2014 (1) TMI 1280 - AT - Income Tax

Validity of reopening of assessment u/s 147 of the Act Held that - Sections 147 and 148 are charter to the Revenue to reopen earlier assessments and also protected by safeguards against unnecessary harassment of the assessee - They are sword for the Revenue and shield for the assessee - Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147 - The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer - the Commissioner has simply put approved and signed the report thereby giving sanction to the AO - Nowhere the Commissioner has recorded a satisfaction note not even in brief - it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction - Relying upon United Electrical Co. (P.) Ltd. v. CIT 2002 (10) TMI 86 - DELHI High Court - the reopening proceedings vis- -vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab initio Decided in favour of Assessee.

Summary

Issues involved:
Validity of reopening of assessment u/s. 147 of the Income Tax Act for A.Y. 1995-96.

Detailed Analysis:

Issue 1: Validity of Reopening of Assessment
- The assessee challenged the validity of the reopening of the assessment under section 147 of the Income Tax Act, claiming it was without jurisdiction and void ab initio.
- The return of income was filed by the assessee, and the assessment was completed under section 143(3) of the Act. Subsequently, the assessment was reopened to examine issues related to loans, expenses, and bills.
- The assessee argued that the reopening was in contravention of the provisions of Section 151 of the Act, which mandates prior sanction from the appropriate Commissioner for reopening assessments after four years.
- The Commissioner's sanction is crucial, requiring application of mind and due diligence before granting approval. However, in this case, the Commissioner merely affixed "approved" without recording satisfaction, as evidenced by the order sheet.
- The Tribunal emphasized that Sections 147 and 148 serve as a sword for the Revenue and a shield for the assessee, with Section 151 acting as a safeguard against unnecessary harassment. The Commissioner's satisfaction is pivotal before issuing a notice under Section 148.
- Citing the decision of the Hon'ble Delhi High Court, it was highlighted that the Commissioner's approval must not be granted mechanically. In this case, the Commissioner's approval lacked proper application of mind, rendering the reopening proceedings invalid.
- Consequently, the Tribunal held that the reopening proceedings were bad in law, declaring the assessment as void ab initio. The assessee's appeal was allowed, and the Revenue's cross-appeal was dismissed.

Conclusion:
The Tribunal found the reopening of the assessment to be invalid due to the lack of proper sanction from the Commissioner as required under Section 151 of the Income Tax Act. As a result, the assessment for the relevant year was declared void ab initio, leading to the allowance of the assessee's appeal and the dismissal of the Revenue's cross-appeal.