2022 (3) TMI 209 - AT - Income Tax

Reopening of assessment u/s 147 - Addition of unexplained cash-credit in terms of sec.68 - as argued approval granted by Addl. CIT u/s 151(2) was given in a mechanical manner without application of mind - HELD THAT - Addl. CIT has given the approval under a wrong section i.e. section 147(b) of the Act whereas the said section 147(b) stood omitted from Income Tax Act w.e.f. 01.04.1989. That the approval was given by the Addl. CIT under non-existent section in a mechanical manner without application of mind and hence in the absence of valid approval as mandated by law u/s 151 the reopening of the assessment u/s 147 r.w.s. 148 of the Act is bad in law and without jurisdiction and hence is liable to be quashed. As per the provisions of section 147 of the Act the Assessing Officer (in short AO ) is authorized to reopen the assessment proceedings if he has reason to believe that any income chargeable to tax has escaped assessment. The courts of law have time and again held that such a reason to believe that the income of the assessee has escaped assessment should be based on some tangible material which comes to the knowledge of the AO. An assessment cannot be reopened under section 147 of the Act on the basis of mere suspicion. The Ld. Counsel for the assessee as discussed in earlier paras of this order has placed reliance on the reasons recorded by the AO for formation of belief that the income of the assessee has escaped assessment to submit that the same are not valid reasons. As approval granted by the Addl. CIT reveals that the Assessing Officer had mentioned the relevant section as 147(b) which admittedly has been omitted from the Statute w.e.f. 01.04.89 and further without application of mind to the contents of the aforesaid proposal the Ld. Addl. CIT granted approval in a mechanical manner by saying Yes even without application of mind that the approval has been sought under wrong section. The aforesaid contents of the approval clearly shows that the approval has been granted by the Addl. CIT in a mechanical manner without application of mind. In the case of Omkam Developers Ltd. 2021 (5) TMI 414 - ITAT DELHI the Coordinate Bench of the Tribunal while relying upon the decision in the case of PCIT Vs NC Cable Ltd 2017 (1) TMI 1036 - DELHI HIGH COURT has held that mere mentioning Yes for approval without any evidence of application of mind amounts to mechanical approval by CIT. Under the similar circumstances wherein the section for invoking reassessment has been recorded as section 147(b) the Coordinate Bench of the Tribunal observed that this showed that the Assessing Officer had filled proforma in a mechanical manner and the Ld. CIT(A) has also approved the same mechanically. Since the approval in this case was granted in a mechanical manner without application of mind by the Ld. Addl. CIT therefore the same does not constitute a valid approval u/s 151 of the Act and hence the assessment of jurisdiction to reopen the assessment by the Assessing Officer on the basis of invalid approval was bad in law. - Decided in favour of assessee.

Summary

Issues Involved:
1. Ex-parte order by CIT(A).
2. Legality of notice issued under section 148 of the Income Tax Act, 1961.
3. Addition of ?2,50,50,000/- as unexplained cash-credit under section 68 of the Income Tax Act, 1961.
4. Validity of reopening of assessment under section 147 read with section 148 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Ex-parte Order by CIT(A):
The assessee contended that the CIT(A) erred in passing the order ex-parte. However, this issue was not the primary focus during the hearing.

2. Legality of Notice Issued under Section 148:
The assessee argued that the notice issued under section 148 was bad in law, and consequently, the reassessment order was illegal. The primary contention was that the reasons recorded by the Assessing Officer (AO) did not constitute valid reasons to believe that any income had escaped assessment. The AO had reopened the assessment based on the observation of a huge share premium during the assessment proceedings for AY 2012-13. The assessee had clarified that no fresh share premium was received during that year, and the premium amount had been constant since 31.03.2009. The AO's belief that income had escaped assessment was based on mere suspicion without any tangible material.

3. Addition of ?2,50,50,000/- as Unexplained Cash-Credit:
The CIT(A) confirmed the addition of ?2,50,50,000/- as unexplained cash-credit under section 68. The assessee contended that this addition was unjustified and needed to be deleted. However, this issue was not the primary focus during the hearing.

4. Validity of Reopening of Assessment under Section 147/148:
The primary issue discussed was the validity of the reopening of the assessment under section 147 read with section 148. The assessee argued that the AO did not have any reliable information or tangible material to form the belief that income had escaped assessment. The reopening was based on mere suspicion regarding the share premium received during FY 2008-09. The AO's reasons for reopening the assessment were found to be based on a wild suspicion without any direct nexus or live link between the material and the formation of the belief regarding escapement of income. The Tribunal emphasized that the reasons to believe must be based on some tangible material and not on mere suspicion, gossip, or rumor.

The Tribunal also examined the approval granted by the Addl. CIT under section 151(2). It was noted that the approval was given mechanically without application of mind, as the Addl. CIT approved the reopening under a non-existent section (section 147(b)), which had been omitted from the statute w.e.f. 01.04.1989. The approval merely stated "Yes" without any written satisfaction showing the application of mind. This mechanical approval rendered the reopening of the assessment invalid.

Conclusion:
The Tribunal concluded that the reopening of the assessment was bad in law due to the lack of valid reasons to believe that income had escaped assessment and the mechanical approval by the Addl. CIT. Consequently, the assessment order framed under section 147 was quashed, and the appeal of the assessee was allowed.