Sanctions and assessments

Tax assessment indicates the acceptance or non-acceptance of the income admitted by the taxpayer. When the income admitted by the taxpayer is enhanced by the tax officer, the taxpayer may either accept such upward revision or appeal against such assessment before the appellate forum. The tax officer after completion of assessment may come across some information that there are some items of income chargeable to tax but has not been assessed by him. However, without any such fresh information, if the tax officer having overlooked certain aspects of the case earlier at the time of assessment resorts to reopening the assessment it would be termed as change of opinion, which is not permissible in law.

Similarly, based on audit objection, tax officers routinely reopen the assessment without appreciating the judicial view point that the audit party cannot interpret the law (Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC). Only factual and apparent errors in tax assessments brought to light by audit party fall in the domain for reopening the assessment.

Validity of sanction

The safeguard in law for obtaining prior approval of the superior authority by the tax officer is intended to provide efficient working mechanism in the tax department. Where the sanction which is to be obtained by the tax officer from the Joint Commissioner is further strengthened by obtaining such sanction from a further superior officer say, Commissioner of Income-tax was discussed in CIT v. SPL's Sidhartha Ltd (ITA No.836/2011 dated September 14, 2011(Del.).

The tax payer in this case filed a return of loss which was processed initially and subsequently after the expiry of four years based on some external information, proceedings were initiated for reopening the assessment. The tax officer obtained the sanction of Commissioner of Income-tax though the law mandated such approval or sanction by Joint Commissioner of Income-tax. Factually, the reason recorded by the tax officer was forwarded to Commissioner through Additional Commissioner of Income-tax.

The assessee challenged the sanction given by the Commissioner of Income-tax for reopening the assessment since the statute prescribed only the Joint Commissioner or Additional Commissioner to accord such sanction. The tribunal held that the irregularity in obtaining the sanction was not curable in spite of section 292 B of the Act and decided the case in favour of tax payer. When the matter came up before the Court it was held that the Assessing officer had sought the approval of the Commissioner and it was merely routed through Additional Commissioner. There was no application of mind nor was the sanction given by the Additional Commissioner. The court held that section 116 of the Act defines various income-tax authorities who are vested with various powers to be exercised by them. Powers conferred on a particular authority could not be taken up by another authority as it might create chaos in the administration of law.

Satisfaction of one authority cannot be substituted by the satisfaction of another authority in spite of that authority being superior to the one to whom the powers are originally vested with. Reference was also made to Sheonarian Jaiswal & Others v. ITO (176 ITR 35 (Pat.) to hold that for reopening the assessment, the tax officer must exercise his jurisdiction and not act at the behest of the superior authority.

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