2019 (10) TMI 857 - AT - Income Tax

Validity of the reassessment proceedings in absence of proper approval given u/s 151 - HELD THAT - A perusal of the copy of approval given u/s 151 shows that the Addl. CIT, while giving approval has simply mentioned Yes. I am satisfied that it is a fit case for reopening of assessment u/s 148. Similarly, the PCIT, while giving approval has also simply mentioned I am satisfied that it is a fit case for issue of notice u/s 148 of the IT Act. From the above, it is clear that none of the supervisory authorities have applied their mind. In the instant case, both the superior authorities have merely given their approval in a mechanical manner without independent application of mind, therefore, respectfully following the decision of the jurisdictional High Court in the case of N.C. Cables 2017 (1) TMI 1036 - DELHI HIGH COURT I hold that the reassessment proceedings are bad in law. Appeal filed by the assessee is allowed.

Summary

Issues Involved:
1. Validity of reassessment proceedings under sections 147/148 of the IT Act.
2. Validity of approval under section 151 of the IT Act.
3. Addition of ?20,00,000 under section 68 of the IT Act.
4. Addition of ?36,000 as unexplained expenditure under section 69C of the IT Act.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Sections 147/148 of the IT Act:
The assessee challenged the initiation of reassessment proceedings, arguing that it was done in a mechanical manner, based on borrowed satisfaction, and without the application of mind. The counsel for the assessee argued that the Assessing Officer (AO) initiated proceedings solely on the basis of a report from the Investigation Wing without conducting any independent inquiry to verify the information. The counsel cited several judicial precedents to support the claim that reassessment proceedings initiated mechanically and on borrowed satisfaction are null and void.

2. Validity of Approval under Section 151 of the IT Act:
The assessee contended that the approval for reassessment under section 151 was given in a mechanical manner and without application of mind. The Principal Commissioner of Income Tax (PCIT) had merely stated, "I am satisfied that it is a fit case for issue of notice u/s 148 of the IT Act," which the assessee argued was insufficient and indicative of a lack of independent application of mind. The counsel cited decisions from various High Courts, including the Delhi High Court, which held that mechanical approval without detailed reasoning renders the reassessment proceedings invalid.

3. Addition of ?20,00,000 under Section 68 of the IT Act:
On the merits, the AO made an addition of ?20,00,000 under section 68, stating that the assessee failed to prove the identity and capacity of the creditor and the genuineness of the transaction. The assessee argued that it had provided sufficient evidence, including audited financial statements, income-tax returns, bank statements, and ROC filings, to substantiate the identity and creditworthiness of the share applicant, Utsav Securities Pvt. Ltd. The assessee also argued that it was not provided with the materials used against it, nor was it given an opportunity for cross-examination, violating the principles of natural justice.

4. Addition of ?36,000 as Unexplained Expenditure under Section 69C of the IT Act:
The AO also made an addition of ?36,000 as commission for arranging accommodation entries. The assessee argued that this addition was based on estimation without any concrete evidence or material to support it. The assessee contended that such an addition is unsustainable in law.

Judgment:
The Tribunal first addressed the legal ground concerning the validity of the reassessment proceedings. It noted that the approval under section 151 was given in a mechanical manner without independent application of mind, as both the Addl. CIT and the PCIT had merely stated their satisfaction without providing detailed reasoning. Citing the Delhi High Court's decision in the case of N.C. Cables Ltd., the Tribunal held that such mechanical approval renders the reassessment proceedings invalid. Consequently, the reassessment proceedings were quashed, and the subsequent order passed by the AO was also deemed invalid.

Since the reassessment proceedings were quashed on legal grounds, the Tribunal did not adjudicate the other grounds raised by the assessee regarding the additions under sections 68 and 69C.

Conclusion:
The appeal filed by the assessee was allowed, and the reassessment proceedings along with the subsequent order passed by the AO were quashed due to the invalid approval under section 151. The decision was pronounced in the open court on 17.10.2019.