2025 (4) TMI 1446 - AT - Income Tax

Reopening of assessment u/s 147 - validity of consolidation approval by JCIT for various years and cases - Addition u/s 68 - HELD THAT - It is evident that the approval is in respect of 111 cases of reassessment. It is a general order of approval for all the cases. The ACIT in its approval has failed to mention the assessment year wise income returned and assessed by the AO. It is established from the record that the approval was granted mechanical manner without applying the mind and verifying the record. The requirement of approval cannot be treated as mere formality and the mandate of the Act that the Approving authority has to act in a judicious manner by due application of mind in a manner of a quasi- judicial authority. Thus we hold that the approval granted by the Joint Commissioner of Income Central Range 61 New Delhi is not valid. Accordingly we quashed the assessment order. Assessee appeal allowed.

Summary

The core legal questions considered in this appeal primarily revolve around the validity and legality of the reassessment proceedings initiated under Sections 147, 148, and 144B of the Income Tax Act, 1961 (hereinafter "the Act") for the Assessment Year (AY) 2016-17. The key issues include whether the notice issued under Section 148 and the subsequent assessment order are barred by limitation or jurisdictionally defective; whether the reasons recorded for reopening the assessment satisfy the statutory and judicial requirements; the validity of the sanction accorded under Section 151 of the Act; adherence to procedural safeguards and binding CBDT instructions; compliance with principles laid down by the Supreme Court; and whether the additions made under Section 68 of the Act are justified on facts and in law.

Issue-wise detailed analysis is as follows:

Validity of Notice under Section 148 and Assessment Order under Section 147 r.w.s. 144B of the Act

The appellant challenged the notice under Section 148 dated 30.03.2021 and the assessment order dated 30.03.2022 on grounds of illegality, lack of jurisdiction, and limitation. The appellant contended that no valid reasons existed to believe that income had escaped assessment, and the reasons recorded were based on borrowed satisfaction without independent application of mind. The appellant also alleged that the sanction under Section 151 was mechanical and without application of mind, violating CBDT Circular No. 19 of 2019 and Instruction No. 225/40/2021/ITA-11 dated 12.03.2021, thereby rendering the proceedings void.

The legal framework mandates that before issuance of a notice under Section 148, the Assessing Officer (AO) must record reasons to believe that income has escaped assessment, and the sanctioning authority must apply independent mind while granting approval under Section 151. The Supreme Court has held that the satisfaction recorded must be based on relevant material and cannot be a mere formality or rubber stamp (referencing judgments including Vinod Kumar Solanki, Pioneer Town Planners Pvt. Ltd., and Chhugamal Rajpal).

The Court examined the sanction letter dated 28.03.2021, which was a common approval for 111 cases, including the appellant's, granted by the Joint Commissioner of Income Tax (ACIT) without specifying assessment year-wise details or reasons. The approval was given the day after the AO's request and was a generalized order lacking any independent application of mind or reference to material facts. The Court found this to be a mechanical and ritualistic endorsement, failing the statutory requirement under Section 151.

Judicial precedents were extensively relied upon, including the High Court's ruling in Vinod Kumar Solanki, which emphasized that mere stamping of "Yes" or similar brief endorsements without recorded reasons does not constitute valid approval. The Court also cited the decision in Central India Electric Supply Co. Ltd., which condemned rubber-stamping as insufficient for lawful sanction. The Supreme Court's ruling in Chhugamal Rajpal was highlighted, wherein the absence of recorded satisfaction and reasons rendered the sanction invalid.

Applying these principles, the Court concluded that the approval sanctioning the reassessment was invalid and hence the notice under Section 148 and the consequent reassessment proceedings were without jurisdiction and liable to be quashed.

Adherence to Procedural Safeguards and Natural Justice

The appellant contended that the AO failed to provide copies of the reasons to believe and underlying material, denied opportunity to file objections, and precluded cross-examination of key witnesses, thereby violating principles of natural justice. The appellant argued that the order disposing of objections was perfunctory and illegal.

While these contentions were raised, the Court did not delve into detailed adjudication on these grounds because the primary issue of invalid sanction under Section 151 was dispositive. Once the reassessment proceedings were quashed on this ground, the other procedural and natural justice arguments became academic and were not adjudicated.

Application of Section 68 of the Act and Additions Made

The appellant challenged the addition of Rs. 1,78,49,356/- under Section 68 as unexplained income, asserting that the amount represented a genuine loan from BKR Capital Pvt. Ltd. and the interest paid was separately accounted for. The appellant argued that the AO and NFAC erred in invoking Section 68 incorrectly.

The Court noted that since the reassessment order itself was quashed on the ground of invalid sanction, the correctness of additions under Section 68 did not require adjudication. The issue was rendered academic.

Competing Arguments and Court's Reasoning

The Revenue defended the reassessment proceedings and approval under Section 151 as valid, relying on the orders of lower authorities. The appellant's counsel emphasized the binding precedents holding that mechanical or blanket approvals without application of mind are invalid. The Court found the appellant's submissions cogent and supported by authoritative judgments, while the Revenue's reliance on the impugned approval was insufficient to cure its defects.

Conclusions

The Court held that the approval granted by the Joint Commissioner under Section 151 of the Act on 28.03.2021 was invalid as it was a mechanical, generalized order without application of mind or reference to relevant material. This failure rendered the notice under Section 148 and all proceedings emanating therefrom without jurisdiction and liable to be quashed. The Court declined to adjudicate other grounds as they became academic following the quashing of the reassessment. The appeal was allowed accordingly.

Significant Holdings

The Court preserved verbatim the crucial legal reasoning from binding precedents, including the following excerpt from the High Court in Vinod Kumar Solanki:

"It is evident that the approval dated 28.03.2021 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."

Further, the Court reiterated the principle that "Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached."

The Court emphasized that mere rubber stamping or mechanical endorsement such as a "Yes" without recorded satisfaction is legally insufficient.

Final determination on the pivotal issue was that the sanction under Section 151 was invalid, thereby vitiating the notice under Section 148 and the reassessment order under Section 147 r.w.s. 144B. Consequently, the assessment order was quashed, and the appeal was allowed.