2024 (10) TMI 311 - HC - Income Tax

Validity of reopening assessment u/s 147 - legality of sanction granted u/s 151 - HELD THAT - The satisfaction arrived at by the concerned Officer should be discernible from the sanction order passed u/s 151. However, as may be seen, the approval order is bereft of any reason. There is no whisper of any material that may have weighed for the grant of approval. Even the bare minimum requirement of the approving authority having to indicate what the thought process was, is missing in the aforementioned approval order. While elaborate reasons may not have been given, at least there has to be some indication that the approving authority has examined the material prior to granting approval. Mere appending the expression Yes I am satisfied says nothing. The entire exercise appears to have been ritualistic and formal rather than meaningful, which should be the rationale for the safeguard of an approval by a high ranking official. 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. In the present case, there is no such material to come to the conclusion that PCIT granted approval after considering the reasons assigned by the Assessing Officer. The decision rendered in Meenakshi Overseas Pvt. Ltd. 2015 (12) TMI 1905 - DELHI HIGH COURT is therefore not applicable to the facts and circumstances of the present case. Mere repeating of the words of the statute, mere rubber stamping of the letter seeking sanction or using similar words like Yes, I am satisfied will not satisfy the requirement of law. Hence, we are of the firm view that PCIT has failed to satisfactorily record his concurrence. The mere use of expression Yes, I am satisfied cannot be considered to be a valid approval as the same does not reflect an independent application of mind. The grant of approval in such manner is thus flawed in law. Approval granted by the PCIT for issuance of notice u/s 148 of the Act is not valid. Assessee appeal allowed.

Summary

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

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148:
The core issue in the writ petition was the challenge against the notice dated 24.03.2017 issued under Section 148 of the Income Tax Act for the Assessment Year 2010-11. The petitioner contended that the notice was issued without proper justification as there was no specific allegation or independent conclusion by the Assessing Officer (AO) that income had escaped assessment. The notice was based on information from the Investigation Wing regarding money laundering operations by Jain Brothers, where the petitioner was allegedly a beneficiary of accommodation entries. The petitioner argued that the notice was issued without due application of mind and was merely a mechanical endorsement by the Principal Commissioner of Income Tax (PCIT).

2. Adequacy of the Sanction Granted Under Section 151:
The petitioner's principal challenge was against the sanction granted under Section 151 of the Act, which they claimed was given without proper application of mind. The petitioner argued that the PCIT merely endorsed the AO's request with the phrase "I am satisfied" without independently verifying the material facts or reasons for reopening the assessment. The court examined whether the approval process adhered to the statutory requirements, emphasizing that Section 151 mandates a supervisory check over the AO's decision to reopen assessments. The court noted that the approval order lacked any discernible reasoning or material that justified the sanction, rendering it a mere formality rather than a meaningful exercise.

The court referenced several precedents, including the cases of SBC Minerals Pvt. Ltd. and Yum! Restaurants Asia Pte. Ltd., to underscore that the competent authority must apply its mind independently and that the satisfaction of the prescribed authority is a sine qua non for valid approval. The judgment highlighted that the mere use of the phrase "Yes, I am satisfied" without an indication of the approving authority's thought process or examination of the material does not fulfill the legal requirement of a valid sanction under Section 151.

The court further cited the decision in Chhugamal Rajpal, where the Supreme Court held that mechanical approval without recording satisfaction is insufficient. The judgment reiterated that reasons are the link between the material placed on record and the conclusion reached by the authority, and the absence of such reasoning renders the approval flawed.

Conclusion:
The court concluded that the approval granted by the PCIT was invalid due to the lack of independent application of mind and inadequate recording of satisfaction. Consequently, the notice issued under Section 148 was set aside, and the writ petition was disposed of in favor of the petitioner. The judgment emphasized the necessity for a meaningful and reasoned approval process to uphold the statutory safeguards in reopening assessments.