Case Law Details
ITO Vs Antriksh Growth Fund Ltd (ITAT Delhi)
ITAT Delhi held that approval granted under section 151 of the Income Tax Act in mechanical manner without application of mind hence reopening of assessment based on such mechanical order is liable to be quashed.
Facts- The Revenue filed appeal against the order of the Ld. CIT(A) in deleting the addition made u/s 68 of the Act and the assessee filed cross objection challenging the validity of the reassessment order as the approval of appropriate authority u/s 151 of the Act was without application of mind and therefore the assessment completed pursuant to such sanction by the appropriate authority u/s 151 of the Act without proper application of mind is bad in law.
Conclusion- Held that the approval granted by the Addl. CIT, Range-1 u/s 151 of the Act is mechanical without application of mind and therefore the reopening of assessment and passing the reassessment order u/s 143(3) r.w.s. 147 of the Act based on such mechanical order is hereby quashed. Since we have quashed the reassessment on legal proposition, we are not adjudicating the grounds in appeal of the Revenue on merits as it would be of only academic in nature at this stage and they are left open. In the result, the cross objection filed by the assessee is allowed and the appeal of the Revenue is dismissed.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal and cross objection are filed by the Revenue and Assessee respectively against the order of the Ld. Commissioner of Income Tax (Appeals)-1, New Delhi dated 16.11.2015 for the AY 200607. The Revenue filed appeal against the order of the Ld. CIT(A) in deleting the addition made u/s 68 of the Act and the assessee filed cross objection challenging the validity of the reassessment order as the approval of appropriate authority u/s 151 of the Act was without application of mind and therefore the assessment completed pursuant to such sanction by the appropriate authority u/s 151 of the Act without proper application of mind is bad in law.
2. Ld. Counsel for the assessee referring to page 34 of the Paper Book which is the proforma for obtaining the approval of the Commissioner of Income Tax u/s 151 of the Act. Ld. Counsel submitted that against column no.7 of the proforma the AO has mentioned the provisions which are applicable for reopening the assessment as 147(C). Ld. Counsel submits that the appropriate authority granted approval without any application of mind even though the provisions of section 147(C) were not existed in the statute for the relevant AY i.e. 2006-07.
3. The Ld. Counsel for the assessee referring to page 480 of the Paper Book IV submitted that on identical facts the coordinate bench of the Tribunal in the case of Sumangal Techpark Pvt. Ltd. vs. ITO in ITA 3840/Del/2019 dated 23.02.2023 held that the approval granted by the Ld. PCIT on the identical format, wherein the provisions of section 147(C) were to be invoked for reopening the assessment, it was held that the approval was granted in a mechanical manner and thus, the impugned reassessment order pursuant to such approval which was granted mechanically was quashed. The Ld. Counsel for the assessee also placed reliance on the decision of the coordinate bench in the case of M/s Pantime Finance Company Pvt. Ltd. Vs. ITO in ITA No.636/Mum/2021 dated 21.02.2023 which is placed at page 521 of the Paper Book submitted that where the approval was granted by the appropriate authority for reopening the assessment u/s 147(b) which provision was not in existence for the AY 2009-10 such approval was held to be without application of mind and consequently the order passed pursuant to such approval was held to be bad in law and therefore it was held that the order passed by the Pr. CIT sought to revise u/s 263 of the Act such reassessment order which was held to be bad in law was also quashed. Ld. Counsel for the assessee also placed reliance on the order of the coordinate bench in the case of ITO Vs. Rajiv Kumar Arora in ITA Nos. 622, 641, 698 & 642/Del/2024 dated 16.10.2024 in support of the above contention.
