2022 (6) TMI 954 - AT - Income Tax

Reopening of assessment u/s 147 - validity of sanction as accorded by PCIT - Addition u/s 68 - HELD THAT - Approval to reopen the assessment in the present case and issue notice under Section148 of the Act to the assessee was accorded by the learned Principal Commissioner of Income-tax by recording his satisfaction in one word Yes and even the learned DR has not disputed this position. While seeking approval to reopen the assessment and issue notice under Section 148 of the Act, the Assessing Officer is required to submit the reasons recorded by him to the competent authority and merely because such reasons recorded by the Assessing Officer are available before the competent authority while according the approval, it cannot be said that the application of mind by the competent authority is presumed and there is no requirement for him to record the proper satisfaction and it is sufficient for him to say only Yes . In the case of United Electrical Co. Pvt. Ltd 2002 (10) TMI 86 - DELHI HIGH COURT relied upon by the learned Counsel for the assessee, the Hon ble Delhi High Court held that the requirement of approval by the higher authority to reopen the assessment and issue notice under Section 148 of the Act by the Assessing Officer is a safeguard to prevent arbitrary exercise of power by an Assessing Officer to fiddle with the completed assessment. It was held that the Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer and the said power cannot be exercised casually and in a routine manner. In the said case, the Commissioner had simply mentioned approved while according sanction to the Assessing Officer to reopen the assessment and issue notice under Section 148 of the Act and the same was held to be without any application of mind - Decided in favour of assessee.

Summary

Issues:
Validity of reopening assessment by Assessing Officer.

Analysis:
The appeal was filed by the assessee against the order of the CIT(A) dated 20.02.2019. The assessee, a partnership firm engaged in ginning and pressing of cotton, had filed a return of income declaring Rs.5,14,300/-. The Assessing Officer, in the original assessment under Section 143(3), determined the total income at Rs.3,84,53,522/- after adding Rs.3,79,39,222/-. Subsequently, the assessment was reopened based on information regarding an accommodation entry of Rs.50 lakhs and cash deposits of Rs.57,45,000/-. The Assessing Officer made an addition of Rs.50 lakhs as unexplained cash credit under Section 68 of the Act. The CIT(A) upheld the assessment and the addition, leading to the appeal before the Tribunal.

In Ground Nos. 2 & 3, the assessee challenged the validity of the reopening of the assessment, alleging that the approval given by the Principal Commissioner of Income-tax was mechanical and lacked proper application of mind. The learned Counsel for the assessee cited judicial precedents to support this claim. The DR argued that the approval was granted after due consideration of the reasons recorded by the Assessing Officer. The Tribunal examined the approval process and relevant case laws cited.

The Tribunal observed that the approval given by the Principal Commissioner of Income-tax with a simple "Yes" lacked proper application of mind, similar to cases cited by the assessee's Counsel. Referring to the decisions of the Madhya Pradesh High Court and the Delhi High Court, the Tribunal held that the requirement of approval is a safeguard against arbitrary exercise of power by the Assessing Officer. The Tribunal concluded that the assumption of jurisdiction to reopen the assessment was invalid, rendering the assessment void ab initio and liable to be cancelled.

Based on the above findings, the Tribunal allowed the appeal filed by the assessee, canceling the assessment made by the Assessing Officer under Section 143(3) r.w.s. 148 of the Act. Consequently, the Tribunal did not delve into other legal and factual issues raised by the assessee, deeming them academic in nature.