2019 (7) TMI 1215 - AT - Income Tax

Reopening of assessment u/s 147 - reasons to believe - in original assessment u/s 143(3) AO made independent enquiries u/s 133(6) from the share subscribers in connection with the share capital - HELD THAT - In the present case the recorded reasons nowhere made out any case that the alleged escapement was resulted as a consequence of the assessee s omission or failure to disclose truly fully all material facts necessary for its assessment. In fact we note that in the reasons recorded, the AO had not spoken any facts which would throw light that the disclosed facts of share subscription monies received during the year could be taken as false or untrue or from which it could be inferred that there was any failure on the part of the assessee in disclosing fully and truly all material facts necessary for the assessment of the assessee. We therefore do find any reasons to interfere with the findings of the CIT(A) holding that the initiation of reassessment proceedings was bad in law as it did not satisfy the conditions precedent in proviso to Section 147. Sanction granted by the CIT u/s 151 was in a mechanical manner or upon due application of mind - HELD THAT - We find that on the proforma which is available in the paper book, the Commissioner has simply written Yes I agree which does not in any manner shed any light as to whether there was any application of mind at all by the Pr.CIT, who was duty bound to have looked in to carefully the reasons recorded by the AO and seen the history behind the assessment which was proposed to be reopened by the AO. When a superior authority is given power by the legislature, to grant sanction to do an act by an authority below him, then that power needs to be exercised with due care and circumspection and after due application of mind. We note that the coordinate Bench of this Tribunal on similar facts circumstances in the case of Hirachand Kanunga Vs DCIT 2015 (5) TMI 757 - ITAT MUMBAI held that a mere mention of approved in the report by the Commissioner and thereby according sanction for reopening of assessment u/s 147 did not amount to recording of proper satisfaction u/s 151(1) of the Act and hence held the notice issued u/s 148 to be bad in law. We are therefore of the opinion that the Commissioner had mechanically accorded permission. Thus, we hold that the sanction granted by the Commissioner u/s 151 is invalid and so, the notice of the AO dated 22.03.2016 is bad in law and has to be necessarily struck down. For the reasons discussed in the foregoing therefore, we are in agreement with the order of the Ld. CIT(A) wherein he has cancelled the assessment order passed after reopening u/s 147 of the Act for the reason that the conditions prescribed by law were not complied with resulting in the order passed by the AO being without jurisdiction and therefore a nullity. Accordingly we uphold the order of the ld. CIT(A). - Decided against revenue

Summary

Issues Involved:
1. Validity of reopening assessment under Section 147 after four years.
2. Whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.
3. Validity of the approval granted by the Commissioner under Section 151 of the Income Tax Act.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 after Four Years:
The case revolves around the reopening of the assessment for the Assessment Year (AY) 2009-10. The assessee had initially filed its return of income declaring a total income of ?2,80,100/-. During the Financial Year (FY) 2008-09, the assessee received share subscription money aggregating to ?86.27 crores. The original assessment was completed under Section 143(3) on 19.12.2011, where the Assessing Officer (AO) had verified the share capital on a test-check basis. The case was reopened after more than four years via notice under Section 148 dated 22.03.2016. The reopening was based on information from a survey conducted on Ashika Group, which indicated that the share capital raised by the assessee was through paper/bogus/shell companies.

2. Failure on the Part of the Assessee to Disclose Fully and Truly All Material Facts:
The AO's reopening was challenged on the grounds that it did not specify any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the AO failed to point out any specific failure on the assessee's part in the recorded reasons for reopening. The CIT(A) held that the reopening was invalid as it did not meet the conditions precedent set out in the proviso to Section 147, which requires the AO to demonstrate that the escapement of income was due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment.

3. Validity of the Approval Granted by the Commissioner under Section 151:
The approval for reopening the assessment was granted by the Principal Commissioner of Income Tax (Pr.CIT) with a mere endorsement of "Yes. I agree." This mechanical approval without detailed reasoning was challenged as being non-application of mind. The Tribunal noted that the approval must reflect the Commissioner’s satisfaction and should not be a mere formality. The Tribunal cited various judicial precedents emphasizing that the satisfaction of the Commissioner should be based on objective material and should demonstrate a clear link between the reasons recorded by the AO and the formation of belief that income has escaped assessment.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to cancel the assessment framed under Sections 147/143(3) on the grounds that:
- The reopening of the assessment did not comply with the conditions set out in the proviso to Section 147, as there was no specific failure on the part of the assessee to disclose fully and truly all material facts.
- The approval granted by the Pr.CIT under Section 151 was mechanical and did not reflect due application of mind.

The appeal by the Revenue was dismissed, confirming that the reassessment proceedings were invalid and the assessment order passed was without jurisdiction.