2019 (5) TMI 1795 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of reasons to believe - No sanction granted by the Commissioner u/s 151 - HELD THAT - AO simply taking note of the ADIT(Inv.) letter has borrowed the satisfaction without independent application of mind to form reason warrant holding a belief that income chargeable to tax has escaped assessment. Just because a letter has been received from the ADIT(Inv.) the AO cannot reopen the assessment even if original assessment was u/s. 143(1) - AO based on the reasons recorded as set out above could not have initiated a fishing enquiry to find out the veracity of the information given by the ADIT(Inv.). The reasons recorded by AO does not stand the test as laid by plethora of judicial precedence as discussed above which is sine qua non to assume jurisdiction u/s 147 therefore we find that the reasons recorded by the AO to justify reopening the assessment u/s. 147 fails and therefore the very assumption of jurisdiction to reassess the assessee falls. Since the AO failed to validly assume jurisdiction u/s. 147 the assumption of jurisdiction by him to re-open the assessment itself is qorum non judice and therefore all subsequent action is null in the eyes of law and therefore we quash the reopening and consequent reassessment order framed by him. While challenging the legality of assumption of jurisdiction by the AO for reopening the assessment u/s. 147 of the Act the assessee has also challenged the legality/validity of the approval granted by the Ld Commissioner by only writing I am satisfied which according to the Ld. AR does not satisfy the requirement of law as laid in plethora of decisions and therefore the approval of Commissioner since vitiated the AO could not legally usurp the jurisdiction to reopen the assessment. We are not satisfied with the reasons recorded by the AO to reopen because it does not satisfy the condition precedent required to usurp jurisdiction under section 147 the approval could not have been given by Commissioner. We are of the opinion that the Commissioner has mechanically accorded permission which does not satisfy due care and circumspection and application of mind supposed to be exercised by a superior authority before according approval to AO. If only he had read the report and applied the mind on the reasons recorded by the AO justifying reopening he would not have granted the permission. The safeguard against reopening u/s 151 of the Act has been done by the superior authority very lightly and as held by the Hon ble Supreme court in Chugamal Rajpal 1971 (1) TMI 9 - SUPREME COURT the authority substituted form over substance. Thus we hold that the sanction granted by the Commissioner u/s 151 is invalid and so the notice of the AO for reopening u/s. 148 is bad in law and has to be necessarily struck down. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening of assessment under Section 147/148 of the Income-tax Act, 1961.
2. Validity of the approval granted by the Commissioner for reopening the assessment.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147/148:

The primary issue in this case was whether the reopening of the assessment by the Assessing Officer (AO) under Section 147/148 of the Income-tax Act, 1961, was valid. The assessee challenged the reopening on the grounds that it was based on borrowed satisfaction from the Additional Director of Income Tax (Investigation), Thane, without independent application of mind by the AO.

The AO issued a notice under Section 148 on 30.03.2016, based on an investigation report from the ADIT (Inv.), Thane, which alleged that the assessee had received accommodation entries in the form of share capital from companies floated by Shri Vikas Jain and his family. The AO concluded that the companies were mere layers in the chain to launder unaccounted funds for the beneficiaries and that the funds received by the assessee were not genuine investments but accommodation entries.

The Tribunal observed that the AO's reasons for reopening were based solely on the information provided by the ADIT (Inv.), Thane, without any independent verification or preliminary enquiry. The AO had not applied his mind independently to form a belief that income had escaped assessment. The Tribunal noted that the reasons recorded by the AO were vague and lacked specific details, such as the names of the persons involved, the dates, and the mode of transactions.

The Tribunal referred to various judicial precedents, including the decision of the Hon'ble Delhi High Court in ACIT vs. Meenakshi Overseas (P) Ltd., which emphasized that the reasons to believe must demonstrate a link between the tangible material and the formation of the belief that income had escaped assessment. The Tribunal also cited the decision of the Hon'ble Bombay High Court in Pr.CIT vs. Shodiman Investments (P) Ltd., which held that the AO must independently apply his mind to the information received and not merely act on borrowed satisfaction.

Based on these observations, the Tribunal concluded that the AO had not satisfied the jurisdictional requirement of forming a "reason to believe" that income had escaped assessment. The reopening of the assessment was, therefore, held to be invalid.

2. Validity of the Approval Granted by the Commissioner:

The second issue was whether the approval granted by the Commissioner for reopening the assessment was valid. The assessee contended that the approval was granted mechanically without due application of mind.

The Tribunal noted that the Commissioner had simply written "Yes, I am satisfied" on the approval format without providing any reasons or evidence of independent application of mind. The Tribunal referred to the decision of the Hon'ble Supreme Court in Chhugamal Rajpal vs. S.P. Chaliha & Ors., which held that mechanical approval without due application of mind is invalid.

The Tribunal emphasized that when a superior authority is given the power to grant sanction, it must exercise that power with due care and circumspection. The approval must demonstrate that the superior authority has carefully examined the reasons recorded by the AO and applied its mind independently.

In this case, the Tribunal found that the Commissioner had granted approval in a mechanical manner without due application of mind. Consequently, the approval was held to be invalid, and the reopening of the assessment based on such approval was also invalid.

Conclusion:

The Tribunal quashed the reopening of the assessment and the consequent reassessment order framed by the AO, holding that the reopening was invalid due to the lack of independent application of mind by the AO and the mechanical approval granted by the Commissioner. The appeal of the assessee was allowed, and the stay application was dismissed as infructuous.