Reopening Quashed for Mechanical Approval and Verbatim Borrowed Reasons; Penalty Automatically Falls

Rita Das Vs ACIT (ITAT Kolkata)

The reassessment for AY 2011-12 was initiated solely on the basis of an information letter from the Investigation Wing alleging high cash deposits and withdrawals in the assessee’s bank account. The Tribunal found that the Assessing Officer reproduced this information verbatim while recording reasons and carried out no independent verification or enquiry. There was thus no live link between the information received and the formation of belief that income had escaped assessment.

Relying on the Delhi High Court ruling in Meenakshi Overseas Pvt. Ltd., the Tribunal held that reasons must show application of mind and disclose the tangible material connecting the assessee to escapement of income; mere conclusions borrowed from an investigation report are insufficient.

The approval granted under section 151 by the PCIT was also found to be mechanical, containing only the remark “Fit case” without any recorded satisfaction. This was held to violate the mandate of law as explained by the Supreme Court in Serjauddin & Co. and by the Calcutta High Court in Sambuddha Tracon Pvt. Ltd., which require conscious, reasoned satisfaction by the approving authority.

On both counts—non-application of mind by the AO and mechanical sanction by the PCIT—the reopening under section 147 was held to be invalid and was quashed. Consequently, the reassessment order itself was set aside.

Since the quantum reassessment did not survive, the penalty levied under section 271(1)(c) had no legs to stand on and was also deleted.

Both the quantum and penalty appeals of the assessee were allowed in full.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

These two appeals are filed by the assessee against the order of the ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi, both dated 27.10.2023 & 11.12.2023 for the assessment year 2011-2012. ITA No.1388/Kol/2024 is the quantum appeal and ITA No.1389/Kol/2024 is the penalty appeal.

2. With regard to quantum appeal in ITA No.1389/Kol/2024, it was submitted by the Ld.AR that the AO had received information from the ADIT (Investigation) Unit-Durgapur, which reads as follows:-

3. It was submission that without doing any further investigation recorded his reasons and has sent it for approval which reads as follows:-

4. It was submission that there was clearly non-application of mind and non-verification of the information which has been provided to the Assessing Officer, insofar as reasons recorded by the AO in his communication sent for the approval for the reopening was in verbatim to the information provided by the investigation wing. Ld. AR to support his contentions, relied on the decision of the Hon’ble Delhi High Court in the case of Meenakshi Overseas Private Limited, reported in (2014)395 ITR 677 (Delhi), wherein para 22 & 23, the Hon’ble Delhi High Court as held as follows:-

22. As rightly pointed out by the ITAT, the ‘reasons to believe’ are not in fact reasons but only conclusions, one after the other. The expression ‘accommodation entry’ is used to describe the information set out without explaining the basis for arriving at such a conclusion. The statement that the said entry was given to the Assessee on his paying “unaccounted cash” is another conclusion the basis for which is not disclosed. Who is the accommodation entry giver is not mentioned. How he can be said to be “a known entry operator” is even more mysterious. Clearly the source for all these conclusions, one after the other, is the Investigation report of the DIT. Nothing from that report is set out to enable the reader to appreciate how the conclusions flow therefrom.

23. Thus, the crucial link between the information made available to the AO and the formation of belief is absent. The reasons must be self evident, they must speak for themselves. The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the reasons. The entire material need not be set out. However, something therein which is critical to the formation of the belief must be referred to. Otherwise the link goes missing.

5. The AO has not recorded his reasons but has only recorded his conclusions and there is no link between the information made available to the AO and the formation of believe by the Assessing Officer. The reasons recorded and the consequential reopening is liable to be quashed. The Ld.AR further drew our attention to the approval granted by the Ld. PCIT wherein it is mentioned that “Fit case”. It was submission that the Hon’ble Jurisdictional High Court of Calcutta in the case of M/s Sambuddha Tracon Pvt. Ltd. in ITAT90/2022, IA NO.GA/2/22, dated 15/11/2022 has held as follows:-

We have heard Mr. Soumen Bhattacharjee, learned standing counsel appearing for the appellant/revenue and Mr. J. P. Khaitan, learned senior counsel assisted by Mr. Soumya Kejriwal, learned Advocate for the respondent/assessee and carefully perused the materials placed on record.

On going through the following paragraphs of the order passed by the Tribunal, we find that the learned Tribunal was fully justified in granting relief to the assessee by dismissing the appeal of the revenue.

