2024 (10) TMI 538 - AT - Income Tax

Validity of reassessment proceedings - approval based on Non-existent provision approval by the sanctioning authority which reads as yes, it is a fit case for issue of notice u/s 148 - whether the AO had independently applied its mind to the information received or conducted some enquiry into the matter for the purpose of coming to conclusion that income assessable to tax had escaped assessment? - HELD THAT - The approval has been proposed by the AO with reference to Section 147(b) of the Act which provision is non-existent for the purposes of proceedings u/s 147 - Addl. CIT further granted approval ignoring this vital aspect as well. At this juncture, a reference may be made to the judgment delivered in the case of Kalpana Shantilal Haria 2018 (1) TMI 195 - BOMBAY HIGH COURT wherein it was held that approval of action with reference to Section 147(b) of the Act is marred by non-application of mind. The Co-ordinate Bench in the case of Bhaijee Commodities (P.) Ltd. 2023 (8) TMI 1505 - ITAT DELHI has observed that approval based on Non-existent provision of Section 147(b) of the Act is not sustainable in law. Besides, no minimal reasons were given regarding his satisfaction for such approval. The approval given is clearly mechanical, perfunctory and routine. Thus, neither the reasons recorded under Section 148 of the Act justify the allegation towards escapement of income nor the approval given by the ACIT stands the test of judicial scrutiny. The transaction of land parcel is also found to be between Mr. Khayali Ram and Rajeev and not assessee. Thus, looking from any angle, the jurisdiction assumed u/s 147 of the Act is not sustainable in law. It is evident that reasons recorded for exercising the jurisdiction is plagued with several defects of critical nature. Such defects are incurable u/s 292B of the Act. On the face of such lack of jurisdiction u/s 147 of the Act, the reassessment proceedings itself is bad in law. Assessee appeal allowed.

Summary

Issues:
Challenge to jurisdiction under Section 147 of the Income Tax Act for Assessment Year 2007-08.

Detailed Analysis:

1. Challenge to Jurisdiction under Section 147:
- The assessee contested the jurisdiction assumed under Section 147 of the Act, alleging non-fulfillment of prerequisites under Section 147 and Section 151. The grounds of appeal highlighted errors in the notice issued by the AO, including incorrect addressee details and reference to an extinct provision of Section 147(b) for approval.
- The learned Counsel argued that the reasons recorded for reassessment lacked merit as the alleged escapement was based on accounted income/cash, contradicting the claim of income escapement. The approval granted by the Addl. CIT under Section 151 was criticized for not reflecting proper application of mind.
- The AO's actions were deemed to be outside the jurisdiction under Section 147, and the assessment proceedings were challenged as legally unsustainable. The Counsel urged for quashing the reassessment order based on lack of jurisdiction and unjustified additions on merits.

2. Judicial Scrutiny of Reasons Recorded:
- The Tribunal analyzed the reasons recorded under Section 148(2) and found critical defects in the jurisdiction assumed by the AO. The discrepancy in the land parcel transaction details, reference to a non-existent provision of Section 147(b) for approval, and mechanical approval process were highlighted as significant flaws.
- Citing previous judicial precedents, the Tribunal emphasized that the reasons recorded did not justify the allegation of income escapement, and the approval granted by the Addl. CIT lacked proper scrutiny. The lack of minimal reasons for satisfaction and mechanical nature of the approval were key factors in deeming the jurisdiction under Section 147 as unsustainable.

3. Quashing of Reassessment Order:
- Due to the critical defects in the jurisdiction assumed under Section 147, the Tribunal concluded that the reassessment proceedings were legally flawed. The reassessment order dated 27.03.2015 was deemed as bad in law and subsequently quashed.
- As a result, the Tribunal did not delve into the merits of the additions challenged by the assessee, as the lack of jurisdiction itself invalidated the reassessment proceedings. The appeal in ITA No.2352/Del/2024 was allowed, leading to the quashing of the impugned assessment order.

4. Penalty Imposition and Vacating Penalty Order:
- The appeal in ITA No.2353/Del/2024 pertained to the penalty imposed under Section 271(1)(c) based on the now-quashed reassessment order. With the reassessment order invalidated, the foundation for imposing the penalty under Section 271(1)(c) crumbled.
- Consequently, the penalty imposed from the non-existent reassessment order was automatically vacated, leading to the allowance of the appeal in ITA No.2353/Del/2024 as well.

5. Overall Outcome:
- Both appeals of the assessee were allowed, with the reassessment order quashed due to lack of jurisdiction under Section 147, and the penalty order under Section 271(1)(c) being vacated. The Tribunal pronounced the order on 09/10/2024, providing relief to the assessee on both issues.