2015 (5) TMI 757 - AT - Income Tax

Reopening of assessment - specific information was received from the Dy. Director (Inv.) Mumbai as to assessee providing bogus speculation profit/loss, Short Term /Long term capital gain/loss, commodities profit/loss on commodity trading and had been continuing this business for many years - Held that - Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO s belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/s. 148 of the Act. In the instant case, we find from the perusal of the order sheet which is on record, the Commissioner has simply put approved and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief. Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction. - Decided in favour of assessee.

Issues Involved:
1. Validity of reassessment proceedings initiated under Section 147 of the Income Tax Act.
2. Application of mind and proper sanction/approval under Section 151(2) of the Income Tax Act.
3. Compliance with the procedural requirements post-rejection of objections by the assessee.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary grievance of the assessee was that the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 were unjustified. The original return filed on 16.10.2003 declared a total income of Rs. 5,95,075/-, including Long Term Capital Gain of Rs. 63,52,972/-. The reassessment was initiated based on information from the Dy. Director (Inv.) Mumbai, indicating that the assessee had engaged in transactions with M/s. Mahanagar Securities Pvt. Ltd., which was involved in fraudulent billing activities and providing bogus profits/losses. The AO treated the entire sale consideration of shares as income from other sources.

The assessee challenged the reopening, arguing that the reasons recorded by the AO lacked independent application of mind and were solely based on the investigation report. The Tribunal found merit in this argument, citing the Delhi High Court's decision in Sarthak Securities Co. P. Ltd., which emphasized that the formation of belief regarding income escapement must involve the AO's independent application of mind. The Tribunal concluded that the AO's reasons for reopening were not independently formed, thus invalidating the reassessment proceedings.

2. Application of Mind and Proper Sanction/Approval under Section 151(2):
The assessee contended that the approval for reopening the assessment under Section 151(2) was not properly obtained. The Tribunal examined the approval letter from the Addl. Commissioner of Income Tax, which merely stated "approved" without any detailed satisfaction note. The Tribunal referenced the Supreme Court's decision in Chhugamal Rajpal Vs S.P. Chaliha, emphasizing that the superior authority must apply their mind and record reasons before sanctioning a notice under Section 148.

The Tribunal found that the Addl. Commissioner's approval lacked the necessary application of mind and due diligence, rendering the sanction invalid. This failure to properly sanction the notice under Section 148 further invalidated the reassessment proceedings.

3. Compliance with Procedural Requirements Post-Rejection of Objections:
The assessee also argued that the AO proceeded with the reassessment in haste, without allowing the required time after rejecting the objections. The Tribunal noted that the AO rejected the objections on 14.12.2010 and issued the reassessment order on 24.12.2010, without waiting for the mandatory four-week period as prescribed by the Bombay High Court in Asian Paints Ltd. and Aroni Commercials Ltd.

The Tribunal held that the AO's failure to adhere to the procedural requirements made the issuance of the notice under Section 148 legally untenable. This procedural lapse further contributed to the invalidation of the reassessment proceedings.

Conclusion:
The Tribunal concluded that the reassessment proceedings were invalid due to the lack of independent application of mind by the AO, improper sanction under Section 151(2), and procedural non-compliance post-rejection of objections. Consequently, the reassessment order was quashed, and the appeal filed by the assessee was allowed. The Tribunal did not find it necessary to delve into the merits of the case, given the procedural and legal deficiencies identified.

← Previous Next →