The satisfaction has to be recorded with objectivity and objective material and not in a mechanical manner- an analysis in view of law laid down by the Supreme Court in case of Goenka Lime and Chemicals Ltd and related Judgments of High Courts, in relation to reassessment.

[CA DEV KUMAR KOTHARI]

Relevant links and references:

COMMISSIONER OF INCOME TAX JABALPUR (M.P.) Versus M/s. S. GOYANKA LIME AND CHEMICAL LTD. 2015 (12) TMI 1334 - SUPREME COURT OF INDIA

CIT, Jabalpur Versus M/s S. Goyanka Lime and Chemicals Ltd. 2015 (5) TMI 217 - MADHYA PRADESH HIGH COURT

Arjun Singh And Another Versus Assistant Director Of Income-Tax (Investigation) And Others 1998 (11) TMI 26 - MADHYA PRADESH HIGH COURT

Cargo Clearing Agency (Gujarat) Vs. Joint Commissioner of Income Tax, 2008 (8) TMI 86 - GUJARAT HIGH COURT,

Lalita Ashwin Jain Vs. Income Tax Officer, 2014 (6) TMI 118 - GUJARAT HIGH COURT;

Commissioner of Income Tax (Central) - I, New Delhi Vs. Vatika Township (P) Limited, 2014 (9) TMI 576 - SUPREME COURT.

 And other judgments referred in the above judgments.

Satisfaction:

Satisfaction is required to be arrived at and recorded in case of official documents wherever law so require. In case of procedures, if an action to be taken by a junior authority can be taken only if his senior authority is satisfied, then the senior authority must apply his own mind and then only record his satisfaction and not simply record satisfaction and give a go ahead clearance.

This is very important and is to provide safeguard against arbitrary or unjust actions of lower authority.

The senior authority who is required to consider and if proper to record his satisfaction, is supposed to consider the material brought on record by lower authority, other relevant material and legal position. Thereafter he has to consider as to whether action proposed to be taken by his junior is really required keeping in mind various factors including necessity, desirability and prudence in such action. Otherwise an action should not be taken, merely because law provide that an action can be taken.

Prior satisfaction in case of certain proceedings:

Before initiating certain proceedings an authority is required to record his satisfaction about desirability of such proceeding. In some cases, satisfaction of another senior authority may also be required. In both situations the concerned authority must consider entire material on record, relevant law, and apply his mind. In case satisfaction is recorded without such exercise, the same will not be valid and entire proceedings may be invalid. 

Reopening of assessment:

The AO reopened assessment with noting that prior approval/ satisfaction of JCIT has been obtained. On appeal CIT(A) quashed the notice under section 148  which was  upheld by ITAT and HC [2015 (5) TMI 217 - MADHYA PRADESH HIGH COURT].

The reason for quashing the notice was that the  action for sanction by JCIT was without application of mind and as this was done in a mechanical manner . The JCIT simply recorded as follows:

                   “Yes, I am satisfied”
We find that there is no reason given by the JCIT while recording satisfaction. The recording is in a mechanical manner and just to give an approval for go ahead. This was not found to meet requirement and purpose  of law for such satisfaction.

Not satisfied with the judgment of High Court, revenue preferred appeal before the Supreme Court with a petition for condonation of delay.

Order of the Supreme Court:

The honourable Supreme Court heard learned Advocates for The Petitioner / CIT.

 (Mr. Y. P. Adhyaru, Sr. Adv. Ms. Purnima Bhat Kak, Adv. Mrs. Anil Katiyar, Adv. Mr. Manish Pushkarna, Adv. Were present).

The honourable Supreme Court condoned delay in filing of appeal by revenue.

Thereafter held as follows:

                   “ The special leave petition is dismissed.”

Therefore, the Supreme Court has dismissed the appeal by way of Special Leave Petition. This amount that the judgment of the High Court stands confirmed.

Learning from the related judgments for tax authorities and tax practioners:

Any authority who is required to record reasons and satisfaction for any proposed action and any authority who is to record satisfaction on recording or proposal of his junior for any action, must be very careful and record not only reasons, but also related facts which leads to his satisfaction that a particular action is desirable. If such procedural aspects are not complied with in a reasonable and speaking manner, the same may vitiate entire proceeding.

For assesses and tax practioners learning is that    look into the relevant records, obtain copy of them and find out whether procedural requirements are complied with by authorities in a manner desired under law. If not, there can be a case for challenging the action on such grounds.

Some recent development:

We find that Income-tax Department is initiating reassessment proceedings on very petty issues and amounts. The communication / notice also states that necessary satisfaction of JCIT has been obtained. However, JCIT had not given any opportunity to assessee and copy of his order recording satisfaction is also not provided by the AO. In such cases assessee must insist that  copy of recorded reasons, and recorded satisfaction  must be provided.

For example an AO has issued notice u/s 148 for reassessment on the ground that interest on TDS ₹ 2356/- debited in P & L account, has been claimed and allowed and it constitutes escapement of income.

Besides, this The AO has given another reason that Gross Profit ratio is lower.

Both the issues are supported with material already on record and there is no new tangible material available to the AO for acquiring jurisdiction u/s 148 to make a reassessment of income. However, JCIT is also according and / or recording satisfaction on such issues and un-necessary proceedings are being initiated.

Rule of satisfaction based on objectivity apply to other proceedings also:

The rule that satisfaction should be recorded objectively and based on objective and relevant material is applicable in relation to other proceedings also where authority is required to record a satisfaction.