ITAT Rajkot Quashes Reassessment for Unsigned Section 151 Approval

Dhanji Murji Hirani Vs ITO (ITAT Rajkot)

Summary: The ITAT Rajkot Bench allowed the assessee’s appeal for AY 2019-20 and quashed the reassessment order on the ground that the approval under Section 151 of the Income-tax Act, 1961 was invalid. The Tribunal found that the approval document contained neither a physical nor a digital signature of the concerned authority and that the approval was granted mechanically without independent application of mind.

The reassessment arose after the assessee had not filed a return of income for the relevant assessment year. The Assessing Officer, relying upon information regarding financial transactions, initiated proceedings after following the procedure under Section 148A and issued notice under Section 148. During reassessment, the assessee was asked to establish the legitimate source of income used for remittances to the NRE account in India.

The Assessing Officer noticed an investment of Rs.1,00,60,306/- in a time deposit with Corporation Bank and, as the assessee did not initially furnish documentary evidence explaining its source, treated the investment as unexplained under Section 69 read with Section 115BBE. The DRP confirmed the addition after considering additional evidence, including salary and tax-paid income documents, passport, source statements, permanent-residence documents, and evidence concerning earlier FDRs and their maturity proceeds.

Before the Tribunal, the assessee principally challenged the validity of the approval under section 151. The assessee contended that the approval was unsigned and reflected no application of mind. The Tribunal examined the approval placed in the assessee’s paper book and found no physical or digital signature.

The Tribunal held that where the statute requires prior approval by the specified authority, the approval must demonstrate the authority’s satisfaction and application of mind. It observed that digital approval may legally suffice where properly authenticated through the Income Tax Business Application system, but the approval in the present case contained neither physical nor digital authentication.

The Tribunal further found that the approval recorded by the PCIT merely stated that, looking to the information received and opportunity given, the draft orders were in order and that the case was fit for issuance of notice under Section 148. According to the Tribunal, the approving authority had failed to record objective satisfaction based on the information underlying the reasons for reopening. The Tribunal also noted that the Additional/Joint CIT’s recommendation was similarly mechanical.

The Tribunal relied upon the principle that the statutory safeguard under Section 151 is not a mere technical formality. It referred to CIT v. S. Goyanka Lime & Chemicals Ltd., where mechanical sanction without application of mind was held insufficient, as well as Chhugamal Rajpal v. S.P. Chaliha & Ors., Shri Ghanshyam v. ITO and ITO v. Virat Credit & Holdings Pvt. Ltd. The Tribunal also referred to Adani Ports And Special Economic Zone Ltd. v. DCIT for the requirement of independent rather than borrowed satisfaction.

The Tribunal concluded that the sanction under Section 151 was contrary to law. Consequently, the very assumption of jurisdiction to reopen the assessment failed. It held that the subsequent proceedings were coram non judice and quashed the reopening and the consequential reassessment order under Section 147 read with Section 144C(13), dated 25.12.2024.

Since the reassessment itself was quashed, the remaining technical grounds and the merits of the Rs.1,00,60,306/- addition, including the applicability of Section 115BBE, were rendered academic and infructuous. The assessee’s appeal was accordingly allowed.

Cases Discussed

• Chottabhai Jethabhai Patel Vs. Union of India, 1962 SCR Supl. (2) 1006.
• Adani Ports And Special Economic Zone Ltd. Vs. DCIT, 35 taxmann.com 338 (Gujarat).
• CIT Vs. S. Goyanka Lime & Chemicals Ltd., 64 taxmann.com 313 (SC).
• Chhugamal Rajpal Vs. S.P. Chaliha & Ors., 79 ITR 603 (SC).
• Shri Ghanshyam Vs. ITO, ITA No. 238/Agra/2018 (Agra ITAT).
• M/s. Virat Credit & Holdings Pvt. Ltd., ITA No.89/Del./2012 (Delhi ITAT).

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT, RAJKOT BENCH

Captioned appeal filed by the assessee, pertaining to Assessment Year (AY) 2019-20, is directed against the order passed by the Learned Dispute Resolution Panel (Ld. DRP)/ Assessing officer, under section 147 r.w.s 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 02.12.2024.

2. The grounds of appeal raised by the assessee are as follows:

1. That, the reassessment u/s 148 of the I.T. Act has wrongly been made without having any information in possession.

2. That, the jurisdiction has been transferred from Bhavnagar to Gandhidham, without passing order u/s 127 of the I.T. Act.