The relevant paragraphs are paras 14, 15 and 16 which are set out below :-

“14. Both on 17.03.2017 and on 27.03.2017, the AO sends separate proposals to the JCIT requesting for approval for re-opening of the assessment. The JCIT, Range-5, Kolkata vide his letter dated 29.03.2017 rejected the proposals dated 17.03.2017 and 28.03.2017 of re-opening of assessment. He also directed the AO to consider the reply of the assessee. He directed the AO not to send two separate proposals. Vide this letter dated 27.03.2017 by the ITO to the PCIT-2 bearing reference No. Ward- 5(2)/Kolkata/147/2016-17/2667 speaks of approval by both, the JCIT, Range-5, Kolkata as well as the PCIT-2, Kolkata. These discrepancies could not be explained by the ld. DR.

15. Be it as it may it is absolutely clear that the objections raised by the assessee to the reasons recorded for re-opening and the re­opening itself vide its letter dated 22.11.2017 and 24.11.2017 were not disposed off by the AO. Thus the completion of assessment without disposal of these objections, makes the assessment bad in law as held in the case of Rabo India Finance Ltd. vs. DCIT (2012) 346 ITR 528 (Bombay) and in the case of Vishwanath Engineers vs. ACIT (2013) 352 ITR 549 (Gujarat). Thus this finding of the ld. CIT(A) has to be upheld.

16. Even otherwise Section 151 of the Act mandates recording of satisfaction by the approving authority. In this case the satisfaction was mechanical and in fact a rubber stamp was used to state “Yes I am satisfied”.

The revenue could not and cannot controvert the above factual finding recorded by the Tribunal. It is clear from the finding recorded by the Tribunal that the assessing officer abdicated the statutory responsibility in not disposing of the two objections raised by the assessee for the re-opening proceedings.

6. It was submission that the approval is a mechanical approval and the same is liable to be quashed.

7. In reply, the Ld.Sr DR submitted that the reasons are validly recorded and the satisfaction of the PCIT has also be obtained. It was submission that the reopening is liable to be upheld.

8. In reply to the specific query as to why the date is not available against the Assessing Officer’s signature in the form sent for approval, it was submitted by the Ld.Sr.DR that the records need to be verified.

9. We have considered the rival submissions. A perusal of the approval granted by the Ld.PCIT in the form clearly shows that there was no application of mind, insofar as what is recorded only “Fit case”. This, in fact, flies in the face of the decision of the Hon’ble Supreme Court in the case of ACIT Vs. Serjauddin & Co., reported in [2024] 163 com 118 (SC), which arose out of the decision of the Hon’ble High Court of Orissa in the case of Serjauddin & Co. [2023] 150 taxmann.com 146/292 Taxman 566/454 ITR 312 (Orissa). Similarly it also stands hit by the decision of the Hon’ble jurisdictional High Court in the case of M/s Sambuddha Tracon Pvt. Ltd., referred to supra, on this ground, the reopening is found to be invalid and stands quashed.

10. Coming to the issue of the reasons recorded it is noticed that the AO has not done any verification in respect of the information made available to him by the ADIT Investigation Durgapur. The reasons sent for approval are in verbatim to the information provided by the investigation wing to the Assessing Officer. Thus, it is clear that there is no link between information made available to the AO and the formation of belief by the AO. This being so, in view of principle laid down by the Hon’ble Delhi High Court in the ITA No.1388&1389/KOL/2024 case of Meenakshi Overseas Private Limited, referred to supra, the reasons for reopening is unsustainable and the same stands quashed. Consequently, the consequential assessment order also stands quashed. Thus, the appeal of the assessee in ITA No.1388/Kol/2024 is allowed.

11. With regard to appeal of the assessee in ITA No.1389/Kol/2024 which is filed against the confirmation of penalty levied u/s.271(1)(c) of the Act, as we have already quashed the quantum assessment on account of invalidity of reopening, the very legs for levy of penalty u/s.271(1)(c) of the Act no more survives and consequently the penalty as levied by the AO and as confirmed by the Ld.CIT(A) stands deleted. Thus, the appeal of the assessee in ITA No.1389/Kol/2024 is allowed.

12. In the result, both the appeals of the assessee are allowed.

Order dictated and pronounced in the open court on 29/01/2026.