Reassessment u/s. 147 not justified as reasons recorded is plagued with several defects: ITAT Delhi

Montreaux Resorts Pvt Ltd Vs ITO (ITAT Delhi)

ITAT Delhi held that reasons recorded for exercising the jurisdiction is plagued with several defects of critical nature. Thus, due to lack of jurisdiction u/s. 147 of the Income Tax Act reassessment proceedings held as bad-in-law.

Facts- Assessee has preferred the present appeal against order of the National Faceless Appeal Centre. The assessee has inter alia challenged the assumption of jurisdiction under Section 147 of the Act and alleged that the prerequisite of Section 147 and Section 151 of the Act has not been clearly fulfilled in the present case and consequently, the additions made by the AO is not justified on merits too.

Conclusion- No minimal reasons were given regarding his satisfaction for such approval. The approval given is clearly mechanical, perfunctory and routine. Thus, neither the reasons recorded under Section 148 of the Act justify the allegation towards escapement of income nor the approval given by the Addl. CIT stands the test of judicial scrutiny.

Held that reasons recorded for exercising the jurisdiction is plagued with several defects of critical nature. Such defects are incurable under Section 292B of the Act. On the face of such lack of jurisdiction under Section 147 of the Act, the reassessment proceedings itself is bad in law.

FULL TEXT OF THE ORDER OF ITAT DELHI

These captioned appeals have been filed by the assessee against the orders of the National Faceless Appeal Centre (NFAC), Delhi (‘CIT(A)’ in short) for captioned assessment year as tabulated below:

2. To begin with, we shall first take up ITA No.2352/Del/2024 for Assessment Year 2007-08.

ITA No.2352/Del/2024 Assessment Year 2007-08 :

3. As per the grounds of appeal, the assessee has inter alia challenged the assumption of jurisdiction under Section 147 of the Act and alleged that the prerequisite of Section 147 and Section 151 of the Act has not been clearly fulfilled in the present case and consequently, the additions made by the AO is not justified on merits too.

4. When the matter was called for hearing, the learned Counsel for the assessee adverted to the Grounds of Appeal as well as the Additional Grounds of appeal seeking to challenge the jurisdiction assumed under Section 147 of the Act. To assail the assumption of jurisdiction, the learned Counsel adverted to the reasons recorded and submitted that; (a) the notice dated 30.03.2014 issued by the AO under Section 148(1) of the Act is not maintainable as it has been issued in the name of ‘Principal Officer, M/s. Monteaux Resorts Pvt. Ltd.’ which is not the name of the assessee. There is no mention of PAN number of the assessee company either; (b) The correct name of the assessee is “Montreaux Resorts Pvt. Ltd.”. The notice has not been addressed in such name; (c) the reasons recorded clearly reflects non application of mind by the AO; (d) the approval given on such reasons under Section 151 of the Act by the Additional Commissioner of Income-tax is yet again marred by non application of mind; (e) the approval has been obtained by the AO with reference to Section 147(b) of the Act as per Row No.7 of the approval memo. Such provision under Section 147(b) of the Act is long extinct and non­existent after the complete revamp of Section 147 of the Act w.e.f 01.04.1989. The approval by the competent authority under Section 151 of the Act based on erstwhile provision of Section 147(b) of the Act clearly reflects non-application of mind of the sanctioning authority as held in several judicial precedents. The approval by the sanctioning authority which reads as “yes, it is a fit case for issue of notice u/s 148” does not reveal as to how he finds that it is a fit case.

4.1 Delineating further, the learned Counsel adverted to the reasons recorded and pointed out that the allegation towards escapement of Rs.15 lakhs towards purchase consideration of land parcel is stated to be “accounted income/cash”. Thus, such expression being the basis of ‘reason to belief’ does not permit the Assessing Officer to allege escapement. As can be seen, the Assessing Officer himself says that the income/cash is accounted and hence the very foundation to allege escapement is lost. The reasons recorded thus itself do not meet the pre-requisites of Section 147 of the Act. Secondly, the approval by the sanctioning authority based on such reasons that too under non-existent provision i.e. Section 147(b) of the Act is a glaring pointer to mechanical approval under Section 151 of the Act. The learned Counsel thus contends that the proceedings under Section 147 of the Act based on such non-est as well as non-speaking approval is unsustainable in law.