3. That, the Id. assessing officer has passed the order without having jurisdiction.

4. That, the Ld. CIT(Ld. DRP-2) Mumbai-2 has wrongly confirmed the addition of Rs.1,00,60,306/-,on account of unexplained investment u/s 69 1.T. Act, 1961.

5. That, the Ld. assessing officer has wrongly applied provisions of section 115BBE of the I.T. Act, 1961.

6. That, the Ld. assessing officer has wrongly initiated penalty proceedings u/s 271AAC of the IT. Act, 1961

7. That the Ld. assessing officer has wrongly charged interest u/s 234A, 234B, and 234F of the I. T. Act. 1961.

8. That, the findings of the Ld. assessing officer and Ld. CIT(Ld. DRP-2) Mumbai-2 are not justified and are bad-in-law.”

3. The relevant material facts, as culled out from the material on record, are as follows. In this case the assessee had not filed return of income for the year under reassessment, in due course. As per the information and details available on record with the Department, it was noticed by the assessing officer that the assessee had made considerable financial transactions for having tax and revenue implications, however, the assessee failed to truly and correctly disclose the said transactions by filing return of income within the stipulated time limit provided u/s 139 of the Income Tax Act, 1961.Therefore, after following due process u/s 148A of the Income Tax Act, and recording reasons, a notice u/s 148 of the Act, was issued and served upon the assessee. During the course of assessment proceedings, the assessee was requested to furnish the legitimate source of income earned in his country of residence. In this regard, the assessee was requested to submit documents, like income statement/net worth statement filed with any statutory authority, bank account, in assessee`s country of residence to prove that the remittances to NRE account in India has been made out of sources of income/ known sources.

4. Assessing officer noticed that during the year under consideration, the assessee had made investment in time deposit of Rs.1,00,60,306/-, with Corporation Bank. During the course of assessment proceeding, the assessee was requested to furnish source of this time deposit with relevant documentary evidences. However, the assessee has not furnished relevant document with regard to source of aforementioned time- deposit. Thus, as per assessing officer, the source of investment made in time deposit amounting to Rs.1,00,60,306/- remains unexplained. Therefore, the amount of Rs.1,00,60,306/- was added to the total income of the assessee u/s.69 r.w.s.115BBE of the Act for the assessment year (AY) 2019-20.

5. Aggrieved by the draft order of the assessing officer, the assessee carried the matter in appeal before the ld. Dispute Resolution Panel ( in brief “Ld. DRP”), who has confirmed the action of the assessing officer. Before learned DRP, the assessee submitted additional evidences to prove the investment in time deposit of Rs.1,00,60,306/-in NRE Account No. 520121001132373, with Union Bank of India. That is, all related documents along with detailed entry wise justification for the same with supporting were submitted in the additional evidences. These additional evidences include, assessee’s company in country of residence regarding tax paid salary, copy of passport, Salary Statement, Source of Amount, copy of PR & copy of his legitimate source of tax paid salary, evidences about some of the previously made FDR made and matured and got credited in account. The assessee also submitted closure proceeds of FDR previously made. All these additional evidences were remitted back to the file of the assessing officer for his comment and remand report. The assessing officer, having examined, the above additional evidences, submitted his remand report before the learner DRP. The assessee also submitted his reply against the remand report of the assessing officer before the learned DRP. However, learned DRP rejected the contention of the assessee and held that assessee has not been able to prove that the sources of funds used for making investment in the time deposits/FDRs were legitimate and out of tax paid/disclosed sources of income. Therefore, learned DRP upheld the action of the assessing officer and confirmed the addition of Rs.1,00,60,306/- made by the assessing officer. Then, after, based on the above findings of the learned DRP, the assessing officer framed the final assessment order. Aggrieved by the order of the Ld. DRP/assessing officer, the assessee is in further appeal before this Tribunal.

6. Shri Kalpesh Doshi, Learned Counsel for the assessee, argued on first technical issue, raised in the grounds of appeal and stated that approval given by the higher authorities u/s 151 of the Act, is bad in law, as there is no signature on the approval, under section 151 of the Act, by any higher authorities, and approval is without application of mind, therefore assessment order framed by the assessing officer, based on “no approval” and based on non-application of mind, may be quashed.

