2024 (8) TMI 1125 - HC - Income Tax

Validity of reopening of assessment - invalid Approval u/s 151 to the re-opening u/s 148 - HELD THAT - As evident that the approval order is bereft of any reasons. It does not even refer to any material that may have weighed in the grant of approval. The mere appending of the word approved by the PCCIT while granting approval u/s 151 to the re-opening u/s 148 is not enough. While the PCCIT 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 reasons are the link between material placed on record and the conclusion reached by the authority in respect of an issue, since they help in discerning the manner in which the conclusion is reached by the concerned authority. Our opinion in this regard is fortified by the decision of the Apex Court in Union of India vs. M.L. Capoor 1973 (9) TMI 99 - SUPREME COURT The grant of approval by PCCIT in the printed format without any line of reason does not fulfil the requirement of Section 151 of the Act. PCCIT has failed to satisfactorily record its concurrence. By no stretch of imagination, the mere use of expression approval could be considered to be a valid approval as the same does not reflect any independent application of mind.

Issues Involved:
1. Validity of the Show Cause Notice (SCN) issued under Section 148A(b).
2. Validity of the order passed under Section 148A(d) and the notice under Section 148.
3. Validity of the sanction granted under Section 151.

Detailed Analysis:

1. Validity of the Show Cause Notice (SCN) issued under Section 148A(b):
The petitioner challenged the SCN issued under Section 148A(b) on 22.02.2023, arguing that it was "totally perverse and issued without application of mind, based on borrowed satisfaction and without considering previous scrutiny assessment under Section 143(3)." The petitioner contended that the SCN was issued in violation of Section 149(1)(b) of the Income Tax Act, 1961, and without quantifying the income escaping assessment or any independent application of mind.

2. Validity of the order passed under Section 148A(d) and the notice under Section 148:
The petitioner also challenged the order passed under Section 148A(d) and the notice under Section 148, both dated 20.03.2023, arguing that they were issued in total non-consideration of vital material on record, including a detailed inquiry under Section 142 during the previous scrutiny assessment under Section 143(3). The petitioner claimed that these actions were in violation of Section 149(1)(b) of the Act and were based on an invalid sanction under Section 151. The petitioner further argued that the impugned order and notice were ultra vires to Section 151A and relevant CBDT notifications and were issued arbitrarily and perfunctorily in violation of Article 14 of the Constitution of India.

3. Validity of the sanction granted under Section 151:
During the arguments, the petitioner restricted the challenge to the grant of sanction under Section 151, stating that it was granted mechanically and without due application of mind. The petitioner argued that the sanction was liable to be declared null and void, and consequently, the order passed under Section 148A(d) and the notice under Section 148 were also liable to be quashed.

The respondent defended the order granting approval, submitting that the approval was based on the material placed before the Principal Chief Commissioner of Income Tax (PCCIT). The respondent argued that the order granting approval need not mention the reasons as it was based on a prima facie finding from the record.

Legal Framework and Analysis:

Examination of Section 151:
Section 151 of the Income Tax Act, as it stood prior to the substitution by Act 13 of 2001, requires the prescribed authority to be "satisfied" on the reasons recorded by the Assessing Officer (AO) that it is a fit case for the issuance of such notice. The satisfaction of the prescribed authority is a sine qua non for a valid approval.

Judicial Precedents:
The court referred to several judicial precedents, including Union of India vs. M.L. Capoor [AIR 1974 SC 87], which emphasized that the grant of approval 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 sanction.

Analysis of the Approval Process:
The record revealed that the request for approval under Section 151 was placed before the PCCIT on 20.03.2023 in a printed format, and the PCCIT granted the approval the same day with the remark "Approved u/s 148A (d) a fit case." The court found that the approval order was bereft of any reasons and did not refer to any material that may have weighed in the grant of approval. The mere appending of the word "approved" was deemed insufficient as it did not reflect any independent application of mind.

Previous Case Law:
The court cited its previous decision in The Principal Commissioner of Income Tax-7 vs. Pioneer Town Planners Pvt. Ltd. (2024) SCC OnLine Del 1685, where it held that the satisfaction arrived at by the prescribed authority under Section 151 must be clearly discernible from the expression used at the time of affixing its signature while according approval for reassessment under Section 148. The court reiterated that merely penning down "Yes" or "Approved" would not suffice as it fails to set out any degree of satisfaction.

Conclusion:
The court concluded that the PCCIT failed to satisfactorily record its concurrence, and the mere use of the expression "approval" could not be considered a valid approval as it did not reflect any independent application of mind. Consequently, the approval granted by the PCCIT for the issuance of the order under Section 148A(d) was deemed invalid. As a result, the order passed under Section 148A(d) and the notice under Section 148 were set aside and quashed.

Final Order:
The writ petition was disposed of in terms of the aforesaid order.

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