4.2 The learned Counsel thus contended that the action of the Assessing Officer is clearly outside the jurisdiction under section 147 of the Act. The assessment proceedings based on such non-est jurisdiction is thus bad in law.

4.3 Consequently, the learned Counsel urged for quashing the reassessment order.

4.4 The learned Counsel also submitted that the additions on merits are also clearly not justified in the facts of the case.

5. The learned DR for the Revenue, on the other hand, relied upon the action of the Assessing Officer and the CIT(A).

6. We have carefully considered the rival submissions. As noted above, the assessee has inter alia assailed the assumption of jurisdiction under Section 148 r.w.s 147 r.w.s 151 of the Act. It is contended on behalf of the assessee that entire action of the Assessing Officer and the competent authority under Section 151 of the Act smacks of gross lack of jurisdiction.

7. The approval granted by the Addl. CIT under Section 151 of the Act and reasons recorded by the AO under Section 148(2) of the Act seeking approval of the Addl. CIT is reproduced hereunder for immediate reference:-

“NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961

Office of the Income Tax Officer
Ward 5(4), Room No.306
CR. Building, New Delhi

F. No. ITO/W-5(4)/2013-14//1074

Dated: 20.03.2014

To

The Principal Officer,
M/s Monteaux Resorts Pvt. Ltd.
11th Floor, Mohandev Building, 1,.
Tolstoy Marg, Connaught Place
New Delhi-110001

Whereas I have reason to believe that your income chargeable to tax in respect of which you are assessable for the Assessment Year 2007-08 has escaped assessment within the meaning of section 147 of the Income tax Act. 1961.

I therefore, propose to assess the income for the said assessment year and I hereby require you to deliver to me, within 15 days from the service of this notice, a return in the prescribed form of your income for the Assessment Year 2007-08.

This notice is being issued after recording necessary satisfaction and also taking necessary approval from the Addl. Commissioner of Income Tax, Range-5, New Delhi.

Seal

Sd/-

(Dharam Veer Singh)
Income Tax Officer,
ard 5(4) New Delhi”

8. The reasons recorded under Section 148(2) reads as under :

“REASONS RECORDED IN WRITING FOR REOPENING THE CASE U/S 148 OF THE INCOME TAX ACT 1961,

Monteaux Resorts Pvt. Ltd.
Assessment Year 2007-08

Information received from DDIT (INV.) Shimla that the assessee company had purchased agriculture land measuring 6 Bighas 16 Biswas Khatra Khatauni No. 19/20 Khasara No. 1/2 Situated in Mauza Chattiyan, Pargana Dharti, Tehsil Kasauli, Distt, Solan from Sh Khayali Ram S/o Late Sh. Mahantu Ram R/o Lawrence School, Sanwar, P.O. Sanawar, Tehsil Kasauli for Rs. 30,00,000/-, However the agreement to sale of the land was registered on 01.05.2006 for Rs.15,00,000/- The difference of Rs. 15,00,000/- was paid through an accounted income/cash.

I have reason to believe that income of the assessce company to the extent of Rs. 15,00,000/- the payment made in cash has escaped assessment for the A.Υ. 2007-08.

The case of the assessee is covered under the provisos laid down u/s 149(1)(b) of the T.Act 1961 in view of the following reasons:

4 years have elapsed, but not more than 6 years have elapsed from the end of the relevant assessment year.

The income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for the F.Y. relevant to A.Y. 2007-08

The proposal is forwarded for kind consideration and requisite approval for issue of notice u/s 148(i) as per the procedure laid down under the provisions of section 151, read with subsection (2) of the Income Tax Act. 1961.

