My scrutiny assessment is being reopened more than four years later, and the Commissioner signed the section 151 approval the same day the file reached him. Can I have the notice quashed?
Yes. The Bombay High Court quashed the section 148 notices and the orders rejecting the objections. Three things were fatal. The recorded reasons were unsustainable: the tax deduction details were on record in Form No.27 and in the tax audit report, and the closing stock valuation had already been examined in the original assessment. Reopening beyond four years without alleging any failure to disclose fully and truly cannot stand. And the approval under section 151 showed non-application of mind - the Assessing Officer carried the file to the Commissioner and approval was granted the same day, in his presence, without considering either the four-year bar or whether there had been any failure to disclose.
Decided by the High Court (High Court of Judicature at Bombay - V.C. Daga and J.P. Devadhar, JJ. (judgment per V.C. Daga, J.)) on 2005-10-28, reported as (2005) 107 Bom LR 708; (2006) 202 CTR (Bom) 369; [2006] 287 ITR 485 (Bom); 2006 (1) Mh LJ 517. It bears on section 147, section 148, section 151, section 40(a) of the Income Tax Act 1961, in Reassessment & Reopening matters.
This is the case to cite when the section 151 sanction is a rubber stamp. It identifies exactly what the sanctioning authority must apply his mind to before approving a reopening beyond four years: whether there was a failure by the assessee to disclose fully and truly the relevant facts, and whether the four-year period has expired. Following the Delhi High Court in United Electrical Co., it treats the power under section 151 as coupled with a duty which cannot be exercised casually or perfunctorily. The Revenue's own affidavits - from the Assessing Officer who carried the file across, and from the Commissioner who approved it that same day after a discussion - proved the point against it. The judgment also shows the ordinary discipline for a beyond-four-years reopening: the reasons must allege the failure to disclose, and material already before the Assessing Officer in the original assessment cannot found one.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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The petitioner, a public limited company making pharmaceutical products and formulations, filed its return for assessment year 1998-99 on 29 November 1998 with the audit report, profit and loss account and the tax audit report under section 44AB. The assessment was completed under section 143(3). On 15 September 2003 a notice under section 148 was issued, served on 8 October 2003, seeking to reopen that year and assessment year 1997-98. The company asked for the recorded reasons; they were not given, and it had to file an earlier writ petition, on which the Revenue disclosed the reasons by affidavit of 17 January 2005. Two reasons were recorded: that expenses on interest, royalty, consultancy and analytical fees in foreign currency had been allowed with no evidence that tax had been deducted before remittance, so section 40(a) applied; and that excise and customs duty payable on finished goods had not been taken into account in valuing closing stock. Objections were rejected on 18 February 2005. The company pointed out that the tax deduction details were in the return in Form No.27 filed on 22 June 1998, in the annexures to the return and in a statement filed on 27 November 1998, and that the tax audit report confirmed compliance; and that the closing stock issue had been examined in the assessment order, which referred to section 145A, and had been decided in its favour by the first appellate authority and the Tribunal following Indo Nippon. The Revenue filed affidavits from the Assessing Officer, who deposed that he took the file himself to the Commissioner on 15 September 2003, and from the then Commissioner, who deposed that he discussed the matter with him and granted approval the same day.
Both petitions were allowed and rule was made absolute, with no order as to costs. The Court held the power to reopen had been exercised on unsustainable reasons. The material about tax deducted at source was fully on record, and the closing stock valuation had already been considered in the original assessment, so the recorded reasons could not lead to the formation of a belief that income had escaped assessment. The notices had also been issued beyond four years from the end of the relevant assessment year without any allegation of failure to disclose fully and truly the material facts, and were liable to be set aside on that ground alone. Finally the approval under section 151 suffered from non-application of mind. The impugned notices and the orders justifying the recorded reasons were quashed and set aside.
The Court examined each recorded reason against the record. On the first, the return had been accompanied by the audit report, the profit and loss account and the tax audit report under section 44AB; the return of tax deducted at source in Form No.27 with the challan was on record, the details of parties and payments were annexed to the return, and a statement of tax deducted and the certificates had been filed. So the premise that there was no evidence of deduction was wrong. On the second, closing stock must be valued at cost or market price, whichever is lower, and cost includes duties and taxes and other expenditure of bringing the stock to its present situation, as British Paints India lays down; the assessment order itself had followed that judgment and referred to section 145A, and the point had been decided in the assessee's favour up to the Tribunal on Indo Nippon. Reasons of that kind cannot found a belief that income has escaped assessment. The Court then took the limitation point: where the power is exercised after four years from the end of the relevant assessment year, and no failure to disclose fully and truly is alleged, the notice must be set aside. Lastly it dealt with the sanction. On the Revenue's own affidavits the Assessing Officer carried the file to the Commissioner and approval was given on the same day, indeed at the same moment and in his presence. It was obligatory on the Commissioner to verify whether there had been any failure by the assessee to disclose fully and truly the relevant facts in the return for that year, and whether the power was being invoked within four years from the end of that year. Neither was considered, which was enough to establish non-application of mind, applying United Electrical Co. P. Ltd v. CIT, where the Delhi High Court held the section 151 power is coupled with a duty and cannot be exercised casually, routinely or perfunctorily.