4. On the other hand, the Ld. DR strongly supported the orders of the Assessing Officer.
5. The Ld. DR further submitted that the defect in mentioning wrong section if at all is curable u/S 292BB of the Act.
6. Heard rival submissions, perused the orders of the authorities below and the case laws relied on.
7. In this case the Assessing Officer sought approval from the competent authority by sending the following format for approval: –
8. In column 7 of the said format the AO stated that the provisions applicable for the reopening assessment are 147(C) of the Act. The competent authority Addl. CIT, Range-1 granted approval u/s 151 of the Act for reopening of the assessment. The provisions of section 147(C) were not in statute for the relevant AY i.e. 2006-07. Therefore, the Addl. CIT who has granted approval u/s 151 of the Act without applying his mind to the request made by the AO for the sanction, mechanically granted prior approval for initiation of reassessment proceedings. On identical circumstances, the coordinate bench of the Tribunal in the case of Sumangal Park Pvt. Ltd. Vs. ITO in ITA 3840/Del/2019 dated 23.02.2023 held that such an approval which was granted mechanically is bad in law and consequently the reassessment made based on such an approval is also bad in law observing as under: –
“7. In the present case, the copy of the form for recording the reason for initiation of proceedings u/s 147 of the Act and for obtaining the approval u/s 151 of the Act, which was obtained by the assessee through RTI on 09.12.2022 submitted along with written submission of assessee, the Ld. Sr. DR did not dispute that in the column no. 7, the AO mentioned that the provision of section 147(C) of the Act is applicable. For the sake of completeness, the said format is being reproduced below:
8. Therefore, it is clear that the AO, in the first page of reasons (supra) mentioned in column 7 that provisions of section 147(C) is applicable which is non-existent in the statute book for AY 2010-11. This apparently shows non-application of mind by the AO while filing proforma in a mechanical manner and the Ld. ACIT and Ld. PCIT also approved the same in a mechanical manner. So far as the contention of the ld. Sr. DR that this defect is curable u/s 292B of the Act is concerned, this contention was decided by the ITAT Delhi Bench in the case of Madhu Apartments India Pvt. Ltd., ITA No.3869 & 3870/Del/2018, order dated 01.02.2021, the relevant part of which has already been reproduced in the earlier part of this order since the same was referred to and included in the relevant part of the order of the ITAT in the case of Omkam Developers Ltd. (supra). Therefore, respectfully following the order of ITAT Delhi Bench in the case of Omkam Developers Ltd. vs. ITO (supra) and Madhu Apartments P. Ltd. Vs. ITO (supra), we hold that the impugned reassessment proceedings and the impugned reassessment order deserves to be quashed and we hold so.”
9. Similarly the coordinate bench of the Tribunal in the case of ITO Vs. Rajiv Kumar Arora by order dated 16.10.2024 (supra) the coordinate bench held as under: –
“8. But from perusal of the reasons recorded for reopening the assessment reproduced supra , which is common to all the years under consideration except change in figures, we find that the Id. AO in para 1 and in initial part of para 2 states that PCPL had advanced loans to PRPL. But in later part of para 2, the Id AO says that PRPL had advanced loans to PCPL. This clearly shows complete misunderstanding of actual facts by the Id. AO reflecting his non-application of mind. Further the reasons recorded by the Id AO were not even signed by the Id AO digitally as required by the Act, though it was sent along with notice u/s 142(1) of the Act dated 24.11.2021 for Asst Year 2014-15; 142(1) of the Act dated 24.11.2021 for Asst Year 2013- 14; 142(1) of the Act dated 25.11.2021 for Asst Year 2015-16 and 142(1) of the Act dated 25.11.2021 for Asst Year 2017-18. Moreover, the approval u/s 151 of the Act has been obtained by the Id AO from the competent authority before issuing notice u/s 148 of the Act dated 30.3.2021 for all the years under consideration. The said approval is being sought by the Id AO from the competent authority by mentioning section 147(b) of the Act in the reasons’ recorded. The same is evident from the reasons reproduced supra. It is pertinent to note that section 147(b) of the Act has been omitted from the statute long back and still the Id. AO had mentioned the said section in the reasons recorded, which reflects complete non-application of mind of the Id. AO and also application of incorrect provisions of the Act for the purpose of reopening the assessment. Further the reasons recorded by the Id. AO does not even contain any date thereon.
