2020 (1) TMI 247 - AT - Income Tax

Reopening of assessment u/s 147 - assessment in a mechanical manner without due application of mind - HELD THAT - In the present case the approving authority has given approval to the reopening of assessment in a mechanical manner without due application of mind by mentioning only that YES. I AM SATISFIED , in the Reasons for Initiating Proceedings u/s. 147 For obtaining the Approval of the Pr. CIT, Delhi- 23, New Delhi, and therefore, the legal issue no. 4 in dispute is squarely covered by the aforesaid finding of the Tribunal. In GOPAL CHAND MUNDHRA AND SONS, DAMYANTI MUNDHRA, RAMDEV MUNDHRA, SHRIYA DEVI MUNDHRA, GOPAL CHAND MUNDHRA VERSUS ITO, WARD-55 (5) , NEW DELHI. 2019 (8) TMI 1121 - ITAT DELHI the reassessment is hereby quashed and accordingly the legal ground no. 4 is allowed.

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) issuing the notice under Section 148.
2. Timeliness of the notice under Section 148.
3. Validity of the reasons to believe under Section 148.
4. Validity of the approval by the Principal Commissioner of Income Tax (PCIT).
5. Disallowance of cost of improvement under Section 48.
6. Disallowance of business loss.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer (AO) issuing the notice under Section 148:
The Assessee contended that the notice under Section 148 dated 31/03/2017 was issued by ITO Ward 68(2) New Delhi, while the assessment was framed by ITO Ward 36(4) New Delhi. The latter had neither recorded reasons nor issued any notice under Section 148. Consequently, the assessment framed by ITO Ward 36(4) New Delhi and the consequential orders of CIT(A) were argued to be void ab initio for being passed without jurisdiction.

2. Timeliness of the notice under Section 148:
The Assessee argued that the notice under Section 148 dated 31/03/2017 was issued after the time-barring date as it was received by the assessee only on 05/04/2017. Therefore, the assessment framed by ITO Ward 36(4) New Delhi and the consequential orders of CIT(A) were claimed to be void ab initio for being based on a time-barred notice.

3. Validity of the reasons to believe under Section 148:
The Assessee contended that the notice under Section 148 was based on mechanical reasons to believe, which were based on suspicion only and intended for making roving and fishing enquiries. Thus, the assessment framed by ITO Ward 36(4) New Delhi and the consequential orders of CIT(A) were argued to be void ab initio for being based on invalid reasons recorded.

4. Validity of the approval by the Principal Commissioner of Income Tax (PCIT):
The Assessee argued that the notice under Section 148 was based on mechanical approval by the PCIT, who merely endorsed the ritualistic words "YES, I AM SATISFIED" without recording proper satisfaction or applying his mind. This mechanical approval rendered the assessment framed by ITO Ward 36(4) New Delhi and the consequential orders of CIT(A) void ab initio. The Tribunal found that the approval granted by the PCIT was indeed mechanical and without due application of mind, as evidenced by the mere statement "YES, I AM SATISFIED." Citing similar cases and precedents, the Tribunal concluded that such mechanical approval invalidated the reassessment proceedings.

5. Disallowance of cost of improvement under Section 48:
The Assessee argued that the CIT(A) erred in sustaining the disallowance of ?13,00,527 on account of cost of improvement, which was fully genuine and admissible under Section 48 of the Act. However, since the reassessment was quashed on jurisdictional grounds, this issue became academic and was not adjudicated.

6. Disallowance of business loss:
The Assessee contended that the CIT(A) erred in sustaining the disallowance of ?19,07,832, which was a genuine business loss admissible under the provisions of the law and was not the subject matter of reasons recorded under Section 148. This issue also became academic due to the quashing of the reassessment.

Conclusion:
The Tribunal quashed the reassessment proceedings on the grounds that the approval by the PCIT was mechanical and without due application of mind. Consequently, the legal ground challenging the validity of the reassessment proceedings was allowed, and the appeal filed by the assessee was allowed. The Tribunal did not adjudicate the issues on merit, as they became academic in nature. The appeal was allowed on 17/12/2019.

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