Judicial Scrutiny on Reassessment: Insights from Sandeep Bajaj vs. Deputy Commissioner of Income Tax.

Case Summary: Sandeep Bajaj, Delhi vs Deputy Commissioner of Income Tax (29 May 2024)

If you deal your notice patiently with in the framework of income tax act 1961, then no one can challenge you even income tax department. Same in the recent case of Sandeep Bajaj vs. Deputy Commissioner of Income Tax, no proper adherence to section 151 by the higher approval authority.

Below we discuss the points of case of Sandeep Bajaj vs. Deputy Commissioner of Income Tax, which will help to tax practitioners and tax consultants even though businesses.

Background:

• Assessee: Sandeep Bajaj, a resident.
• Tax Authority: Deputy Commissioner of Income Tax (DCIT).
• Core Issue: The validity of reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961, which were challenged by Sandeep Bajaj on grounds of procedural lapses, particularly concerning the approval required under Section 151.

Key Facts:

1. Initial Assessment: Sandeep Bajaj’s income was assessed under regular assessment proceedings. However, the DCIT later issued a notice under Section 148, alleging that income had escaped assessment.
2. Approval Process: For initiating reassessment under Section 148, the DCIT required prior approval from the Joint Commissioner of Income Tax (JCIT) as mandated by Section 151 of the Income Tax Act. The approval provided by the JCIT was a brief endorsement stating, “Yes, I am satisfied.”
3. Challenge by the Assessee: Sandeep Bajaj challenged the reassessment on the grounds that the JCIT’s approval was mechanical and lacked the application of mind, which is a prerequisite under Section 151.

?

Court’s Analysis:

1. Section 151 of the Income Tax Act: This section mandates that before issuing a notice for reassessment, the Assessing Officer (AO) must obtain approval from a higher authority, such as the JCIT. The approval must indicate that the higher authority has applied their mind to the reasons recorded by the AO.
2. Judicial Precedents: The court referred to several precedents, including CIT v. S. Govanka Lime and Chemicals Ltd. and N.C. Cables Ltd., where it was held that mere endorsement of “Yes, I am satisfied” does not fulfil the statutory requirement of Section 151. The court reiterated that the higher authority must critically evaluate the reasons recorded by the AO before granting approval for reassessment.
3. Validity of Approval: The court scrutinized the approval given by the JCIT in this case and found it to be lacking. The endorsement was considered a mechanical approval without demonstrating that the JCIT had adequately considered the reasons for reassessment.
4. Outcome: The court quashed the reassessment proceedings initiated against Sandeep Bajaj, ruling that the approval under Section 151 was not in accordance with the law. It emphasized the need for a proper application of mind by the approving authority, as required by the provisions of the Income Tax Act. Court passed the order in Favor of the Sandeep Bajaj’s

Significance:

• The case reinforces the importance of adhering to procedural requirements in reassessment cases. It ensures that the tax authorities do not exercise their powers arbitrarily and that the taxpayer's rights are protected through a rigorous approval process.
• This judgment serves as a precedent for other cases where reassessment proceedings are challenged on similar grounds.

Conclusion:

The case of Sandeep Bajaj vs. DCIT underscores the judiciary's vigilance in ensuring that tax authorities comply with procedural safeguards when invoking reassessment provisions. The court’s decision to quash the reassessment highlights the necessity for detailed and reasoned approvals under Section 151, which cannot be substituted by mere mechanical endorsements.