(EMPHASIS SUPPLIED BY US)
9. We find that the aforesaid deficiencies in the reasons recorded by the Id. AO ought to have been rectified / corrected by the competent authority while granting approval u/s 151 of the Act. The approving authority also had granted approval u/s 151 of the Act without correcting the aforesaid deficiencies, thereby reflecting complete non-application of mind by the approving authority also. Hence it could be safely concluded that the competent authority u/s 151 of the Act had granted a mechanical approval for reopening the assessment. In these circumstances, whether mechanical approval granted u/s 151 of the Act by the competent authority would become fatal to the reopening per se was considered by the Co-ordinate Bench of Mumbai Tribunal in the case of ACU vs Bharti Axa Life Insurance Co. Ltd reported in 128 taxmann.com23 (Mum Tribunal) authored by the undersigned. The relevant operative portion of the said order is reproduced below:
“4.9.2. We further find that the sanction obtained in terms of section 151 of the Act was not provided to the assessee along with the reasons recorded despite assessee asking for the same in writing before the Id AO. This, in our considered opinion, is against the settled principles of natural justice as reopening of an assessment is an extraordinary power available to the Id AO and it should not be done in a cavalier manner. That is why the legislature in its wisdom had put lot of restrictions by imposing conditions for seeking approval and sanction from a superior officer in terms of section 151 of the Act. Hence the said approval obtained from competent authority ought to have been furnished by the Id AO along with the reasons recorded for reopening the assessment to the assessee.
4.9.3. Moreover, in the instant case, on perusal of the sanction obtained in terms of section 151 of the Act, we find that the Id PCIT had merely recorded – “Yes, I am satisfied”. The same, in our considered opinion, could not be regarded as a valid satisfaction as it does not reflect due application of mind of the sanctioning authority before granting satisfaction. This cryptic noting only leads to the inescapable conclusion that there was, in reality, no independent application of mind by the sanctioning authority while according approval in terms of section 151 of the Act. This clearly vitiates the purpose behind the inbuilt safeguards and checks provided by the statute on exercise of powers by the Id AO u/s 147/148 of the Act. It is trite law that the sanctioning authority is expected to judiciously review and then record objective satisfaction which is conspicuously absent in the present case. Hence it could be safely concluded that the sanction in terms of section 151 of the Act had been accorded in a mechanical manner without application of mind. Reliance in this regard was rightly placed on the decision of the Hon’ble Apex Court in the case of Chhugamal Rajpal (supra) wherein it was held that: –
“When this appeal came up for hearing on the last occasion, as we found the affidavit filed by the Income-tax Officer to be vague and indefinite, we directed the learned counsel for the department to produce before us the records of the Income-tax Officer to show that the Income-tax Officer had complied with the requirements of section 148 and section 151(2) of the Act. When the appeal was taken up for hearing on the 18th January, 1971, only the report submitted by the Income-tax Officer to the Commissioner and the order of the Commissioner was produced. The order sheet recording the reasons of the Income-tax Officer as required by section 148(2) was not produced. Here in below, we have set out the report of the Income-tax Officer as well as the order of the Commissioner:
“Report in connection with the starting of proceedings under section 147 of the Income-tax Act, 1961.
During the year the assessee has shown to have taken loans from various parties of Calcutta. From D.I.’s Inv. No. A/P/Misc.(5) D.I./63- 64/5623 dated August 13,1965, forwarded to this office under C.I.T., Bihar and Orissa, Patna’s letter No. Inv. (Inv.) 15/65-66/1953-2017 dated Patna September 24, 1965, it appears that these persons are name-lenders and the transactions are bogus. Hence, proper investigation regarding these loans is necessary. The names of some of the persons from whom money is alleged to have been taken on loan on hundis are:
1. Seth Bhagwan Singh Sricharan.
2. Lakha Singh Lai Singh.
3. Radhakissen Shyam Sunder.
The amount of escapement involved amounts to Rs.1,00,000/-.
