2023 (1) TMI 1437 - AT - Income Tax

Validity of reopening of assessment - As alleged approval for reopening the assessment was granted in a mechanical manner - HELD THAT - On perusal of the order of the Tribunal in assessee s own case for the assessment year 2010-11 2022 (10) TMI 1154 - ITAT DELHI Tribunal after considering various judgements held that there is non-application of mind by the AO while filling up the proforma for obtaining the approval from Commissioner u/s 151 of the Act and the ld. CIT also has granted approval in a mechanical manner. Tribunal observed that in the Form for recording the reasons for initiating proceedings u/s 148 for obtaining approval of the Pr. CIT, column 7 i.e. the provisions under which the re-opening was sought for are applicable has been mentioned as section 147(b) and the provisions of section 147(b) are non-existent in the statute book for the assessment year 2010-11. Therefore, the co-ordinate bench of the Tribunal came to the conclusion that there is complete non-application of mind by in obtaining the approval from Pr. CIT and in similar manner the approval was granted by Pr. CIT. The decision taken in Shyam Products Private Limited supra applies mutatis mutandis of the appeal of the assessee. Thus, the re-assessment order u/s 143(3) r/w/section 147 is quashed and Ground of appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following issues:

• Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act were validly conducted.
• Whether the approval for reopening the assessment was granted in a mechanical manner without application of mind, thus invalidating the reassessment proceedings.
• Whether the additions made under Sections 68 and 69C of the Income Tax Act were justified based on the evidence provided.
• Whether the initiation of penalty proceedings under Section 271(l)(c) was justified without any material on record.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Reassessment Proceedings

• Relevant Legal Framework and Precedents: The reassessment proceedings were initiated under Section 148, which requires the Assessing Officer (AO) to have a reason to believe that income has escaped assessment. The approval for such proceedings must be obtained from a higher authority as per Section 151.
• Court's Interpretation and Reasoning: The Tribunal found that the AO mentioned non-existent provisions (Section 147(b)) in the approval form, indicating non-application of mind. The approval by the Principal Commissioner of Income Tax (Pr. CIT) was also found to be mechanical, as it merely stated "yes" without further reasoning.
• Key Evidence and Findings: The form for recording reasons for initiating proceedings under Section 148 contained errors, such as citing non-existent sections, which demonstrated a lack of due diligence.
• Application of Law to Facts: The Tribunal applied precedents that require a meaningful application of mind by the approving authority. The mechanical nature of the approval rendered the reassessment proceedings invalid.
• Treatment of Competing Arguments: The Revenue argued that the errors were clerical and curable under Section 292B. However, the Tribunal rejected this, citing the need for genuine application of mind.
• Conclusions: The reassessment proceedings were quashed due to the procedural lapses and mechanical approval.

Issue 2: Additions under Sections 68 and 69C

• Relevant Legal Framework and Precedents: Section 68 deals with unexplained cash credits, while Section 69C pertains to unexplained expenditure.
• Court's Interpretation and Reasoning: The Tribunal did not delve into the merits of the additions due to the quashing of the reassessment proceedings on procedural grounds.
• Key Evidence and Findings: The Revenue's case was based on alleged accommodation entries and commissions, which were not examined due to the procedural invalidity of the reassessment.
• Application of Law to Facts: The Tribunal focused on the procedural aspect and did not evaluate the substantive evidence for the additions.
• Treatment of Competing Arguments: The Tribunal did not address the merits of the additions due to the primary focus on procedural invalidity.
• Conclusions: The additions were not sustained due to the quashing of the reassessment proceedings.

Issue 3: Initiation of Penalty Proceedings under Section 271(l)(c)

• Relevant Legal Framework and Precedents: Section 271(l)(c) pertains to penalties for concealment of income or furnishing inaccurate particulars.
• Court's Interpretation and Reasoning: The Tribunal did not specifically address this issue due to the quashing of the reassessment proceedings.
• Key Evidence and Findings: No specific material was discussed regarding the initiation of penalty proceedings.
• Application of Law to Facts: The procedural invalidity of the reassessment overshadowed the penalty proceedings.
• Treatment of Competing Arguments: The Tribunal did not evaluate arguments regarding the penalty due to the focus on the reassessment's procedural flaws.
• Conclusions: The initiation of penalty proceedings was not adjudicated due to the quashing of the reassessment.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The mere appending of the expression 'approved' says nothing. It is not as if the CIT has to record elaborate reasons for agreeing with the noting put up but at the same time, satisfaction has to be recorded of the given case, which can be reflected in the briefest possible manner."
• Core Principles Established: The requirement for a genuine application of mind by the approving authority under Section 151 is critical for the validity of reassessment proceedings.
• Final Determinations on Each Issue: The reassessment proceedings were quashed due to procedural lapses, rendering the additions and penalty proceedings academic and unaddressed on their merits.

The Tribunal's decision underscores the importance of procedural compliance and meaningful application of mind in tax reassessment proceedings, emphasizing that mechanical approvals and procedural errors can invalidate such proceedings.