Merely Approval without application of mind not sufficient and renders reopening void

The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. 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.

Ld. A.R. submitted that the case of the assessee was duly covered in its favour by various orders of Hon’ble Court. It was submitted that necessary satisfaction required u/s 151 was not obtained. Ld. A.R. invited our attention to paper book page 330 and submitted that the Addl. CIT has nowhere recorded his satisfaction by application of his independent mind. He just affixed his signatures and approved it. Ld. A.R. submitted that such a satisfaction is not the satisfaction as required by law. Ld. A.R. further submitted that the reasons recorded were also insufficient and in the absence of insufficiency of reasons recorded, the assessment itself was bad in law. Reliance in this respect was placed on the following case law.

Central India Electric Supply Company Ltd. Vs ITO in I.T.A. No. 17/Del/1999 dated 28.01.2011 (Del.H.C.)

CIT Vs Atul Jain 212 CTR 42

Amarlal Bajaj Vs CIT I.T.A.No. 611/Mum/2004

Chhugamal Rajpal Vs S.P.Chaliha & Ors 79 ITR 603 (S.C.)

United Electrical Co. (P) Ltd. Vs CIT & Ors. 258 ITR 317 (Del.)

CITVs Smt. Paramjit Kaur 311 ITR 38 (P&H)

CIT Vs Shree Rajasthan Syntax Ltd. 313 ITR 231.

A.R. also invited our attentions to the Tribunal order in I.T.A. No. 4122 and C.O. No.388 which was pronounced vide Tribunal order dated 22 OCT 2014 and submitted that satisfaction recorded in the present case u/s 151 was similar as in the above quoted case and the tribunal in the C.O. filed by assessee had decided the issue in favour of the assessee and invited our attention to para 10 of the said order.

D.R. replying to the argument of C.O. submitted that the A.O. had reopened the assessment on the basis of specific information from Investigation Wing and necessary approval was taken from the competent authority and therefore, the assessment was reopened legally therefore, C.O. needs to be dismissed.

We have heard rival parties and have gone through the material placed on record. We find that since the assessee has taken legal grounds against reopening of assessment, therefore it is appropriate for us to first decide the C.O. We find that the Tribunal vide order dated 22nd Oct. 2014 in C.O. 388 in I.T.A. No. 4122 under similar facts and circumstances wherein similar reasons were record and similar satisfaction was recorded u/s 151, it had decided in favour of the assessee by holding as under:

6. A simple reading of the provisions of Sec. 151 (1) with the proviso clearly show that no such notice shall be issued unless the Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of notice which means that the satisfaction of the Commissioner is paramount for which the least that is expected from the Commissioner is application of mind and due diligence before according sanction to the reasons recorded by the AO. In the present case, the order sheet which is placed on record show that the Commissioner has simply affixed “approved” at the bottom of the note sheet prepared by the ITO. Nowhere the CIT has recorded his satisfaction. In the case before the Hon ‘ble Supreme Court (supra) that on AO’s report the Commissioner against the question “whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148 merely noted ” Yes” and affixed his signature there under. On these facts, the Hon ‘ble Supreme Court observed that the important safeguards provided in sections 147 and 151 were lightly treated by the officer and the Commissioner. The Hon ‘ble Supreme Court further observed that the ITO could not have had reason to believe that income had escaped assessment by reasons of the appellant-firm’s failure to disclose material facts and if the Commissioner had read the report carefully he could not have come to the conclusion that this was a fit case for issuing a notice under section 148. The notice issued under section 148 was therefore, invalid. It would be pertinent here to note the reasons recorded by the AO.

