OVERSEAS EXPORTS,MUMBAI vs. THE DCIT, CIRCLE 19(1), MUMBAI., MUMBAI

The brief facts of the case are that the, assessee, M/s. Overseas Exports, filed its return of income for the Assessment Year 2007-08 declaring a total income of Rs. 1,15,48,666/-The return was initially assessed under section 143(3) of the Act after the issuance of notice under section 143(2), wherein the total income was determined at Rs. 1,15,48,670/-. Subsequently, the assessment was reopened under section 147 of the Act. During the reassessment proceedings, the Assessing Officer ("AO"), on the basis of information received from the Investigation Wing, Mumbai, treated the purchases of Rs. 68,49,705/- made from M/s. A2 Jewels and Rs. 1,11,49,001/- made from M/s. Mohit International as accommodation entries. However, the AO simultaneously accepted that the sales disclosed by the assessee were genuine and observed that the assessee might have procured the goods from the grey market. Proceeding on this premise, the AO estimated the profit element embedded in the alleged non genuine purchases at 8% of the aggregate purchases amounting to Rs. 1,79,98,706/- and made an addition of Rs. 14,39,896/- to the total income. Aggrieved by the reassessment order, the assessee preferred an appeal before the ld. ADDL/JCIT(A). The ld. ADDL/JCIT(A), however, dismissed the appeal and upheld the addition made by the AO. Being further aggrieved, the assessee has preferred the present appeal before the Income Tax Appellate Tribunal.

During the course of hearing, the learned Authorised Representative ("Ld. AR") for the assessee primarily challenged the validity of the reassessment proceedings on the ground that the notice issued under section 148 of the Act dated 25.03.2014 was issued prior to obtaining the mandatory sanction of the competent authority as required under section 151 of the Act. In support of the said contention, the Ld. AR drew our attention to the proforma for recording reasons and obtaining approval for initiation of proceedings under section 148, forming part of the paper book. It was pointed out that in Column No. 13 of the said proforma, the learned Commissioner of Income Tax had recorded his satisfaction by endorsing the remark "Yes, I am satisfied” and had affixed the date as 27.03.2014. It was further submitted that the proposal for reopening had been signed by the AO on 25.03.2014 and the notice under section 148 had also been issued on the very same date, whereas the approval of the Commissioner was accorded only on 27.03.2014. It was, therefore, contended that the notice issued under section 148 prior to obtaining the statutory approval was without jurisdiction, invalid in law and liable to be quashed.

Per contra, the learned Departmental Representative ("Ld. DR") relied upon the findings recorded by the Ld. ADDL/JCIT(A). It was submitted that the issuance of notice before the formal grant of approval was merely a procedural irregularity and that the reassessment proceedings could not be invalidated on such technical grounds, particularly when the assessee had failed to demonstrate any prejudice caused on account of such irregularity.

We have carefully considered the rival submissions and perused the material available on record. The issue requiring adjudication lies within a narrow compass. Section 151 of the Act, as applicable to the assessment year under consideration, mandates that where a notice under section 148 is proposed to be issued after the expiry of four years from the end of the relevant assessment year, the Assessing Officer shall not issue such notice unless the competent authority is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issuance of such notice. Thus, the recording of satisfaction by the competent authority is not an empty formality but a statutory condition precedent to the assumption of jurisdiction under section 147 of the Act in cases falling beyond the prescribed period of four years.

In the present case, the assessment year involved is Assessment Year 2007-08, whereas the notice under section 148 was admittedly issued on 25.03.2014, i.e., after the expiry of four years from the end of the relevant assessment year. Consequently, obtaining the prior sanction of the Commissioner under section 151 of the Act was mandatory before issuance of the notice. The documentary evidence placed before us unequivocally demonstrates that although the notice under section 148 was issued on 25.03.2014, the approval of the learned Commissioner was accorded only on 27.03.2014. Therefore, on the date of issuance of notice, the mandatory statutory approval contemplated under section 151 had not been obtained.

The contentions of the Revenue that the defect is merely procedural cannot be accepted. The requirement of obtaining prior sanction under section 151 goes to the very root of the jurisdiction of the Assessing Officer to initiate reassessment proceedings. Compliance with this statutory requirement is a condition precedent for the valid assumption of jurisdiction under section 147 of the Act. A notice issued in the absence of such prior approval is void ab initio and cannot be validated subsequently by obtaining approval after its issuance. Since the notice under section 148 was issued before the grant of sanction by the competent authority, the very initiation of the reassessment proceedings is vitiated in law.

In view of the foregoing discussion, we hold that the notice issued under section 148 dated 25.03.2014 is invalid and without jurisdiction for want of prior approval as mandated under section 151 of the Act. Consequently, the reassessment proceedings initiated pursuant thereto, including the reassessment order passed under section 147 read with section 143(3) of the Act, are liable to be quashed. We accordingly set aside the orders of the lower authorities and allow the legal ground raised by the assessee. In view of our decision on the jurisdictional issue, the other grounds raised on merits do not survive for adjudication and are rendered academic.