7. On the other hand, the ld.CIT-DR for the revenue submitted that approval given by the higher authorities u/s 151 of the Act, is as per the provisions of the Act, therefore, ld.CIT-DR relied on the findings of the assessing officer.

8. We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld DRP and other materials brought on record. First, technical and legal issue raised by the assessee is that approval given by the higher authorities u/s 151 of the Act, is not signed by the concerned higher authority, and such approval was given without application of mind in a mechanical way, therefore, assessment order framed by the assessing officer, should be treated invalid in the eye of law. In order to adjudicate this technical issue, let us, first examine the document of the revenue authorities ( Income Tax Department) for approval under section 151 of the Income Tax Act 1961, which is placed in Paper Book at Page No. 57 of the assessee`s paper book. The said approval given by the higher authorities u/s. 151 of the Income Tax Act, 1961, is reproduced below, for our analysis:

9. From the above approval document, under section 151 of the Income Tax Act 1961, it is vivid that there is no signature of the concerned authority, therefore, in the absence of signature by the concerned Authority, the above approval document, cannot be enforced in the eye of law. In order to create a legal document, the first and primary condition is that it should be signed by the concerned authority. We note that section 151 of the Act, mandates prior approval of the “specified authority” before issuing a notice under Section 148 for income escaping assessment. If the document granting approval lacks a manual or digital signature, it calls into question the authority’s satisfaction. Physical signature is the traditional evidence of approval. In ITBA (Income Tax Business Application), digital approvals (like authenticated login-based approvals) may suffice legally if appropriately recorded. In the above approval note we find that there is neither physical signature nor digital signature of any Income tax authority. However, where no authentication or evidence of the approving authority’s satisfaction is found (either digitally or physically), the approval may be deemed invalid. Absence of evidence showing application of mind or digital signature led to reassessment quashing, and consequently, the reassessment order framed by the assessing officer, based on the above approval should be quashed.

10. Therefore, we note that an assessment order based on an unsigned approval under Section 151 may be quashed if, there is no evidence of digital or physical approval and there is no application of mind by the approving authority. Whenever a statute requires a particular act to be done in a particular manner and also lays down that failure to comply will have consequence. Whenever a statute requires a particular act to be done in a particular manner and also lays down that failure to comply will have consequence. In the assessee`s case under consideration, it would be difficult to accept the argument ld.CIT-DR for the revenue that approval under section 151 of the Act is in accordance with law. That is, in our view, approval under section 151 of the Act, is not in accordance with law, as there is non-application of mind by the assessing officer, as well as, there is no physical or digital signature, on the said approval by the concerned authority, under section 151 of the Act. Article 265 of the Constitution of India lays down that, “No tax shall be levied or collected except by authority of law”. The Hon’ble Supreme Court of India has held that the this provision under Article 265 of the Constitution of India is applicable not only for levy but also for the collection of taxes and the expression “assessment” within its compass covers both the aspects carried out by the executive functionary. Chottabhai Vs. Union of India 1962 SCR Supl.2 1006. Therefore, it is required that whole of the process of taxation must follow the procedures which are valid under the law and must adhere to law i.e. substantive one as well as procedural one too. Therefore, in other words it is provided in the Constitution of India that every step should be taken to ensure that levy and collection of the taxes is strictly in accordance with law – not only substantive one but the procedural law, as well.

11. We find that the order u/s 148A(d) of the Act and the notice u/s 148 of the Act are issued on 22/03/2023. It is stated in the order that the approval of specified authority has been obtained. However the same is silent as to which specified authority has given the approval. Also the notice u/s 148 of the Act is silent, as to from, which authority the approval was obtained by the assessing officer. However, the copy of approval u/s 151 of the Act, was provided to the assessee, dated 22/03/2023, which states that the approval of learned PCIT Ahmedabad-1, is obtained. With regards to the same it is stated by ld Counsel that the approval, so obtained is without application of mind and mechanical in nature also. The assessee`s case had been reopened by non-jurisdictional assessing officer not having international charge. Also the reopening is merely made on the basis of transaction value without quantifying the amount of income escapement. Further it is stated that the specified authority has merely stated that he is satisfied with the reasons and is convinced that the case is fit for the reopening without having tangible material on hand and merely by relying on third party information. The snapshot of para 22 from the approval is enclosed hereunder:

Further in the reasons provided, the addition has been suggested on the basis of transactions entered into the NRE account. However, it is stated that no domestic income can be credited in an NRE account and therefore there is no question of income earned or accrued in India. Therefore, it can be stated that the approval so provided is without application of mind and is mechanical in nature.

