2024 (6) TMI 657 - AT - Income Tax

Reopening of assessment u/s 147 - legitimacy of approval granted by Pr.CIT u/s 151 - HELD THAT - Prior approval of the Pr.CIT u/s 151 of the Act in the instant case has set the proceedings u/s 147 of the Act into motion. As the law envisage the permission of superior authority as statutorily designated is a sine qua non to prior to initiation of action u/s 147/148 - CIT in the instant case was the competent authority statutorily designated for this purpose. It was thus on the basis of satisfaction and approval of the CIT that the re-assessment was initiated and completed. The legitimacy of satisfaction of the PCIT for the purposes of sanction u/s 151 has however been called into question in the instant case. As pointed out on behalf of the assessee CIT has simply recorded action u/s.148 approved towards sanction of reassessment proceedings. Ostensibly the sanction granted is muted and non-descript. Section 151 of the Act operates as one of the potent safeguards against the arbitrary and disproportionate exercise of powers u/s 147 by the AO. It ensures that powers under s. 147 are not exercised by the AO unless the designated superior officer is satisfied that the condition precedent for exercise of powers as provided under erstwhile Section 147 of the Act is fulfilled. As a corollary to meet this avowed objective enshrined in enactment of s. 151 of the Act it is incumbent upon the superior authority to apply its mind innately to the basis derived by AO for alleged escapement while granting sanction to the proposal for reopening. The sanctioning authority while exercising power under Section 151 of the Act is thus expected to examine the reasons material or grounds and to judge whether they are relevant to formation of necessary belief on the part of the AO and thereafter to record necessary satisfaction which should not be mechanical but as a result of application for the issuance of notice under Section 148 of the Act by the AO as held in Chhugamal Rajpal Vs. S.P. Chaliha 2015 (12) TMI 1334 - SC ORDER The requirement of sanction u/s 151 is salutary as it ensures that reopening notices are not lightly issued and to shun any misconception or misunderstanding on the part of the AO resulting in harassment to a tax payer. Thus such sanction must reflect application of mind in earnest to the reasons so recorded and consequent decision making thereon. In the peculiar facts of the instant case few inseparable points do occur from the reasons recorded for consideration of the sanctioning authority. In the instant case the assessee has admittedly produced the cash book before the AO prior to initiation of action under Section 147 of the Act in which the cash transactions alleged to be escaped income were duly found recorded in the books. CIT was thus expected to deal on this crucial aspect while endorsing allegation of escapement. Secondly the AO claims that assessee has not disclosed the transactions in the return of income. The Pr.CIT should have examined the plausibility of such allegation having regard the Statutory Form (ITR) designed for filing ROI. The omnibus approval without any comment granted betrays the application of mind on such foundational points. The approval granted do not utter a word towards any reasons which induced him to do so. Under the circumstances we are compelled to think that the approval u/s 151 suffers from the vice of non application of mind. The Hon ble Delhi High Court in the case of N.C. Cables 2017 (1) TMI 1036 - DELHI HIGH COURT Pioneer Town Planners 2024 (3) TMI 828 - DELHI HIGH COURT and Manujendra Shah 2023 (7) TMI 1093 - DELHI HIGH COURT have struck a balance and declined to endorse the rubber stamped approval granted by the Pr.CIT u/s 151 of the Act. We see palpable merit in the plea of the assessee that the sanction granted u/s 151 of the Act is extraneous and an empty formality and do not accord with its purpose. The validity of the reassessment order is contingent upon a valid approval u/s 151. Where the requirement to grant approval u/s 151 of the Act is not fulfilled the notice issued u/s 148 as a sequel to such sanction and resultant reassessment flowing therefrom would also be vitiated in law. Re-assessment proceedings under Section 147 as a consequence of such invalid approval is without sanction of law and consequently the re-assessment order in question is bad in law. Assessee appeal allowed.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 147 of the Income Tax Act.
2. Legality of approval under Section 151 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 147 of the Income Tax Act:
- The assessee challenged the assumption of jurisdiction under Section 147, arguing that the Assessing Officer (AO) did not meet the pre-requisites of Section 147, rendering the proceedings initiated under this section as without jurisdiction and a nullity.
- The AO had issued a notice under Section 148 based on alleged escapement of income, with approval from the Principal Commissioner of Income Tax (Pr.CIT) under Section 151.
- The AO's reasons for reopening the assessment involved alleged cash transactions in land deals, which were already recorded in the assessee's cash book.

2. Legality of Approval under Section 151 of the Income Tax Act:
- The assessee contended that the approval granted by the Pr.CIT was mechanical and lacked application of mind, as evidenced by the generic and perfunctory endorsement "action u/s. 148 approved."
- The Pr.CIT's approval was criticized for not addressing crucial aspects such as the presence of cash transactions in the books and the requirement to report such transactions in the Income Tax Return (ITR).
- The Tribunal noted that the Pr.CIT's approval did not reflect any examination of the AO's reasons or material, thus failing to meet the statutory safeguard against arbitrary exercise of powers under Section 147.
- The Tribunal emphasized that the sanctioning authority must apply its mind to the reasons for reopening and ensure that the proposed action is justified, which was not evident in this case.

Conclusion:
- The Tribunal found merit in the assessee's plea that the approval under Section 151 was extraneous and an empty formality, failing to accord with its purpose.
- The reassessment proceedings under Section 147, based on such invalid approval, were held to be without sanction of law and consequently, the reassessment order was declared bad in law.
- The Tribunal set aside the jurisdiction assumed by the AO and cancelled the reassessment order.
- As a result, the other grounds of the Cross Objection were rendered infructuous, and the Revenue's appeal arising from a non-est reassessment order was dismissed.
- The Cross Objection of the assessee was allowed.

Order Pronounced:
- The appeal of the Revenue is dismissed.
- The Cross Objection of the assessee is allowed.
- Order pronounced in the open Court on 13/06/2024.