2014 (2) TMI 790 - HC - Income Tax

Reopening of Assessment failure to take approval as per section 151(1) - Held that - If the assessment is reopened after expiry of the four years from the end of relevant assessment year, no notice under Section 148 of the Act shall be issued unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice - neither the reasons recorded by the Assessing Officer under sub-Section (2) of Section 148 of the Act nor approval granted by the Chief Commissioner or Commissioner as contemplated by the proviso to sub-Section (1) of Section 151 of the Act is on record. Revenue could not point out any observation so as to hold that approval under Section 151 was obtained before issuing notice under Section 148 of the Act -In the absence of the order granting approval by the Commissioner under Section 151 or in the absence of any indication in the orders passed by the authorities including the order of the Tribunal or the materials on record that such approval was obtained, it would not be possible to assume that such approval under Section 151 of the Act was obtained - The provisions contained in Section 151 of the Act are indubitably mandatory in nature and since compliance was either not made or could be established by the revenue, benefit will have to be given to the assessee - decided against Revenue.

Summary

Issues:
1. Justification of treating fixed deposits as income of the assessee.
2. Legality of reopening the assessment without proper format and approval.

Analysis:

Issue 1:
The respondent raised two substantial questions of law regarding the fixed deposits and the reopening of assessment. The Tribunal held that the reopening of assessment was flawed due to improper format and lack of approval from the Commissioner. The Tribunal extensively analyzed the provisions of Sections 147, 148, and 151 of the Income Tax Act. The Tribunal found that the reasons recorded for reopening were not in the proper format, although it examined if the Commissioner's approval was obtained. However, the original records did not contain the reasons or approval. The counsel for the revenue admitted the absence of these documents and failed to provide evidence of the Commissioner's approval. The Tribunal concluded that the approval under Section 151 was mandatory, and since it was not established, the benefit should be given to the assessee.

Issue 2:
The respondent's counsel argued that the approval under Section 151 was crucial for reopening the assessment, citing a similar case for the assessment year 1996-97 where the Commissioner's approval was obtained and recorded. The Appellate Authority did not address this crucial aspect in the assessment for the year 1995-96. The revenue's counsel could not provide concrete evidence of the Commissioner's approval, and the Tribunal's findings supported the absence of proper reasons and approval. The Tribunal emphasized the mandatory nature of Section 151 requirements and ruled in favor of the assessee. The Court dismissed the appeal based on the absence of approval under Section 151, highlighting the significance of compliance with statutory provisions in reopening assessments.

In conclusion, the High Court of Karnataka upheld the Tribunal's decision, emphasizing the necessity of obtaining the Commissioner's approval under Section 151 for reopening assessments. The judgment highlighted the mandatory nature of statutory provisions and the importance of proper documentation in such proceedings. The Court dismissed the appeal due to the absence of the required approval, providing a favorable outcome for the assessee in this case.