2025 (1) TMI 503 - AT - Income Tax

Assumption of jurisdiction u/s 147 r.w.s 151 - Validity of approval granted by the Competent Authority u/s 151 for reopening the assessment - additions made towards Long Term Capital gain ( LTCG ) on sale of land on merits - HELD THAT - In the peculiar facts of the instant case, the purported sanction of the Addl.CIT is based on the premise that the assessee has not filed return of income at all and engaged in land deals of substantial amount. Driven by such grossly incorrect factual position, the Addl.CIT has granted sanction resulting in civil consequences to the assessee. This apart, an omnibus approval without any comment on any aspect betrays the application of mind on foundational points recorded in reasons for reopening. The approval granted do not utter a word towards any reasons which induced him to obtain satisfaction on the alleged escapement claimed by the AO. Approval u/s 151 grossly 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 ; Manujendra Shah 2023 (7) TMI 1093 - DELHI HIGH COURT have struck a balance and declined to endorse a rubber stamp approval granted by the Competent Authority under s. 151 of the Act. We see palpable merit in the plea of the assessee that the sanction granted under s. 151 of the Act is extraneous and an empty formality and do not accord with its salutary purpose. Validity of re-assessment order is contingent upon the valid approval under s. 151 of the Act. Where the identity of sanctioning authority itself is under cloud and coupled with this, the requirement of law to grant speaking approval under s. 151 of the Act is not found to be fulfilled, the notice issued under s. 148 as a sequel to such sanction and resultant assessment would also to be vitiated in law. Re-assessment proceedings under s. 147 as a consequence of nonest and invalid approval is without sanction of law and consequently, the re-assessment order in question is bad in law. Hence, the jurisdiction usurped by the AO based on such approval is required to be cancelled and set aside. Appeal of the assessee is allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the assumption of jurisdiction under Section 147 read with Section 151 of the Income Tax Act, 1961, was legally valid.
Whether the approval granted by the Competent Authority under Section 151 for reopening the assessment was valid and in accordance with the law.
Whether the reassessment order issued under Section 147 based on the aforementioned approval was legally sustainable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Jurisdiction Assumed under Section 147

Relevant legal framework and precedents: Section 147 of the Income Tax Act empowers the Assessing Officer (AO) to reassess income if there is a reason to believe that income has escaped assessment. However, this is contingent on obtaining prior approval from a designated Competent Authority under Section 151.
Court's interpretation and reasoning: The court emphasized that the assumption of jurisdiction under Section 147 is contingent upon a valid and reasoned approval under Section 151. The approval must demonstrate application of mind by the Competent Authority.
Key evidence and findings: The court found that the approval memo lacked the identity and designation of the sanctioning authority, and the approval was a mere formality without substantive reasoning.
Application of law to facts: The court applied the legal requirement that the Competent Authority must provide a reasoned approval, which was absent in this case.
Treatment of competing arguments: The Revenue argued that the approval was administrative and presumed valid, while the assessee contended it was mechanical and lacked application of mind. The court sided with the assessee.
Conclusions: The court concluded that the jurisdiction assumed under Section 147 was invalid due to the defective approval process under Section 151.

Issue 2: Validity of Approval under Section 151

Relevant legal framework and precedents: Section 151 requires that the Competent Authority must be satisfied with the reasons recorded by the AO for reopening an assessment. Precedents emphasize the need for a detailed and reasoned approval.
Court's interpretation and reasoning: The court noted that the approval was a generic statement of satisfaction without any substantive reasoning, which does not meet the statutory requirements.
Key evidence and findings: The approval memo simply stated, "Yes, I am satisfied with the reasons recorded by the AO," without any further explanation or identification of the authority.
Application of law to facts: The court applied the principle that a mere rubber-stamp approval does not fulfill the statutory requirement of Section 151.
Treatment of competing arguments: The Revenue's argument that the approval was presumed valid was rejected in favor of the assessee's claim that the approval lacked substantive reasoning.
Conclusions: The court concluded that the approval under Section 151 was invalid due to non-application of mind and lack of identification of the sanctioning authority.

Issue 3: Legality of the Reassessment Order

Relevant legal framework and precedents: A valid reassessment order under Section 147 is contingent upon a valid approval under Section 151.
Court's interpretation and reasoning: The court reasoned that since the approval was invalid, the reassessment order based on such approval was also invalid.
Key evidence and findings: The reassessment order was based on an invalid approval process, rendering it legally unsustainable.
Application of law to facts: The court applied the principle that any action based on an invalid approval is itself invalid.
Treatment of competing arguments: The court did not find merit in the Revenue's defense of the reassessment order due to the foundational invalidity of the approval.
Conclusions: The reassessment order was declared invalid and set aside.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The approval memo without the identity of the authority concerned itself vitiates the approval giving rise to the re-assessment proceedings."
Core principles established: The necessity for a reasoned and identifiable approval under Section 151 as a safeguard against arbitrary exercise of powers under Section 147.
Final determinations on each issue: The court held that the jurisdiction assumed under Section 147 and the reassessment order were invalid due to the defective approval process under Section 151.

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