where an assessment under sub- section (3) of section 143 (of Income Tax Act, 1961) or section 147 (of Income Tax Act, 1961) has been made for the relevant assessment year, no notice shall be issued under section 148 (of Income Tax Act, 1961) 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 sub-section (1), no notice shall be issued under section 148 (of Income Tax Act, 1961) by an Assessing Officer, who is below the rank of [Joint 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.

[Explanation: For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148 (of Income Tax Act, 1961), need not issue such notice himself.]”

The explanation which has been added by the Finance Act, 2008 clarifies the whole situation and makes it clear that it is not necessary that the Joint Commissioner himself may issue notice.

Shri S.D. Singh, learned counsel for the respondent submitted that the explanation which was added was not available when the Tribunal decided the matter. The submission is correct. However, the explanation being clarificatory and having been made with retrospective effect shall cover the above issue.

In view of the above, we answer both the questions in favour of the revenue. The appeal is allowed. The judgment and order of the Tribunal dated 21/9/2007 is hereby set-aside. In view of the fact that the Tribunal has not considered the appeal and cross-objections on merits, we remit the matter to the Tribunal for fresh consideration. The appeal as well as the cross objection are restored before the Tribunal which may be expeditiously disposed of. The parties shall bear their own cost.

Order Date :- 1.6.2012