The impugned notice having been issued beyond 4 years from the last date of the relevant assessment year without alleging any failure to disclose full and true material facts is liable to be set aside.
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Handle my notice → Ask a CA on WhatsAppYes. The Bombay High Court quashed the section 148 notices and the orders rejecting the objections. Three things were fatal. The recorded reasons were unsustainable: the tax deduction details were on record in Form No.27 and in the tax audit report, and the closing stock valuation had already been examined in the original assessment. Reopening beyond four years without alleging any failure to disclose fully and truly cannot stand. And the approval under section 151 showed non-application of mind - the Assessing Officer carried the file to the Commissioner and approval was granted the same day, in his presence, without considering either the four-year bar or whether there had been any failure to disclose. This was decided by the High Court (High Court of Judicature at Bombay - V.C. Daga and J.P. Devadhar, JJ. (judgment per V.C. Daga, J.)) and bears on section 147, section 148, section 151, section 40(a) of the Income Tax Act 1961. It is reported as (2005) 107 Bom LR 708; (2006) 202 CTR (Bom) 369; [2006] 287 ITR 485 (Bom); 2006 (1) Mh LJ 517. This is the case to cite when the section 151 sanction is a rubber stamp. It identifies exactly what the sanctioning authority must apply his mind to before approving a reopening beyond four years: whether there was a failure by the assessee to disclose fully and truly the relevant facts, and whether the four-year period has expired. Following the Delhi High Court in United Electrical Co., it treats the power under section 151 as coupled with a duty which cannot be exercised casually or perfunctorily. The Revenue's own affidavits - from the Assessing Officer who carried the file across, and from the Commissioner who approved it that same day after a discussion - proved the point against it. The judgment also shows the ordinary discipline for a beyond-four-years reopening: the reasons must allege the failure to disclose, and material already before the Assessing Officer in the original assessment cannot found one. If it applies to you, the first step is this: Ask for the recorded reasons and, separately, for the section 151 proposal and the sanction, including the dates on both.
The petitioner, a public limited company making pharmaceutical products and formulations, filed its return for assessment year 1998-99 on 29 November 1998 with the audit report, profit and loss account and the tax audit report under section 44AB. The assessment was completed under section 143(3). On 15 September 2003 a notice under section 148 was issued, served on 8 October 2003, seeking to reopen that year and assessment year 1997-98. The company asked for the recorded reasons; they were not given, and it had to file an earlier writ petition, on which the Revenue disclosed the reasons by affidavit of 17 January 2005. Two reasons were recorded: that expenses on interest, royalty, consultancy and analytical fees in foreign currency had been allowed with no evidence that tax had been deducted before remittance, so section 40(a) applied; and that excise and customs duty payable on finished goods had not been taken into account in valuing closing stock. Objections were rejected on 18 February 2005. The company pointed out that the tax deduction details were in the return in Form No.27 filed on 22 June 1998, in the annexures to the return and in a statement filed on 27 November 1998, and that the tax audit report confirmed compliance; and that the closing stock issue had been examined in the assessment order, which referred to section 145A, and had been decided in its favour by the first appellate authority and the Tribunal following Indo Nippon. The Revenue filed affidavits from the Assessing Officer, who deposed that he took the file himself to the Commissioner on 15 September 2003, and from the then Commissioner, who deposed that he discussed the matter with him and granted approval the same day. The matter was decided on 2005-10-28 by the High Court (High Court of Judicature at Bombay - V.C. Daga and J.P. Devadhar, JJ. (judgment per V.C. Daga, J.)). On those facts the High Court held as follows. Both petitions were allowed and rule was made absolute, with no order as to costs. The Court held the power to reopen had been exercised on unsustainable reasons. The material about tax deducted at source was fully on record, and the closing stock valuation had already been considered in the original assessment, so the recorded reasons could not lead to the formation of a belief that income had escaped assessment. The notices had also been issued beyond four years from the end of the relevant assessment year without any allegation of failure to disclose fully and truly the material facts, and were liable to be set aside on that ground alone. Finally the approval under section 151 suffered from non-application of mind. The impugned notices and the orders justifying the recorded reasons were quashed and set aside.
