The Bombay High Court has held that the Principal Commissioner of Income Tax (PCIT) must applymind before sanctioning income tax reassessment.
The bench of Justice G. S. Kulkarni and Justice Somasekhar Sundaresan has observed that the power to sanction reassessment under Section 151, is coupled with a duty to exercise such power reasonably, and not arbitrarily. It is trite law that absence of valid reasons constitutes arbitrariness. The entire process of according sanction demonstrates non-application of mind to the ingredients of Section 147, rendering the sanction to be arbitrary, calling for intervention by a writ court.
The original assessment was made pursuant to an Assessment Order after scrutiny of the returns filed by the Petitioner. The Petitioner had originally declared a total income of Rs. 95.14 Crores. Pursuant to a notice for scrutiny under Section 143(2) dated 29th July, 2016. Another notice was issued under Section 142(1), along with a questionnaire. Eventually, an Assessment Order was passed computing a total income of Rs. 105.14 Crores, after disallowance of a deduction in the sum of Rs. 10 Crores.
Five years after the end of the Assessment Year, the reassessment Notice was issued. On the Petitioner seeking reasons underlying the Notice, reasons were communicated to the Petitioner.
The Petitioner argued that the reasons point to a mere change in opinion and that no new tangible material has been brought to bear. There was nothing to show that material facts had not been fully and truly disclosed by the Petitioner during the original assessment.
The Petitioner contended that under Section 147, when reassessment is sought to be initiated after the expiry of four years from the end of the relevant assessment year, without a demonstration of such failure to disclose material facts, reassessment would not be permissible.
The department rejected the objections. The decision to conduct reassessment was stoutly defended. The Petitioner was told that all its objections could well be raised in the course of the reassessment proceedings. Consequently, the Writ Petition was filed seeking to quash the Impugned Notice, the Impugned Order, and a notice under Section 143(2) read with Section 147 of the Income Tax Act, calling upon the Petitioner to participate in the reassessment proceedings.
The primary ground of challenge to the Notice was that the foundational ingredients of Section 147, including jurisdictional facts, are absent. Therefore, the very issuance of the Notice purported to be without jurisdiction, the Petitioner has sought intervention of this Court under Article 226 of the Constitution of India to quash and set aside the Notice and all consequential actions by the department.
Section 147, as applicable at the time of issuance of the Impugned Notice, sets out certain essential ingredients for initiating reassessment after the expiry of four years from the end of the relevant assessment year. Failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment is a vital ingredient for initiating reassessment.
The petitioner contended that on the face of it, the Notice and the reasons in support of it, do not make out a case for the reassessment being valid. Since the reassessment is proposed after the four-year period referred to in Section 147, it was vital for the department to show at least on a prima facie basis, that the Petitioner had failed to disclose fully and truly, all material facts necessary for the original assessment.
The court while quashing the reassessment proceedings held that the requirement for sanction by a high-ranking official under Section 151, is an inherent check and balance in the statutory scheme of the Act. The officers are expected to apply their mind to the facts and the applicable law and then accord sanction.
Case Title: The Saraswat Co-operative Bank Ltd. Versus ACIT
Case No.: Writ Petition No. 1910 Of 2022
Date: 26/08/2024
Counsel For Petitioner: Senior Advocate Percy Pardiwala
Counsel For Respondent: Advocate Suresh Kumar