Sd/-

Income Tax Officer
Ward 5(4), New Delhi”

9. To assail the propriety of reasons so recorded, the assessee contends that firstly, the transaction of land parcel referred to in the reasons recorded are between Shri Khayali Ram and one Mr. Rajeev and not the assessee, Secondly, the approval memo refers to Section 147(b) to allege escapement. The approval has been granted based on such info which reflects non-application of mind. Thirdly, to the own reckoning to the AO, the difference in value of land parcel paid is ‘accounted’.

10. We have perused the reasons recorded under Section 148(2) of the Act and other material to invoke jurisdiction under Section 147 of the Act. The reasons recorded do not suggest at all that in pursuance of receipt information received from DDIT (Investigation), Shimla, whether the Assessing Officer had independently applied its mind to the information received or conducted some enquiry into the matter for the purpose of coming to conclusion that income assessable to tax had escaped assessment. It is further noticed that the AO while alleging escapement noted that the difference of Rs. 15 lakhs in question was paid through “accounted income/cash”. Such observation itself contradicts the allegation towards escapement of income. The Addl. CIT while granting approval has simply observed that ‘it is a fit case for issue of notice under Section 148 of the Act’ disregarding such observations of the AO in the reasons recorded. Furthermore, the approval has been proposed by the AO with reference to Section 147(b) of the Act which provision is nonexistent for the purposes of proceedings under Section 147 of the Act. The Addl. CIT further granted approval ignoring this vital aspect as well. At this juncture, a reference may be made to the judgment delivered by the Hon’ble Bombay High Court in the case of Kalpana Shantilal Haria vs. ACIT WP(L) No.3063 of 2017 dated 22.12.2017 wherein it was held that approval of action with reference to Section 147(b) of the Act is marred by non-application of mind. The Co-ordinate Bench in the case of Bhaijee Commodities (P.) Ltd. vs. ACIT (2023) 154 Taxmann.com 292 (Del) has observed that approval based on nonexistent provision of Section 147(b) of the Act is not sustainable in law. Besides, no minimal reasons were given regarding his satisfaction for such approval. The approval given is clearly mechanical, perfunctory and routine. Thus, neither the reasons recorded under Section 148 of the Act justify the allegation towards escapement of income nor the approval given by the Addl. CIT stands the test of judicial scrutiny. The transaction of land parcel is also found to be between Mr. Khayali Ram and Rajeev and not assessee. Thus, looking from any angle, the jurisdiction assumed under Section 147 of the Act is not sustainable in law.

11. For the reasons narrated above, it is evident that reasons recorded for exercising the jurisdiction is plagued with several defects of critical nature. Such defects are incurable under Section 292B of the Act. On the face of such lack of jurisdiction under Section 147 of the Act, the reassessment proceedings itself is bad in law.

12. The impugned reassessment order dated 27.03.2015 is thus bad in law and liable to be quashed.

13. In this view of the matter, we do not consider it expedient to examine the aspects of merit of additions under challenge. Resultantly, the impugned assessment order under Section 147 of the Act stands quashed.

14. In the result, appeal of the assessee in ITA No.2352/Del/2024 is allowed.

ITA No.2353/Del/2024 Assessment Year 2007-08 :

15. The captioned appeal is against the penalty imposed under Section 271(1)(c) of the Act flowing from the re-assessment order passed under Section 147 of the Act under challenge in ITA No. 2352/Del/2024 (supra). The reassessment order having been quashed, the very foundation for imposition of penalty under Section 271(1)(c) of the Act is crumbled. Resultantly, penalty imposed from a non-est reassessment order automatically stands vacated.

16. In the result, appeal of the assessee in ITA No.2353/Del/2024 is also allowed.

17. Resultantly, both the captioned appeals of the assessee are allowed.

Order pronounced in the open Court on 09/10/2024.