Sd/-
S.P. Chaliha, 30-4-66.
Income-tax Officer,
A-Ward, Muzaffarpur.”
In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. The material that he had before him for issuing notice under section 148 is not mentioned in the report. In his report he vaguely refers to certain communications received by him from the Commissioner of Income-tax, Bihar and Orissa. He does not mention the facts contained in those communications. All that he says is that from those communications “it appears that these persons (alleged creditors) are name- lenders and the transactions are Bogus”. He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfill the requirements of section 151(2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words he must have some prima facie grounds before him for taking action under section 148. Further his report mentions: “Hence proper investigation regarding these loans is necessary”. In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under section 148.
Before issuing a notice under section 148, the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax Officer has no jurisdiction to issue a notice under section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee’s omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148. Further, the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in the report which reads “Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148”, he just noted the word “Yes” and affixed his signature thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. The important safeguards provided in sections 147 and 151 were lightly treated by the Income- tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance.
In the result this appeal is allowed, the order of the High Court is set aside and the impugned notice quashed. The respondent No. 2 shall pay the costs of the appellant both in this court and in the High Court. “
We find that similar decision was rendered by Hon’ble Madhya Pradesh High Court in the case of S. Goyanka Lime & Chemicals Ltd. (supra), wherein the Special leave petition preferred by the revenue was dismissed by the Hon’ble Apex Court in S. Goyanka Lime & Chemicals Ltd. (supra). Respectfully following the said decisions, the reopening of assessment deserves to be declared as void ab initio for improper sanction u/s 151 of the Act also.
4.10. Since reopening of assessment is quashed for more than one reason as enumerated above, we do not deem it fit to address the other legal issues raised by the Id AR as they would be purely academic in nature and hence they are left open. Accordingly, the cross objections raised by the assessee are allowed in view of the abovementioned terms.
10. Further we find that the Hon’ble Madhya Pradesh High Court in the case of CIT vs S Goyanka Lime & Chemicals Ltd reported in 56 com390 (MP HC), it was held that where the Joint Commissioner of Income Tax recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice u/s 148 of the Act, reopening of assessment was held to be invalid. It is pertinent to note that the Special Leave Petition (SLP) preferred by the revenue against this judgement was dismissed by the Hon’ble Supreme Court in 64 taxmann.com 313 (SC).
11. Similar view was taken by the Hon’ble Jurisdictional High Court in the case of PCIT vs Pioneer Town Planners (P) Ltd reported in 465 ITR 356 (Del).
12. In view of the aforesaid observations, we have no hesitation to conclude that various deficiencies as emphasized supra in the reasons recorded by the Id AO clearly depict non-application of mind by the Id AO thereby becoming fatal to the formation of belief per se on his mind that income had escaped assessment and these deficiencies not being corrected or rectified by the competent authority while according approval u/s 151 of the Act depicts non-application of mind and grant of mechanical approval u/s 151 of the Act by the competent authority, and consequentially the reopening of assessment deserves to be quashed and is accordingly quashed. Since the reopening itself is quashed by allowing the Rule 27 petition of the assessee, the grounds raised by the revenue on merits need not be adjudicated as it would become academic in nature and hence they are left open.”
10. Respectfully following the said decisions, we hold that the approval granted by the Addl. CIT, Range-1 u/s 151 of the Act is mechanical without application of mind and therefore the reopening of assessment and passing the reassessment order u/s 143(3) r.w.s. 147 of the Act based on such mechanical order is hereby quashed. Since we have quashed the reassessment on legal proposition, we are not adjudicating the grounds in appeal of the Revenue on merits as it would be of only academic in nature at this stage and they are left open.
11. In the result, the cross objection filed by the assessee is allowed and the appeal of the Revenue is dismissed.
Order pronounced in the open court on 27.06.2025
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