Key Judicial Pronouncements – Mechanical Approvals in Section 148 Notices

This article compiles key judicial pronouncements where courts have quashed reassessment proceedings due to mechanical approvals in section 148 notices, highlighting how lack of proper sanction under Section 151 fails the legal test.

Introduction

In recent years, reassessment proceedings under Sections 148 and 148A of the Income-tax Act have witnessed a wave of judicial scrutiny especially in cases where approvals under Section 151 are granted without genuine application of mind. What was intended by law as a safeguard against arbitrary reassessment has, in many instances, been reduced to a ritualistic exercise involving rubber-stamped sanctions and generic one-word approvals like “Yes” or “Approved.”

This article brings together key judicial pronouncements from various High Courts that have consistently quashed such Mechanical Approvals in Section 148 Notices.

Case: Samp Furniture (P.) Ltd. v. Income-tax Officer

Citation: [2024] 165 taxmann.com 581 (Bombay HC)

Decision Date: 5 August 2024

Facts of the Case

The assessee had deposited ₹4 crore in cash after demonetization. The same was considered during scrutiny assessment and added to the assessee’s income under Section 69A by the AO in the order dated 20-12-2019.

The assessee appealed, and the CIT(A) deleted the addition on 26-02-2024. Despite this, the Jurisdictional Assessing Officer (JAO) issued a fresh notice under Section 148A(b) and passed a Section 148A(d) order initiating reassessment on the same ground.

The assessee challenged this reopening through a writ petition, citing mechanical approval under Section 151 and violation of judicial discipline.

Issue Under Question

• Can the Assessing Officer reopen an assessment under Section 148 when the issue has already been decided by the CIT(A)?
• Was the approval under Section 151 valid when granted in a mechanical and casual manner without considering the appellate order?
• Can the department disregard a binding High Court precedent on the ground that it has “not accepted” the ruling?

Findings of the Court

The Court held that the JAO had grossly failed to apply his mind to the facts already available on record, including the CIT(A)’s appellate order deleting the addition.

“The JAO in fact proceeded to resort to a section 148 action, as if there is no assessment order dated 20-12-2019 and the appellate order passed by Commissioner (Appeals)… This is clear from the reasons the JAO has set out… [and] shows something more than a gross non-application of mind.” (Para 9)

The Court strongly condemned the conduct of the JAO and the Chief Commissioner, who had granted sanction under Section 151 in a mechanical manner, without reference to the facts or legal position.

“The Chief Commissioner has also acted without application of mind… In fact, in exercising authority in such manner, the whole purpose of a sanction under section 151 stands defeated.” (Para 14)

It also reprimanded the JAO for stating that the department “does not accept” the Bombay High Court’s earlier decision in Hexaware Technologies Ltd.. The Court reiterated that such binding decisions must be followed.

“Clearly on affidavit a position being taken that the judgment on a point of law declared by this Court is not acceptable, is wholly irresponsible.” (Para 13)

Final Decision

The High Court quashed the notice under Section 148 and the order under Section 148A(d). The Court also imposed personal costs of ₹25,000 each on the JAO and the Chief Commissioner.

“We would be failing in our duty if we do not reprimand such conduct of the JAO in discarding materials which, in fact, prohibited him from issuing the impugned notice as also the Chief Commissioner when he accorded a mechanical sanction.” (Para 15)

Case: Pramukh Export  v. Income Tax Officer, Ward-1, Mehsana

Citation: Gujarat High Court, Judgment dated 13 August 2024

Writ Petition No.: R/SCA/7053/2024

Bench: Hon’ble Mr. Justice Bhargav D. Karia and Hon’ble Mr. Justice Niral R. Mehta

Facts of the Case

The assessee, a partnership firm engaged in trading of cotton yarn, filed its ITR for AY 2018–19 declaring income of ₹8.64 lakh. Based on data from the Insight Portal and GST filings, the AO issued a notice under Section 148A(b) alleging income escapement of ₹126.03 crore. The AO relied on discrepancies in GSTR data, TDS entries, mutual fund transactions, and a specific entry relating to Mittal Enterprise.

Despite furnishing explanations and submitting GSTR data, audit report, ledgers, and confirmations, the AO passed an order under Section 148A(d), concluding that the income had escaped assessment due to non-furnishing of sales and purchase registers.

Issue Under Question

• Whether reassessment under Section 148 could be initiated based solely on mismatch in third-party data (like GSTR and TDS), despite detailed explanations and documentary evidence provided by the assessee.
• Whether the AO applied his mind to the material submitted or acted mechanically while passing the Section 148A(d) order.
• Whether such action meets the jurisdictional threshold for valid reassessment under Section 147/148.

Findings of the Court

The Gujarat High Court found that the AO had not applied his mind to the assessee’s submissions. It held that the reopening was entirely based on an assumption due to non-furnishing of registers, even though the assessee provided all relevant data through GSTR filings and audit records.

“It is clear that the Assessing Officer has arrived at conclusion to hold that it is a fit case to reopen only on the ground that the petitioner did not furnish the Sales and Purchase Register… The Assessing Officer has passed the impugned order with total non application of mind.” Para 22

The Court noted that the AO accepted the assessee’s explanation on most items but still proceeded mechanically by citing lack of registers as sole ground for escapement of income.

Final Decision

The High Court allowed the writ petition and quashed the notice under Section 148 and the order under Section 148A(d).

