Power to Approve Assessment Reopening cannot be exercised casually on a routine perfunctory manner

Vodafone India Ltd Vs Deputy Commissioner of Income Tax (Bombay High Court)

Power to Approve Assessment Reopening cannot be exercised casually on a routine perfunctory manner

The Bombay High Court recently delivered a significant ruling in the case of Vodafone India Ltd Vs Deputy Commissioner of Income Tax, shedding light on the proper exercise of power in approving assessment reopening under the Income Tax Act, 1961. The judgment emphasizes the importance of applying due diligence and avoiding casual or routine approvals.

The case revolved around a notice issued under Section 148A(b) of the Income Tax Act, 1961 (“the Act”), an order passed under Section 148A(d) of the Act, and a subsequent notice issued under Section 148 of the Act. The petitioner challenged these actions on various grounds, including the contention that the approval for issuing the order under Section 148A(d) was granted without proper application of mind.

The court observed that the approval process for the order under Section 148A(d) of the Act appeared to have been conducted mechanically, without careful consideration of the relevant facts. The discrepancy between the amount mentioned in the notice and the amount in the order raised doubts about the diligence exercised in the approval process.

The court highlighted that the power vested in the authorities to approve assessment reopening under Section 151 of the Act carries a corresponding duty to apply their minds to the proposal put forward by the Assessing Officer (AO). The court criticized the casual manner in which approvals were being granted, noting that such practices not only delayed assessment proceedings but also affected the revenue of the nation.

Furthermore, the court emphasized that the safeguards provided in Sections 147 and 151 of the Act should not be treated lightly by the authorities. It stressed the importance of verifying the genuineness of the material suggesting income escapement before granting approval for assessment reopening.

In light of these observations, the court quashed and set aside the impugned order passed under Section 148A(d) of the Act and the consequent notice issued under Section 148 of the Act. The court also directed that a copy of the order be sent to the Revenue Secretary, Ministry of Finance, Government of India, for information and necessary action, expressing hope for remedial measures to address the casual behavior in the approval process.

In conclusion, the ruling in Vodafone India Ltd Vs Deputy Commissioner of Income Tax underscores the significance of exercising discretion with diligence and underscores the duty of authorities to uphold the integrity of assessment procedures under the Income Tax Act.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Petitioner is impugning a notice dated 30^th March 2023 under Section 148A(b) of the Income Tax Act, 1961 (“the Act”), an order dated 19^th April 2023 passed under Section 148A(d) of the Act and a notice dated 19^th April 2023 issued under Section 148 of the Act on various grounds.

2. One of the grounds raised across the bar is that the sanction for issuance of the order under Section 148A(d) of the Act has been granted without application of mind by all the five officers involved. For ease of reference, the sanction under Section 151 is scanned and reproduced herein:

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3. Mr. Mistri states this ground could not have been taken in the Petition because the sanction was made available only with the sur-rejoinder filed by L. A. Janbandhu, Deputy Commissioner of Income Tax-5(2)(1), Mumbai and affirmed on 5^th March 2024. We totally agree with Mr. Mistri’s submission that the approval has been applied for and granted mechanically. In column 7- the quantum of income which has escaped assessment, the amount is Rs.42858,47,29,611/-. In the impugned order passed under Section 148A(d) of the Act, the amount mentioned as having escaped assessment is totaling to Rs.12431,99,24,486/-. A summary of amount reflected in the notice dated 30^th March 2023 issued under Section 148A(b) of the Act, vis-a-vis., an amount in order dated 19^th April 2023 reads as under:

4. In the approval, the Principal Chief Commissioner of Income Tax (“PCCIT”) states, “………… Based on the material available on record and careful consideration of the same, I am satisfied that it is a fit case to issue notice under Section 148 of the IT Act. Hence, draft order submitted by the Assessing Officer under Section 148A(d) of the Act is hereby approved”. In our view, this is an incorrect statement made by the PCCIT that the record has been carefully considered before granting of approval. We say this because the record would certainly have contained the notice issued under Section 148A(d) of the Act and the information annexed to that notice states escapement of income in the sum of Rs.42858,47,29,661/-, whereas the amount mentioned in the order passed under Section 148A(d) of the Act totals to Rs.12431,99,24,486/-. In the said order, there is not even an explanation as to how the amount has changed or has gone down.

In the affidavit in reply, it is stated that in the notice the transaction value was taken gross and subsequently it was seen that there were duplicate entries which were corrected while passing the order dated 19^th April 2023. The notice issued does not contain any duplicate entries. If there were duplicate entries, the Assessing Officer (“AO”) was duty bound to issue clarification in the order and also give details of what were those duplicate entries. The AO should have come clean on the error made. Therefore, if only the PCCIT or the other officers had bothered to see the records and had really applied their mind to the same, these errors would not have crept in. This displays total non-application of mind by all those persons who have endorsed their approval for issuance of notice under Section 148 of the Act. With great regret, we have to mention that these approvals are being granted mechanically and without application of mind and this is not the only matter. Innumerable orders passed under Section 148A(d) of the Act are being set aside in view of the approval being granted without application of mind. Officer should realize that this is also delaying assessment/ reassessment proceedings and is also affecting the revenue of the nation. We find that the approval has been granted in a most casual manner. The power vested in the Authorities under Section 151 to grant or not to grant approval to the AO to reopen the assessment is coupled with a duty. The Authorities were duty bound to apply their mind to the proposal put up for approval in the light of material relied upon by the AO. That power cannot be exercised casually on a routine perfunctory manner. The important safeguards provided in Section 147 and 151 were treated lightly by the officers. While recommending and granting approval it was obligatory on the part of the officers to verify whether there was any genuine material to suggest escapement of income. It was obligatory on all the Authorities and PCCIT in particular to consider whether or not power to reopen is being invoked properly. We are of the opinion that if only the Authorities had read the record carefully, they would never have come to the conclusion that this is a fit case for issuance of notice under Section 148 of the Act. They would have either told the AO to correct the figures in Column 7 or would have sent the papers back for reconsideration. These officers have substituted the form for substance.

5. We, therefore, quash and set aside the impugned order dated 19^th April 2023 passed under Section 148A(d) of the Act. The consequent notice issued under Section 148 of the Act also dated 19^th April 2023 is also quashed and set aside.

6. Petition disposed. No order as to costs.

7. A copy of this order be sent to the Revenue Secretary, Ministry of Finance, Government of India, New Delhi, for information and necessary action. We only hope that some remedial action will be taken to stop this casual behaviour.