2021 (12) TMI 771 - HC - Income Tax

Reopening of assessment u/s 147 - sanction required u/s 151 has not been validly obtained - HELD THAT - The reasons recorded have to be final and it cannot be a draft submission for approval of the Principal CIT or Addl.CIT. The Assessing Officer has to record the final reasons as to why according to him a notice has to be issued under Section 148 and only if the Principal CIT / Addl.CIT is satisfied with the reasons so recorded, they can grant sanction and by applying their mind. The sanction cannot be given mechanically. It is based on the reasons on which a sanction has to be given for issuing the notice. Reasons cannot be submitted in a draft form for approval. The reasons have to be that of the Assessing Officer and the Commissioner cannot improve upon those reasons. Moreover, even while conveying the approval for re-opening, Addl.CIT has displayed non-application of mind. The non-approval is given for re-opening the assessment of Petitioner but in the reference it pertains to another entity by the name Laxmi Organic and a communication dated 07/08/2017 is referred to. This also indicates that the Addl.CIT has granted sanction without even reading the letter. The notice under Section 148 has to be set aside and the same is hereby set aside - Decided in favour of assessee.

Summary

Issues:
Impugning notice under Section 148 of the Income Tax Act, 1961 and order disposing objections for re-opening assessment for AY 2015-16.

Analysis:
The petitioner challenged a notice dated 05/09/2017 issued under Section 148 of the Income Tax Act, 1961, and an order dated 14/10/2019 disposing of objections raised for re-opening the assessment for AY 2015-16. The primary contention was the validity of the sanction required under Section 151 of the Act. Section 151 mandates that no notice shall be issued under Section 148 after four years from the end of the relevant assessment year unless specific authorities are satisfied with reasons recorded by the Assessing Officer. The petitioner argued that the sanction was granted before the reasons were recorded, rendering the notice and order invalid. The respondents contended that the sanction was prior to the notice, hence no error was committed.

The court disagreed with the respondents, emphasizing that the Commissioner must be satisfied with the reasons recorded by the Assessing Officer before granting sanction for issuing the notice under Section 148. The court noted a flawed procedure where the reasons were submitted in a draft form for approval, contrary to the requirement that the reasons must be final and recorded by the Assessing Officer. The court highlighted that the sanction cannot be given mechanically and must be based on the reasons provided by the Assessing Officer. Moreover, it was observed that the Addl.CIT displayed non-application of mind by granting approval for re-opening the assessment of a different entity, indicating a lack of due diligence.

Consequently, the court set aside the notice under Section 148 and the order disposing of objections. The court held that the sanction process was flawed and did not comply with the statutory requirements under Section 151. The judgment serves as a reminder of the importance of strict adherence to procedural requirements in tax matters to ensure the validity and legality of actions taken by tax authorities.