“In view of foregoing reasons, the petition is allowed. The impugned order under section 148A(d)… as well as the impugned notice issued under section 148… are quashed and set aside.” Para 23

This case establishes that reopening assessments based on assumptions without evaluating available evidence violates the requirement of independent application of mind under the new reassessment framework. It also clarifies that lack of specific formats (like registers) cannot override the presence of audit reports and GST filings, if those clearly explain the transactions in question.

Case: Vinod Kumar Solanki v. Assistant Commissioner of Income-tax

Citation: [2024] 166 taxmann.com 71 (Delhi HC)

Decision Date: 14 August 2023

Court: Delhi High Court

Bench: Hon’ble Justices Yashwant Varma and Ravinder Dudeja

Facts of the Case

The assessee filed his original return for AY 2015–16 declaring ₹23.15 lakhs, later revised to ₹26.65 lakhs. The return was processed under Section 143(1).

A notice under Section 148 was issued on 30-03-2021, alleging that the assessee had introduced unaccounted income of ₹31.08 lakhs through transactions with BKR Capitals Pvt. Ltd. The assessee filed detailed objections, stating that the amount was a repayment of a loan originally taken in AY 2014–15, duly disclosed and assessed under Section 143(3).

Despite this, reassessment proceedings were initiated with sanction from the Principal Commissioner under Section 151, which was part of a common approval granted for 111 cases.

Issue Under Question

• Whether the sanction under Section 151 was valid when granted as a blanket approval for 111 cases without case-specific satisfaction.
• Whether merely noting “Yes” in the approval form can amount to valid “satisfaction” as required by Section 151.
• Whether the reassessment notice under Section 148 issued on this basis was valid in law.

Findings of the Court

The Court held that the Principal Commissioner had not recorded any case-specific reasons or demonstrated independent satisfaction. The approval was issued in a common format for all 111 cases, making it mechanical and invalid.

“There is not even a whisper as to what material had weighed in the grant of approval in the instant case… The approval is a safeguard and has to be meaningful and not merely ritualistic or formal.” Para 17

It further stated that the expression “Yes”, used in the sanction form, does not align with the statutory requirement of satisfaction under Section 151.

“The said approval cannot be granted in a mechanical manner as it acts as a linkage between the facts considered and conclusion reached… The approval in the instant case is apparently akin to the rubber stamping of ‘Yes’.” Paras 21 & 23

Final Decision

The High Court quashed the approval under Section 151, the reassessment notice under Section 148, and all subsequent proceedings for AY 2015–16.

“Hence for the reasons stated above, the approval granted by the Principal Commissioner for action under Section 147/148 is not valid. Consequently, the impugned notice… and the proceedings emanating therefrom are set aside and quashed.” Para 21

Case: SBC Minerals (P.) Ltd. v. Assistant Commissioner of Income-tax

Citation: [2024] 167 taxmann.com 113 (Delhi HC)

Decision Date: 20 August 2024

Court: Delhi High Court

Bench: Hon’ble Justices Yashwant Varma and Ravinder Dudeja

Facts of the Case

The assessee filed its return of income for AY 2016–17 declaring income of ₹7.69 crore. A scrutiny assessment was previously completed under Section 143(3).

Subsequently, based on some information, the AO issued a notice under Section 148A(b) on 22-02-2023 and passed an order under Section 148A(d) on 20-03-2023, concluding that income of ₹3.15 crore had escaped assessment. A notice under Section 148 was also issued on the same day.

The assessee challenged the validity of the sanction granted under Section 151, arguing that the approval by the Principal Chief Commissioner (PCCIT) was mechanical and lacked independent application of mind.

Issue Under Question

• Whether the approval granted under Section 151 for issuance of notice under Section 148 was valid when given in a pre-printed format without any reasons or reference to specific material.
• Whether such approval, without demonstrating satisfaction, could be considered lawful and compliant with the statutory requirement.

Findings of the Court

The High Court found that the approval granted by the PCCIT was devoid of reasons and failed to indicate any application of mind. It was issued in a pre-filled format, merely stating “Approved u/s 148A(d) as a fit case.”

“It is evident that the approval order is bereft of any reasons. It does not even refer to any material that may have weighed in the grant of approval.” Para 15

The Court emphasized that while elaborate reasoning is not required, some indication of independent satisfaction must be present. The approval is intended to be a “meaningful safeguard,” not a ritualistic formality.

“The approval is a safeguard and has to be meaningful and not merely ritualistic or formal.” Para 15

The Court reiterated that rubber-stamped or one-word approvals do not satisfy the mandate of Section 151 and cited earlier decisions in Pioneer Town Planners, MDLR Hotels, and Mohan Lal Capoor.

Final Decision

The Court quashed the approval under Section 151, the order under Section 148A(d), and the notice under Section 148 as being invalid in law due to the mechanical nature of the sanction.

“By no stretch of imagination, the mere use of expression ‘approval’ could be considered to be a valid approval as the same does not reflect any independent application of mind.” Para 18

“Hence the approval granted by the Principal Chief Commissioner… is not valid. Consequently, the order passed under section 148A(d) and the notice under section 148… are set aside and quashed.” Para 19

To Sum Up

From above verdicts and various others, the judicial trend is clear, mechanical approvals under Section 151 cannot sustain the legal validity of reassessment notices issued under Section 148 or 148A. Whether it’s a bulk sanction order, a one-word endorsement, or a printed template without any case-specific reasoning, courts have uniformly held such actions to be in violation of the law. Tax professionals must closely examine the sanctioning process in every reassessment case and, where necessary, challenge it on grounds of procedural infirmity and non-application of mind.

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