2020 (11) TMI 1008 - AT - Income Tax

Validity of reopening of assessment u/s 147 - mandatory sanction as not taken from the rank of the joint Commissioner of income tax according to Section 151 (2) - HELD THAT - As relying on YUM RESTAURANTS ASIA PTE. LTD.case 2017 (9) TMI 120 - DELHI HIGH COURT as no proper approval has been taken in accordance with the provisions of Section 151 of the income tax act by the learned assessing officer at the time of issuing 147 of the act, all the proceedings subsequent to that point makes all the orders passed by the respective revenue authorities as Nullity. Appeal of the assessee is allowed

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147/143(3) of the Income Tax Act, 1961.
2. Validity of the approval obtained under Section 151(2) for reassessment.
3. Legality of additions made under Section 68 of the Income Tax Act.
4. Legality of disallowance of commission expenses.

Detailed Analysis:

1. Validity of Reassessment Proceedings:
The assessee challenged the reassessment proceedings initiated by the Income Tax Officer (ITO) under Section 147 of the Income Tax Act, 1961, arguing that the reassessment was based on non-application of mind and relied merely on an investigation report. The original assessment was reopened based on information that the assessee was a beneficiary of accommodation entries amounting to ?20 lakhs. However, the reassessment order dated March 31, 2015, accepted the returned income of ?21,600 without making any additions for the alleged accommodation entry.

2. Validity of Approval under Section 151(2):
The assessee argued that the approval required for the reassessment under Section 151(2) was not obtained from the designated authority. Specifically, the approval was taken from the Commissioner of Income Tax (CIT) instead of the Joint Commissioner of Income Tax, which the assessee claimed rendered the reassessment proceedings void. The Tribunal noted that as per the provisions of Section 151(2) applicable at the relevant time, the approval for reopening should have been obtained from the Joint Commissioner of Income Tax. The Tribunal cited the judgment in Yum Restaurants Asia Pte Ltd. v. DCIT, where the Delhi High Court held that approval by a superior officer (CIT) instead of the designated authority (Joint Commissioner) does not cure the defect and renders the reassessment proceedings void.

3. Legality of Additions under Section 68:
The reassessment order included an addition of ?20 lakhs under Section 68 on account of share application/capital, which the assessee contested. The Tribunal, however, focused on the procedural validity of the reassessment itself rather than the merit of the additions.

4. Legality of Disallowance of Commission Expenses:
The reassessment order also included a disallowance of commission expenses amounting to ?36,000. Similar to the addition under Section 68, the Tribunal did not delve into the merits of this disallowance due to the procedural invalidity of the reassessment proceedings.

Conclusion:
The Tribunal concluded that the reassessment proceedings were invalid due to the improper approval obtained under Section 151(2). As a result, all subsequent orders and additions made by the revenue authorities were rendered null and void. The appeal was allowed on this ground, and the reassessment order was quashed. All other issues were left unadjudicated due to the procedural invalidity of the reassessment.

Order Pronounced:
The order was pronounced in the open court on November 10, 2020.