2024 (8) TMI 885 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - no valid sanction in terms of Section 151 provided - HELD THAT - Grant of approval/sanction is neither an empty formality nor a mechanical exercise. The Competent Authority must apply its mind independently on the basis of material placed before it before grant of approval/ sanction. It is evident that the approval is in respect of 111 cases of reassessment. It is a general order of approval for all the 111 cases. There is not even a whisper as to what material had weighed in the grant of approval in the present case. While the PCIT is not required to record elaborate reasons, he has to record satisfaction after application of mind. The approval is a safeguard and has to be meaningful and not merely ritualistic or formal. The sanction order does not refer to the material of any of the 111 cases. The grant of approval in such a manner does not fulfil the requirement of section 151 of the Act. Thus, we are of the firm opinion that the PCIT has failed to satisfactorily record its concurrence and by no stretch of imagination, the approval granted by common order, could be considered to be a valid approval. Hence we are of the view that the approval granted by PCIT for action under Section 147/148 of the Act is not valid. Consequently, the impugned notice issued u/s 148 and the proceedings emanating therefrom are set aside and quashed. Decided in favour of assessee.

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Validity of the approval granted under Section 151 of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:

The petitioner filed a writ petition challenging the notice dated 30.03.2021 issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year (AY) 2015-16. The petitioner argued that the notice was issued without valid reasons to believe and based on incorrect facts. It was contended that the reasons recorded for issuing the notice were flawed as the petitioner had obtained a loan of Rs. 45 lakhs from BKR Capitals Pvt. Ltd. in AY 2014-15, which was repaid in AY 2015-16 along with interest, and TDS was deducted. The petitioner also argued that the notice lacked valid sanction as required under Section 151 of the Act.

2. Validity of the Approval Granted Under Section 151 of the Income Tax Act, 1961:

The principal argument focused on the validity of the approval accorded under Section 151 of the Act. The petitioner contended that the approval was granted mechanically without considering the facts of the case and the material on record. It was highlighted that the Principal Commissioner of Income Tax (PCIT) had granted approval in 111 cases simultaneously, indicating a lack of independent application of mind.

The respondents defended the approval, arguing that the proforma for seeking approval, along with the reasons for reopening the assessment, was placed before the PCIT, who, after considering the entire record, granted the approval. The respondents maintained that the prescribed authority found the case fit for action based on a prima facie finding.

Legal Framework and Analysis:

Section 151 of the Act mandates that the prescribed authority must be "satisfied" on the reasons recorded by the Assessing Officer (AO) that it is a fit case for issuing such notice. The satisfaction of the prescribed authority is a sine qua non for a valid approval. It is established law that the grant of approval/sanction is neither an empty formality nor a mechanical exercise. The competent authority must apply its mind independently based on the material placed before it before granting approval/sanction.

The court examined the record and found that the proforma for seeking approval was placed before the PCIT along with a note of reasons for reopening the assessment. The PCIT's order stated, "On careful perusal of information received, relevant details/evidences submitted and reasons recorded by the Assessing Officer, the cases from SL. No. 1 to 111 as listed in the annexures enclosed appear prima facie to be fit cases for action u/s 147/148 of the I.T. Act, 1961."

The court observed that the approval dated 28.03.2021 was a general order for 111 cases of reassessment, lacking specific reference to the material of any of the 111 cases. The court noted that while the PCIT is not required to record elaborate reasons, he must record satisfaction after applying his mind. The approval must be meaningful and not merely ritualistic or formal. The court found that the approval granted in such a manner did not fulfill the requirement of Section 151 of the Act.

The court referred to the case of "The Principal Commissioner of Income Tax-7 vs. Pioneer Town Planners Pvt. Ltd.," where it was held that merely penning down "Yes" does not suffice requisite satisfaction as per Section 151 of the Act. The court emphasized that the satisfaction arrived at by the prescribed authority must be clearly discernible and cannot be granted in a mechanical manner.

The court concluded that the PCIT failed to satisfactorily record its concurrence, and the approval granted by a common order could not be considered valid. Consequently, the impugned notice issued under Section 148 of the Act for AY 2015-16 and the proceedings emanating therefrom were set aside and quashed.

Conclusion:

The court held that the approval granted by the PCIT for action under Section 147/148 of the Act was not valid. As a result, the impugned notice issued under Section 148 of the Act for AY 2015-16 and the proceedings emanating therefrom were set aside and quashed. The writ petition along with pending applications was disposed of accordingly.

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