2019 (10) TMI 735 - AT - Income Tax

Reopening of assessment u/s 147 - approval granted by the Ld. Pr. CIT-3, Delhi, New Delhi is a mechanical and without application of mind - HELD THAT - After perusing the aforesaid remarks of the Pr. CIT-3, Delhi, New Delhi, I find that the approval granted by the Ld. Pr. CIT-3, Delhi, New Delhi is a mechanical and without application of mind, which is not valid for initiating the reassessment proceedings, because from the aforesaid remarks, it is not coming out as to which material; information; documents and which other aspects have been gone through and examined by the Pr. CIT-3, Delhi for reaching to the satisfaction for granting approval. AO has mechanically issued notice u/s. 148 of the Act. Reopening in the case of the assessee for the asstt. Year in dispute is bad in law and deserves to be quashed. Thus initiating the reassessment proceedings by issue of notice u/s. 148 is not in accordance with section 151 of the I.T. Act, 1961, thus, the notice issued u/s. 148 of the Act is invalid and accordingly the reopening in this is bad in law and therefore, the same is hereby quashed. - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction and validity of proceedings under Section 147.
2. Validity of approval under Section 151.
3. Disallowance of F&O business loss due to alleged manipulative Client Code Modification (CCM).
4. Addition of unexplained expenditure for obtaining alleged bogus F&O loss.
5. Examination of disallowance under Section 14A/Rule 8D beyond the scope of Section 147 proceedings.
6. Legality and justification for disallowing expenses under Section 14A read with Rule 8D.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of Proceedings under Section 147:
The assessee contested the initiation of proceedings under Section 147, arguing it was without jurisdiction, mechanical, and based on borrowed satisfaction. The Tribunal noted that the reopening was based on information from ADIT (I&CI), Mumbai, regarding misuse of Client Code Modification (CCM) by the assessee. The Assessing Officer (AO) treated the loss of ?20,04,174/- as income, suspecting tax evasion through CCM. The Tribunal observed that the AO's actions were based on specific information and upheld the jurisdiction under Section 147.

2. Validity of Approval under Section 151:
The assessee argued that the approval under Section 151 by the Principal Commissioner of Income Tax (Pr. CIT) was mechanical and without application of mind. The Tribunal examined the approval, which merely stated, "I am satisfied that it is a fit case for issue of notice u/s. 148 of the Act." The Tribunal found this approval to be mechanical and without a detailed examination of the material, thus invalidating the reassessment proceedings. This conclusion was supported by precedents from the Hon’ble Delhi High Court in United Electrical Company (P) Ltd. vs. CIT and the Hon’ble Supreme Court in CIT vs. S. Goyanka Lime & Chemical Ltd.

3. Disallowance of F&O Business Loss Due to Alleged Manipulative CCM:
The AO disallowed the F&O business loss of ?20,04,174/- on the grounds of alleged manipulative CCM. The assessee argued that the CCM was to rectify actual errors due to wrong punching of codes by the broker. The Tribunal did not delve into this issue in detail as it had already quashed the reassessment proceedings on the grounds of invalid approval under Section 151.

4. Addition of Unexplained Expenditure for Obtaining Alleged Bogus F&O Loss:
The AO added ?60,125/- as unexplained expenditure for obtaining the alleged bogus F&O loss, estimating it at 3% of ?20,04,174/-. The Tribunal did not address this issue separately due to the quashing of the reassessment proceedings.

5. Examination of Disallowance under Section 14A/Rule 8D Beyond the Scope of Section 147 Proceedings:
The assessee contended that the AO exceeded his jurisdiction by examining disallowance under Section 14A/Rule 8D, which was outside the scope of Section 147 proceedings. The Tribunal did not provide a detailed analysis on this issue, as the reassessment proceedings were already quashed.

6. Legality and Justification for Disallowing Expenses under Section 14A Read with Rule 8D:
The AO disallowed ?3,981/- under Section 14A read with Rule 8D without recording satisfaction for not accepting the assessee’s claim of not incurring such expenditure. The Tribunal did not address this issue separately due to the quashing of the reassessment proceedings.

Conclusion:
The Tribunal quashed the reassessment proceedings due to the mechanical and non-speaking approval under Section 151 by the Pr. CIT, rendering the notice under Section 148 invalid. Consequently, the appeal was partly allowed, focusing primarily on the invalidity of the approval process, and the other grounds raised by the assessee were dismissed as they were not argued.

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