2022 (9) TMI 814 - AT - Income Tax

Validity of reopening of assessment u/s.147 - Eligibility of reasons to believe - Manadation of application of mind in pursuant to reasons recorded for reopening of assessment - Whether reasons recorded by AO does not show any light on quantification of escapement of income and also failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment? - HELD THAT - In this case, on perusal of form of initiation of proceedings u/s.147 of the Act, and for granting approval of the Commissioner of Income Tax for issuance of notice u/s.148 of the Act, it is abundantly clear that the Assessing Officer has recorded reasons for reopening of assessment without there being any allegation on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year and said reasons had been mechanically approved by the Commissioner of Income Tax, Salem, by stating that Yes, I am satisfied . Therefore, we are of the considered view that notice issued u/s.148 in pursuant to reasons recorded for reopening of assessment dated 18.03.2013 and consequent approval granted by the CIT, Salem is without any application of mind and thus, reopening of assessment on the basis of said approval is bad in law and liable to be quashed. Hence, we quash notice issued u/s.148 of the Income Tax Act, 1961 and consequent reassessment proceedings completed u/s.143(3) r.w.s 147 of the Act. - Decided in favour of assessee.

Issues Involved:
1. Validity of reopening of assessment under Section 147 of the Income Tax Act, 1961.
2. Validity of the sanction accorded by the competent authority under Section 151 of the Income Tax Act, 1961.
3. Legitimacy of additions made by the Assessing Officer towards disallowance of bogus purchases.

Issue-wise Detailed Analysis:

1. Validity of Reopening of Assessment under Section 147:
The primary issue was whether the reopening of the assessment under Section 147 was valid. The assessee argued that the reasons recorded for reopening the assessment did not indicate any failure on their part to disclose fully and truly all material facts necessary for the assessment. The Tribunal noted that the original assessment was completed under Section 143(3) and the notice for reopening was issued after four years from the end of the relevant assessment year. According to the proviso to Section 147, for reopening beyond four years, there must be an allegation of failure to disclose fully and truly all material facts necessary for assessment. The Tribunal found that the reasons recorded did not contain any such allegation. Therefore, the reopening of the assessment was deemed invalid, rendering the reassessment proceedings null and void.

2. Validity of the Sanction Accorded by the Competent Authority under Section 151:
The assessee also challenged the validity of the sanction accorded by the competent authority under Section 151, arguing that the approval was mechanical and without application of mind. The Tribunal examined the form for recording reasons and obtaining approval, noting that the Joint Commissioner of Income Tax (JCIT) and the Commissioner of Income Tax (CIT) had simply stated €œYes, approval is granted€ and €œYes, I am satisfied€ without any detailed reasoning. The Tribunal emphasized that the sanction for issuing notice under Section 148 is not a mere procedural formality but a quasi-judicial function requiring detailed satisfaction recorded in writing. The Tribunal cited various judicial precedents, including the Hon'ble Supreme Court's decision in CIT Vs. Goyanka Lime & Chemical Ltd., to support the view that mechanical approval without application of mind invalidates the reopening of assessment. Consequently, the Tribunal held that the approval granted was mechanical and without application of mind, further invalidating the reopening of the assessment.

3. Legitimacy of Additions Made by the Assessing Officer Towards Disallowance of Bogus Purchases:
The assessee contested the additions made by the Assessing Officer towards disallowance of bogus purchases, arguing that there was no material evidence except the statement of the Executive Director. However, since the Tribunal quashed the reassessment proceedings on legal grounds, it did not adjudicate this issue on merits. The Tribunal dismissed these grounds as infructuous, given the annulment of the reassessment order.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, quashing the notice issued under Section 148 and the consequent reassessment proceedings completed under Section 143(3) read with Section 147. The decision was pronounced in the open court on 29th July 2022.

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