The Court examined each recorded reason against the record. On the first, the return had been accompanied by the audit report, the profit and loss account and the tax audit report under section 44AB; the return of tax deducted at source in Form No.27 with the challan was on record, the details of parties and payments were annexed to the return, and a statement of tax deducted and the certificates had been filed. So the premise that there was no evidence of deduction was wrong. On the second, closing stock must be valued at cost or market price, whichever is lower, and cost includes duties and taxes and other expenditure of bringing the stock to its present situation, as British Paints India lays down; the assessment order itself had followed that judgment and referred to section 145A, and the point had been decided in the assessee's favour up to the Tribunal on Indo Nippon. Reasons of that kind cannot found a belief that income has escaped assessment. The Court then took the limitation point: where the power is exercised after four years from the end of the relevant assessment year, and no failure to disclose fully and truly is alleged, the notice must be set aside. Lastly it dealt with the sanction. On the Revenue's own affidavits the Assessing Officer carried the file to the Commissioner and approval was given on the same day, indeed at the same moment and in his presence. It was obligatory on the Commissioner to verify whether there had been any failure by the assessee to disclose fully and truly the relevant facts in the return for that year, and whether the power was being invoked within four years from the end of that year. Neither was considered, which was enough to establish non-application of mind, applying United Electrical Co. P. Ltd v. CIT, where the Delhi High Court held the section 151 power is coupled with a duty and cannot be exercised casually, routinely or perfunctorily. In the words reproduced by the source cited on this page: "The impugned notice having been issued beyond 4 years from the last date of the relevant assessment year without alleging any failure to disclose full and true material facts is liable to be set aside."
It was decided by the High Court on 2005-10-28 and is reported as (2005) 107 Bom LR 708; (2006) 202 CTR (Bom) 369; [2006] 287 ITR 485 (Bom); 2006 (1) Mh LJ 517. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 147, section 148, section 151, section 40(a), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Both petitions were allowed and rule was made absolute, with no order as to costs. The Court held the power to reopen had been exercised on unsustainable reasons. The material about tax deducted at source was fully on record, and the closing stock valuation had already been considered in the original assessment, so the recorded reasons could not lead to the formation of a belief that income had escaped assessment. The notices had also been issued beyond four years from the end of the relevant assessment year without any allegation of failure to disclose fully and truly the material facts, and were liable to be set aside on that ground alone. Finally the approval under section 151 suffered from non-application of mind. The impugned notices and the orders justifying the recorded reasons were quashed and set aside. It arises in Reassessment & Reopening matters, on section 147, section 148, section 151, section 40(a) of the Income Tax Act 1961, and was decided by High Court of Judicature at Bombay - V.C. Daga and J.P. Devadhar, JJ. (judgment per V.C. Daga, J.). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Where the reasons do not allege a failure to disclose fully and truly, take that as a standalone jurisdictional objection for any reopening after four years. Produce the filings that show the material was already disclosed - the tax audit report, the Form No.27 return of tax deducted at source, the covering letters and the annexures to the return. Show where the issue was examined in the original assessment order; the closing stock point failed here because the order itself dealt with it. If the sanction was granted the same day the proposal was put up, or in the Assessing Officer's presence, press the non-application of mind point and rely on United Electrical Co.
Still good law. The full judgment was read, ending in the operative order allowing the petitions. Its three grounds - unsustainable reasons, absence of any allegation of failure to disclose for a reopening beyond four years, and non-application of mind in the section 151 sanction - each rest on settled principles, and it follows the Delhi High Court in United Electrical Co. I have not checked for any appeal against it. Note that section 151 has since been recast, and the reassessment scheme was replaced with effect from 1 April 2021, so the sanction requirement must be read against the provision applicable to the year in question. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment as reported contains several slips of date and reference. It says the last date of the assessment year was 31 March 1998 and that the four year period commences on 31 March 2003, where for assessment year 1998-99 the year ended on 31 March 1999 and four years from its end expired on 31 March 2003. It gives the date of the section 143(3) assessment order as 7 January 2000 in the narrative but refers later to the assessment order of 21 December 2000 for the same year. It also refers at one point to an assessment completed under section 142(3), where section 143(3) is meant. The facts are taken from Writ Petition No.619 of 2005 for assessment year 1998-99; the connected petition for assessment year 1997-98 is disposed of on the same reasoning but its own dates and figures are not set out. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Both petitions were allowed and rule was made absolute, with no order as to costs. The Court held the power to reopen had been exercised on unsustainable reasons. The material about tax deducted at source was fully on record, and the closing stock valuation had already been considered in the original assessment, so the recorded reasons could not lead to the formation of a belief that income had escaped assessment. The notices had also been issued beyond four years from the end of the relevant assessment year without any allegation of failure to disclose fully and truly the material facts, and were liable to be set aside on that ground alone. Finally the approval under section 151 suffered from non-application of mind. The impugned notices and the orders justifying the recorded reasons were quashed and set aside.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
My return was only processed under 143(1). Does that stop the department reopening it later?
How much am I actually required to disclose — and can they reopen because the officer drew the wrong conclusion?
The sanctioning authority just wrote 'yes' and signed. Is that a sanction?
A reassessment was done in between. Does the two-year clock for s.263 restart from it?