2021 (3) TMI 1177 - HC - Income Tax

Reopening of assessment u/s 147 - validity of sanction-order passed u/s 151 - whether it was a fit case in which sanction should be accorded for issuance of notice under Section 148 of the Act and, thus, triggering the process of reassessment under Section 147? - HELD THAT - There is no explanation by the revenue as to why approval of ACIT was taken in the instant case. Even if we were to assume for the moment that the approval of the ACIT was rightly taken, a bare perusal of the endorsement would show that there is no application of mind as to whether the information received by the AO had any nexus with the formation of honest belief that the assessee's taxable income had escaped. What is glaring is that the ACIT notes that income to the tune of ₹ 27,60,838/- had escaped taxation whereas, in the order recording reasons, the taxable income has been quantified as ₹ 26,93,500/-. As noted above, based on the arguments of Mr. Singh that the escaped income should be related to unsecured loans, there is in play a third figure which is ₹ 25,95,277/-. In the instant case, because of the failure on the part of respondent no.1 to correlate the information received with the ostensible formation of belief by him, respondent no.2 attempted to connect, via her counter-affidavit, that the escaped income with the suspicious unsecured loan entries reflected in the assessee's returns for AY 2010-2011 and 2011-2012. As correctly argued by Mr. Kochar, the counter-affidavit and the submissions made across the bar cannot be used to sustain the impugned actions. The order recording reasons and the order granting sanction should speak for themselves. See GORDHANDAS BHANJI. 1951 (11) TMI 17 - SUPREME COURT and MOHINDER SINGH GILL ANR. 1977 (12) TMI 138 - SUPREME COURT Notice issued under Section 148 was barred by limitation - This submission advanced on behalf of the assessee is not sustainable. As noticed above, the limitation provided under Section 149 of the Act for issuance of notice commences from the date when the notice is issued and not when the notice served. The record presently, before us shows that the notice was issued on 31.03.2018. Therefore, this submission made on behalf of the petitioner is rejected. Notice under Section 148 was issued by an AO Ward No.22(4) while the order recording reasons was issued by another officer is not borne out from the record. Huge time lag between the issuance of the impugned notice under Section 148 of the Act and the date when the order recoding reasons was furnished to the authorized representatives of the petitioner - While the assessee is, in our view, right in contending that if the time lag is huge, it does point in the direction that the order was ante-dated, a final view on this aspect could have only been taken if the original record was examined by us. Since the revenue has denied the allegation levelled against it and Mr. Kochar did not press this issue during the hearing, we can't reach a definitive view on this aspect of the matter based on the record available before us Therefore, this submission, made on behalf of the assessee, cannot be accepted. Since respondent no.1 was unable to link the information received with the formation of belief, a jurisdictional error did occur, which, this Court, is empowered to correct, by exercising its powers under Article 226 of the Constitution of India (See Calcutta Discount Co. Ltd. vs. Income Tax Officer, Companies District I Calcutta and Another 1960 (11) TMI 8 - SUPREME COURT Relegating a party to an alternative remedy is a selfimposed limitation which, however, does not denude the court of its powers under Article 226. The Court is duty-bound to exercise its powers under Article 226 where ever it finds that a statutory authority has exercised its jurisdiction either irregularly or acted in a matter in which it had no jurisdiction or committed a breach of the principles of natural justice. Conclusion - We are inclined to quash the impugned notice dated 31.03.2018 issued under Section 148 of the Act as well as the order granting sanction issued by respondent no.2.

Issues Involved:
1. Validity of notice under Section 148 of the Income Tax Act, 1961.
2. Application of mind by the sanctioning authority under Section 151 of the Act.
3. Correlation between the information received and the reasons recorded for reassessment.
4. Alleged breach of principles of natural justice.
5. Limitation period for issuance of notice under Section 148.

Detailed Analysis:

1. Validity of Notice under Section 148 of the Income Tax Act, 1961:

The writ petition challenges the notice dated 31.03.2018 issued under Section 148 of the Income Tax Act, 1961, and the sanction accorded by the Principal Commissioner of Income Tax, Delhi-VIII. The court noted that the notice was issued on the last date of the limitation period, and the assessee argued that it was time-barred. The court found that the notice was indeed issued within the limitation period as it was dated 31.03.2018.

2. Application of Mind by the Sanctioning Authority under Section 151 of the Act:

The assessee contended that the sanctioning authority did not apply its mind and merely rubber-stamped the reasons recorded by the Assessing Officer (AO). The court observed that the Principal Commissioner of Income Tax simply endorsed "approved" without providing any reasoning. The court emphasized that the satisfaction of the sanctioning authority should be discernible from the sanction order, citing the Supreme Court's judgment in *Chhugamal Rajpal vs. S.P. Chaliha*.

3. Correlation between the Information Received and the Reasons Recorded for Reassessment:

The court found that the AO made significant errors in correlating the information received from the investigation wing with the assessee's balance sheet. The AO incorrectly recorded figures related to the authorized capital, issued and subscribed paid-up capital, and share premium account. The court noted that the AO's formation of belief that the income had escaped assessment was unreasonable and irrational due to the lack of proper correlation.

4. Alleged Breach of Principles of Natural Justice:

The assessee argued that the AO relied on a statement by Mr. Pradeep Kumar Jindal without furnishing a copy of the statement to the assessee. The court noted that the revenue claimed to have provided the relied-upon documents to the assessee's authorized representative, but the proceedings sheet did not reflect this. However, the court did not base its decision on this issue as it was not pressed by the assessee during the hearing.

5. Limitation Period for Issuance of Notice under Section 148:

The court rejected the assessee's argument that the notice was time-barred, clarifying that the limitation period for issuance of notice under Section 148 commences from the date of issuance and not from the date of service. The notice was issued on 31.03.2018, within the prescribed limitation period.

Conclusion:

The court concluded that the formation of belief by the AO was unreasonable and irrational due to the lack of proper correlation between the information received and the reasons recorded. The sanctioning authority's approval was found to be mechanical and lacked proper application of mind. Consequently, the court quashed the impugned notice dated 31.03.2018 issued under Section 148 of the Act and the order granting sanction by the Principal Commissioner of Income Tax. The court ordered that parties bear their own costs and consigned the case papers to record.

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