2024 (4) TMI 1231 - AT - Income Tax

Validity of Reassessment proceedings - lack of jurisdiction on no proper approval by the competent authority u/s 151 - HELD THAT - It is noted on perusal of the reasons recorded and approval u/s 151 by the competent authority indicates that Pr. CIT has not applied his mind on the reasons recorded by lower authorities and he has only expressed or mentioned Yes on the reason forwarded (PBP-5). As per decision of N. C. Cables Ltd. 2017 (1) TMI 1036 - DELHI HIGH COURT where in it has been held that Section 151 of the Act clearly stipulates that the CIT who is the competent authority to authorize the reassessment notice has to apply his mind and form an opinion. The mere appending of the expression approved or Yes says nothing. It is not as if the CIT has to record elaborate reasons for agreeing with the noting put up before him. At the same time satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case the exercise appears to have been ritualistic and formal rather than meaningful which is the rationale for the safeguard of an approval by a higher ranking officer. As no satisfaction by the CIT the satisfaction if any was of the AO who is not competent in the present case. Appeal of the assessee are allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the reassessment proceedings initiated under Sections 147/148 of the Income Tax Act were valid, given the alleged lack of jurisdiction and proper approval by the competent authority under Section 151.
• Whether the additions made for unexplained expenditure and receipts were justified in the absence of the assessee filing an income tax return for the relevant year.
• Whether the ex-parte dismissal of the appeal by the CIT (A) due to non-attendance was appropriate.
• Whether the imposition of penalty under Section 271(1)(c) was valid, considering the alleged procedural lapses in the reassessment proceedings.
• Whether the interest charged under Sections 234A, B, and C was justified.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Reassessment Proceedings under Sections 147/148

Relevant Legal Framework and Precedents: The reassessment proceedings under Sections 147/148 require proper approval from the competent authority under Section 151. The Delhi High Court in Pr. CIT vs. N. C. Cables Ltd. held that mere approval without application of mind is insufficient.

Court's Interpretation and Reasoning: The Tribunal found that the Principal Commissioner of Income Tax (Pr. CIT) merely appended 'Yes' to the reasons recorded by the Assessing Officer (AO), indicating a lack of independent satisfaction. This was deemed a ritualistic and formal exercise rather than a meaningful one.

Key Evidence and Findings: The Tribunal noted that the approval process involved a consolidated approval for multiple assessees without individual consideration, which was inappropriate.

Application of Law to Facts: The Tribunal applied the principles from N. C. Cables Ltd. and similar cases, finding the reassessment proceedings void due to improper approval.

Treatment of Competing Arguments: The Tribunal dismissed the Revenue's reliance on procedural compliance, emphasizing the necessity of substantive approval.

Conclusions: The reassessment proceedings were quashed due to jurisdictional error and lack of proper approval.

2. Additions for Unexplained Expenditure and Receipts

Relevant Legal Framework and Precedents: Additions for unexplained expenditure and receipts require substantiation by the AO, especially when the assessee has not filed a return.

Court's Interpretation and Reasoning: The Tribunal noted the lack of cogent material and corroborative evidence to support the AO's additions.

Key Evidence and Findings: The AO relied on information from the ITS database without further verification or evidence.

Application of Law to Facts: The Tribunal found the additions unjustified due to the absence of substantive evidence and explanation from the AO.

Treatment of Competing Arguments: The Tribunal favored the assessee's argument of insufficient evidence over the Revenue's reliance on ITS data.

Conclusions: The additions were deemed contrary to law and were deleted.

3. Ex-Parte Dismissal by CIT (A)

Relevant Legal Framework and Precedents: Natural justice principles require that parties be given a fair opportunity to present their case.

Court's Interpretation and Reasoning: The Tribunal criticized the CIT (A) for dismissing the appeal ex-parte without considering the merits.

Key Evidence and Findings: The CIT (A) dismissed the appeal due to non-attendance, despite the assessee's arguments on jurisdictional grounds.

Application of Law to Facts: The Tribunal emphasized the need for a merits-based decision rather than procedural dismissal.

Treatment of Competing Arguments: The Tribunal sided with the assessee's right to a fair hearing over the procedural dismissal by CIT (A).

Conclusions: The ex-parte dismissal was inappropriate, and the appeal should have been decided on merits.

4. Imposition of Penalty under Section 271(1)(c)

Relevant Legal Framework and Precedents: Penalties require a valid underlying assessment, which was challenged in this case.

Court's Interpretation and Reasoning: The Tribunal found the penalty proceedings infructuous due to the quashing of the reassessment.

Key Evidence and Findings: The penalty was based on the same additions that were found invalid.

Application of Law to Facts: With the reassessment quashed, the penalty had no basis.

Treatment of Competing Arguments: The Tribunal did not need to address the penalty arguments separately due to the primary issue's resolution.

Conclusions: The penalty order was rendered moot and was not upheld.

5. Interest Charged under Sections 234A, B, and C

Relevant Legal Framework and Precedents: Interest under these sections is contingent on valid tax liability.

Court's Interpretation and Reasoning: The Tribunal found the interest charges unsustainable due to the invalid reassessment.

Key Evidence and Findings: The interest was based on the quashed reassessment and additions.

Application of Law to Facts: Without a valid assessment, the interest charges fell away.

Treatment of Competing Arguments: The Tribunal did not need to engage deeply with the interest issue in light of the primary findings.

Conclusions: The interest charges were invalidated along with the reassessment.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Tribunal emphasized that "the exercise appears to have been ritualistic and formal rather than meaningful," highlighting the procedural deficiencies in the approval process.

Core Principles Established: Proper and meaningful approval by competent authorities is crucial for the validity of reassessment proceedings.

Final Determinations on Each Issue: The reassessment proceedings were quashed, the additions and penalties were deleted, and the interest charges were invalidated, resulting in the allowance of both appeals by the assessee.