2024 (3) TMI 828 - HC - Income Tax

Validity of reopening of assessment - Sanction for issue of notice u/s 151 - manner of recording the approval granted by the prescribed authority u/s 151 for reopening of assessment proceedings a/s 148 - HELD THAT - the satisfaction arrived at by the prescribed authority u/s 151 must be clearly discernible from the expression used at the time of affixing its signature while according approval for reassessment under Section 148 of the Act. The said approval cannot be granted in a mechanical manner as it acts as a linkage between the facts considered and conclusion reached. In the instant case, merely appending the phrase Yes does not appropriately align with the mandate of Section 151 of the Act as it fails to set out any degree of satisfaction, much less an unassailable satisfaction, for the said purpose. Therefore, it is seen that the PCIT has failed to satisfactorily record its concurrence. By no prudent stretch of imagination, the expression Yes could be considered to be a valid approval. In fact, the approval in the instant case is apparently akin to the rubber stamping of Yes in the case of Central India Electric Supply. ITAT correctly held that the prescribed authority has granted approval under Section 151 in a mechanical manner. Decided against revenue.

Summary

Issues Involved:
1. Validity of approval under Section 151 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings were initiated based on borrowed satisfaction without independent application of mind.

Summary:

1. Validity of approval under Section 151 of the Income Tax Act, 1961:
The Revenue's appeal challenges the ITAT's order which held that the prescribed authority granted approval under Section 151 in a mechanical manner. The court examined Section 151, emphasizing that the Principal Chief Commissioner or Commissioner must be "satisfied" on the reasons recorded by the AO for issuing a notice under Section 148. The court noted that the PCIT merely wrote "Yes" without specifically noting his approval, which does not meet the requisite satisfaction as per Section 151. The court cited previous judgments, including *N. C. Cables Ltd.* and *Central India Electric Supply Co. Ltd.*, which held that merely writing "Yes" or rubber stamping approval is considered mechanical and insufficient. The court concluded that the PCIT's approval failed to show independent application of mind, thus invalidating the reassessment notice.

2. Whether the reassessment proceedings were initiated based on borrowed satisfaction without independent application of mind:
The ITAT had quashed the reassessment proceedings, stating that the AO initiated them based on borrowed satisfaction from the Investigation Wing without independent application of mind. The Revenue argued that 'tangible information' for reassessment under Section 147 includes 'borrowed information' and should not be mistaken for 'borrowed satisfaction.' However, the court upheld the ITAT's view, agreeing that the AO acted on borrowed satisfaction without linking tangible material to the reasons for believing income had escaped assessment. The court referenced *Chhugamal Rajpal* and *Ess Adv. (Mauritius) S. N. C. Et Compagnie v. ACIT*, reinforcing that mechanical approval without independent reasoning is flawed in law.

Conclusion:
The court dismissed the Revenue's appeal, finding no substantial question of law. It upheld the ITAT's decision, emphasizing that the approval under Section 151 must reflect a clear and independent application of mind, which was absent in this case. The reassessment proceedings were thus invalidated due to mechanical approval and lack of independent satisfaction by the prescribed authority.