2019 (3) TMI 394 - HC - Income Tax

Reopening of assessment - Application of mind while granting sanction u/s 151 - sanction granted by the Commissioner of Income Tax on a complete misreading of the reasons - HELD THAT - The reasons for sanction is different from the reasons recorded and thus appears to be without application of mind to the reasons recorded. We note that the para 3(ii) of reasons recorded in support of the impugned notice records the activity of one Himanshu Verma group in providing accommodation entries while the order granting sanction proceeds on the basis that it is the respondent assessee who is engaged in providing accommodation entries. Order granting the sanction records that the funds of public limited company are being siphoned of to the private limited companies. This is not evident at all from the reasons recorded which makes references only to Private Limited companies being used as vehicles for providing accounting entries by the Himanshu Verma group. Thus, on the face of it, the sanction granted is bad in law. Grant of the sanction by the CIT under Section 151 of the Act, is not a mechanical act on his part but it requires due application of mind to the reasons recorded before granting the sanction. This has been so provided as to safeguard against issue of reopening notice (which seek to disturb the settled position) to ensure that assessee is not troubled with reopening issues without satisfactory reasons. Therefore, it must pass muster of the Superior Officer in the context of Sections 147 and 148 of the Act, before it is issued to the party. - Decided in favour of assessee.

Summary

Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961 for reopening assessment for Assessment Year 2011-12.

Analysis:
1. The petitioner challenged a notice issued by the Assessing Officer seeking to reopen the assessment for the year 2011-12 under Section 148 of the Income Tax Act, 1961. The regular assessment for the said year was completed earlier. The reasons for reopening were based on information received regarding accommodation entries provided by Himanshu Verma Group, alleging non-disclosure of material facts by the assessee. The Assessing Officer believed that income amounting to ?5,42,00,000 had escaped assessment due to the alleged non-disclosure.

2. The petitioner objected to the reasons for reopening, contending that the sanction granted by the Commissioner of Income Tax was based on a misreading of the reasons recorded by the Assessing Officer. The court observed discrepancies between the recorded reasons and the sanction granted. The recorded reasons implicated Himanshu Verma Group in providing accommodation entries, while the sanction implied the petitioner's involvement in such activities. Additionally, the sanction mentioned siphoning off funds from a public limited company to private limited companies, which was not supported by the recorded reasons. The court emphasized that the sanction must reflect a proper application of mind to the reasons recorded to prevent arbitrary reopening of assessments.

3. The court held that the sanction order displayed a lack of application of mind to the reasons recorded by the Assessing Officer, rendering the impugned notice legally flawed. Consequently, the court quashed and set aside the notice issued under Section 148, ruling in favor of the petitioner. The judgment emphasized the importance of ensuring that the sanction for reopening assessments is based on a thorough consideration of the grounds provided by the Assessing Officer to prevent unjustified harassment of taxpayers.