“Intimation has been received from DCIT-24(2), Mumbai vide his letters dt. 22nd February, 2002 that one Shri Nitiri 1. Rugmani assessed in his charge had arranged Hawala entries in arranging loans, expenses, gifts. During the year Shri Amar G. Bajaj, Prop. Of Mohan Brothers, 712, Linking Road, Khar (W), Mumbai-52 was the beneficiary of such loans, expenses and gifts. The modus-operandi was to collect cash from the parties to whom loans were given and cash was deposited into account of Shri Niiiri 1. Rugani and cheques were issued to the beneficiary of the loan transaction. In order to ensure that the money reached by cheques to the beneficiary Shri Nitiri 1. Rugani kept blank cheques of the third parties. The assessee Shri Amar G. Bajaj had taken benefit of such entries of loans, commission ad bill discounting of Rs. 8,00,000/-, 11,21,243/- and 9,64,739/- respectively. The assessment was completed u/ s. 143(3) of the 1. T. Act on 3Ft March, 1998 by DCIT-Spl. Rg. 40, Mumbai. It is seen from records that the aforesaid points have not been verified in the assessment. I have therefore reason to believe that by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income has escaped assessment within the meaning of proviso to Sec. 147 and explanation 2 (c)(i) of the income-tax Act, 1961.”

7. In the light of the above mentioned reasons, in our considerate view, Section 147 and 148 are charter to the Revenue to reopen earlier assessments and are, therefore protected by safeguards against unnecessary harassment of the assessee. They are sword for the Revenue and shield for the assessee. Section 151 guards that the sword of Sec. 147 may not be used unless a superior officer is satisfied that the AO has good and adequate reasons to invoke the provisions of Sec. 147. The superior authority has to examine the reasons, material or grounds and to judge whether they are sufficient and adequate to the formation of the necessary belief on the part of the assessing officer. If, after applying his mind and also recording his reasons, howsoever briefly, the Commissioner is of the opinion that the AO’s belief is well reasoned and bonafide, he is to accord his sanction to the issue of notice u/ s. 148 of the Act. In the instant case, we find from the perusal of the order sheet ” which is on record, the Commissioner has simply put “approved” and signed the report thereby giving sanction to the AO. Nowhere the Commissioner has recorded a satisfaction note not even in brief Therefore, it cannot be said that the Commissioner has accorded sanction after applying his mind and after recording his satisfaction.

8. Hon ‘ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. Vs CIT 257 has held that “the proviso to sub-section (l) of section151 of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, that it is a fit case for the issue of such notice. These are some in-builts safeguards to prevent arbitrary exercise of power by an Assessing Officer to fiddle with the completed assessment”. The Hon ‘ble High Court further observed that “what disturbs us more is that even the Additional Commissioner has accorded his approval for action under section 147 mechanically. We feel that if the Additional Commissioner had cared to go through the statement of the said parties, perhaps he would not have granted his approval, which was mandatory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. 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. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case there has been no application of mind by the Additional Commissioner before granting the approval”.

9. The observations of the Hon ‘ble High Court are very much relevant in the instant case as in the present case also the Commissioner has simply mentioned “approved” to the report submitted by the concerned AO. In the light of the ratios/observations of the Hon ‘ble High Court mentioned hereinabove, we have no hesitation to hold that the reopening proceedings vis- a-vis provisions of Sec. 151 are bad in law and the assessment has to be declared as void ab initio. Ground No. 1 of assessee’s appeal is allowed.

10. As we have held that the reassessment is bad in law, we do not find it necessary to decide other issues which are on merits of the case.”

10.3 No contrary judgement or order is brought to our notice. This being a Co-ordinate Bench order, we are required to follow the same.

10.4. The decision cited by the Ld.D.R. does not pertain to the issue of contravention of provisions of S.151 of the Act. These judgements are on other aspects relating to reopening. Thus respectfully following the decision of the Coordinate Bench in the matter, we hold that the reopening is bad in law for the reason that the Ld.CIT -V, Delhi has not recorded his satisfaction as contemplated u/ s 151 of the Act.”

We find that similar approval was recorded in the case of assessee also which is apparent from paper book pages 329-330, a copy of which has been made part of this order as Annexure “A”. We find that the manner of recording satisfaction remains the same therefore, respectfully following the Coordinate Bench order, we decide that reassessment was not valid and in view of above C.O. filed by assessee is allowed. Since we have already held the reassessment as illegal, the appeal filed by revenue has become academic and therefore, it is dismissed as infructuous.

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