2017 (1) TMI 1036 - HC - Income Tax

Approval granted to reopen the assessment under Section 147/148 - Held that - Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression approved says nothing. It is not as if the CIT (A) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed. - Decided in favour of the assessee.

Summary

Issues:
1. Proper application of mind by the competent authority under Section 151 of the Income Tax Act for issuing notice under Section 147.
2. Justification of deletion of sums brought to tax by the Assessing Officer under Section 68.

Analysis:

*Issue 1: Proper application of mind by the competent authority under Section 151 of the Income Tax Act for issuing notice under Section 147*

The case involved a reassessment notice issued to the assessee for the Assessment Year 2001-02. The original assessment was completed under Section 143(3) of the Income Tax Act. The Commissioner of Income Tax (Appeals) held against the assessee regarding the legality of the reassessment notice but allowed the appeal on merits. The Income Tax Appellate Tribunal (ITAT) also sided with the assessee on merits. The Revenue appealed against the appellate order on merits, while the assessee cross-appealed on the correctness of reopening the assessment. The ITAT upheld the assessee's cross-objections and dismissed the Revenue's appeal, emphasizing the lack of proper application of mind by the sanctioning authority under Section 151 as a pre-condition for issuing notice under Sections 147/148. The Court agreed with the ITAT's findings, stating that the CIT had not satisfactorily applied its mind, and the approval process appeared to be ritualistic and formal rather than meaningful. Therefore, the Court concluded that the findings by the ITAT were justified and could not be disturbed.

*Issue 2: Justification of deletion of sums brought to tax by the Assessing Officer under Section 68*

The Assessing Officer added back a sum of ?1,35,00,000 to the assessee's income, alleging that the share application amounts and loan advances were from bogus entities. However, the CIT (A) and ITAT found that the AO did not conduct a proper inquiry to establish the illegitimacy of these transactions. The Revenue contended that the CIT (A) and ITAT erred in their findings. They argued that the share investors/creditors were missing or untraceable, and the assessee failed to substantiate the transactions' genuineness. The assessee, on the other hand, provided detailed documentation, including bank statements, PAN, ITRs, and company details, to support the legitimacy of the transactions. The Court noted that the AO's inquiry was perfunctory, and the absence of parties after several years did not automatically render the transactions non-genuine. The Court emphasized that the burden of proof had not shifted back to the assessee, as they had demonstrated the identities of the investors/creditors and their creditworthiness. The Court agreed with the concurrent findings of the CIT (A) and ITAT, stating that the assessee had provided sufficient information to support the genuineness of the transactions.

In conclusion, the Court ruled in favor of the assessee on both issues, dismissing the Revenue's appeal and upholding the deletion of sums brought to tax by the Assessing Officer under Section 68.