[Opinion] Analysis of Legal Implications of Issuance of Notice for Reopening of Assessment on Borrowed Satisfaction

Dr Sanjay Bansal & Dr Puja Jaiswal – [2026] 183 taxmann.com 348 (Article)

Granting of sanction by the Specified Authority is a precondition for the Assessing Officer to assume jurisdiction under Section 148 of the Act to issue a reassessment notice. Before sanction is granted valid reasons on the basis of information received that income chargeable to tax has escaped assessment are to be recorded by an Assessing Officer for the approval of the same by way of sanction by the specified authority, which is higher in rank, under Section 151 of the Income Tax Act, 1961 which is now equivalent to section 284 of Income Tax Act, 2025. Both under the new regime as well as under the old regime the power to grant sanction by different sanctioning authorities affects the jurisdiction of the Assessing Officer to issue a reassessment notice under the Income Tax Act, 1961, therefore, the extent and the nature of power to be exercised by the sanctioning authorities assumes significance and importance, a deliberation in regard thereto would be necessary and useful, especially in view of the emerging trends arising from recent judgments of the Hon’ble Supreme Court of India as well as that of the High Courts.

The provisions regarding sanction impose a check upon the power of the Revenue to reopen assessment. The provision confers a responsibility on the Revenue to ensure that sanction of the specified authority is obtained by the Assessing Officer before issuing a notice under section 148. The purpose behind this procedural check is to save the assessees from harassment resulting from the mechanical reopening of assessments. The reason for conferring power on the sanctioning authorities under section 151 of the Act is to safeguard unnecessary harassment of the assessees by the Assessing Officers exercising the power of reassessment of the return of the assessee and re-adjudication of the final Order of assessment. As rightly observed by the Hon’ble High Court of Delhi in Yum Restaurants Asia Pte. Ltd. v. Dy. DIT (No.2) that the purpose of the provisions of sanction is to introduce a supervisory check over the work of the Assessing Officer, particularly, in the context of reopening of assessment. The law expects the Assessing Officer to exercise the power under section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the Assessing Officer, then the law expects the superior officer to be able to correct that error. The provisions of sanction are charters to the Revenue to reopen earlier assessments and are sword for the Revenue and shield for the assessee. They ensure that the sword of reopening of assessment may not be used unless a superior Officer is satisfied that the conditions precedent for the exercise of power of reopening is fulfilled. The sanctioning authority, while exercising power under the Act has to examine reasons, material or grounds and to judge whether they are sufficient and relevant to the formation of the necessary belief on the part of the Assessing Officer and thereafter to record necessary satisfaction which should not be mechanical but as a result of application of mind, for the issuance of notice for reopening under the Act by the Assessing Officer. Where the requirement of the provisions of sanction are not fulfilled, the notice for reopening and the resultant assessment flowing there from would be invalid. Whether the action of the sanctioning authority is mechanical or not, including the question whether the reasons for the belief on the basis of which assessment has been reopened, have a rational connection or a relevant bearing to the formation of belief and are not extraneous or irrelevant, is open to challenge in a Court of Law.

In view of the aforesaid background, the question of sanction on borrowed satisfaction would hinge primarily on the issue of conducting an enquiry by the Assessing Officer as a sequel to the information received which suggests that income chargeable to tax of an assessee has escaped assessment; and necessitating the protection of right of hearing of the assessee by the sanctioning authority before for reopening the assessment in the case of an assessee. Pursuant to the decision rendered by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO wherein the procedure to be adopted by the Assessing Officer in the matter of reassessment proceedings was set out, by pronouncing that when the authorities issue notice(s) under Section 148 of the Income Tax Act, 1961, the proper course of action for the assessee is first to file a reply an raise all his objections by inviting a speaking Order on such objections.

After about more than two and a half decades, by the Finance Act, 2021, new procedure of reassessment was brought in existence. As per the Memorandum explaining the provisions in the Finance Bill, 2021 one of the salient features of such new procedure has been stated as under:

“(vii) New section 148A of the Act proposes that before issuance of notice the Assessing Officer shall conduct enquiries, if required, and provide an opportunity of being heard to the assessee. After considering his reply, the Assessing Officer shall decide, by passing an order, whether it is a fit case for issue of notice under section 148 and serve a copy of such order along with such notice on the assessee. The Assessing Officer shall before conducting any such enquiries or providing opportunity to the assessee or passing such order obtain the approval of specified authority. However, this procedure of enquiry, providing opportunity and passing order, before issuing notice under section 148 of the Act, shall not be applicable in search or requisition cases.”

The relevant extract as per the Notes on Clauses reads as under:

“Clause 37 of the Bill seeks to insert a new section 148A in the Income tax Act relating to Conducting inquiry, providing opportunity before issue of notice under section 148.

It is proposed to insert a new section 148A, which seeks to provide that the Assessing Officer shall, before issuing any notice under section 148, (a) conduct any enquiry, if required, with the prior approval of specified authority, with respect to the information which suggests that income chargeable to tax has escaped assessment.”

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