12. We note that provisions of section 151 of the Act are an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment, previously framed after scrutiny. Such requirement cannot be seen as technical. Compliance of such requirement is therefore, necessary before issuance of notice under section 148 of the Act, as held in the case of Adani Ports And Special Economic Zone Ltd. V. DCIT (35 taxmann.com 338) (Gujarat) wherein it has been held that the satisfaction recorded but the designated authority must reflect independent application of mind and not merely a borrowed satisfaction. The above approval is given by simply relying on reasons without applying mind and recording objective satisfaction stating documents perused. Therefore, we note that the authority has failed to peruse the information on the basis of which reasons are recorded. There is no objective satisfaction recorded by approving authority which reflects that there is application of mind and not borrowed satisfaction of assessing officer (AO).Therefore, it can be stated that the approval given by ld. PCIT is mechanical in nature and without application of mind.

13. In the assessee`s case the snapshot of Recommendations of the Additional/ Joint CIT is as follows:

The above recommendations approval is given without applying mind and without recording objective satisfaction. It is established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be “independent” and not “borrowed” or “dictated” satisfaction.

14. We note that the Hon’ble Supreme Court in the case of CIT v. S. Goyanka Lime & Chemicals Ltd. (64 taxmann.com 313) has dismissed the SLP and held that where Joint Commissioner recorded satisfaction in mechanical manner by merely quoting “yes I am satisfied” and without application of mind to accord sanction for issuing notice under section 148, reopening of assessment was invalid. Similar view has been taken by Hon’ble Supreme Court in the case of Chhugamal Rajpal Vs. S.P. Chaliha & Ors. (SC) (79 ITR 603), that the Commissioner had 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 section148. To question No. 8 in the report which read 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. The Court was 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 was a fit case to issue notice under section 148. The important safeguards provided in section 147 and 151 were highly treated by the ITO as well as by the Commissioner. Both of them appeared to have taken the duty imposed on them under these provisions as of little importance. They substituted the forum for the substance. In the result this appeal was allowed, the order of the High Court was set aside and the impugned notice quashed.

15. Our view is further fortified by the judgement of Co-ordinate Bench of ITAT Agra in the case of Shri Ghanshyam v. ITO (ITA No. 238/Agra/2018) (Agra ITAT), wherein it was held that section 151 of the Act provides a safeguard that the sword of section 147 of the Act may not be used unless the competent statutory officer is satisfied that the assessing officer has good and adequate reasons to invoke the reopening provisions. As per the mandate of section 151(2) of the Act, the Competent Authority has to examine the reasons, material or grounds on which the reopening is sought to be based and to judge as to whether they are sufficient and adequate to the formation of the necessary belief of escapement of income from taxation on the part of the assessing officer. It is, if and only if, the Competent Authority, after applying his mind, is of the opinion that the AO’s belief is well reasoned and bona-fide, that he will accord his sanction thereon. Similarly, the Co-ordinate Bench of ITAT Delhi in the case of M/s. Virat Credit & Holdings Pvt. Ltd. (ITA No.89/Del./2012) (Delhi ITAT), held that from the approval recorded and words used that “Yes, I am satisfied.”, it has proved on record that the sanction is merely mechanical and Addl. CIT has not applied independent mind while according sanction as there is not an iota of material on record as to what documents he had perused and what were the reasons for his being satisfied to accord the sanction to initiate the reopening of assessment u/s 148 of the Act.

16. Therefore, we note that the sanction granted is mechanical and contrary to section 151 of the Act. Therefore, in the light of the aforesaid facts and circumstances of the case as discussed , we find that the approval under section 151 of the Act, is not in accordance with Law, therefore, the very assumption of jurisdiction to reassess the assessees income fails. Since the approval under section 151 of the Act, is bad in the law , as discussed above, therefore the assumption of jurisdiction by assessing officer to reopen assessee`s case is itself corum non judice and, therefore, all subsequent action is null in the eyes of law and therefore, we quash the reopening and consequent reassessment order framed by assessing officer. Accordingly, we quash the reassessment order, under section 147 r.w.s.144C (13) of the Act, dated 25.12.2024.

17. As the reassessment itself is quashed, all other issues on technical grounds and on merits of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.

18.In the result, the appeal of the assessee is allowed.

Order is pronounced in the open court on 05/08/2025