Venky Steels Pvt. Ltd. Vs CIT-II & Another (Patna High Court)
Summary: The Patna High Court, in Venky Steels Pvt. Ltd. v. Commissioner of Income Tax-II & Another, examined the validity of a sanction granted under Section 151 of the Income-tax Act, 1961 for issuing a reassessment notice under Section 148. The petitioner, engaged in the iron and steel business, challenged a notice dated 26 March 2019 relating to Assessment Year 2013-14. The assessee had requested the recorded reasons for reopening in accordance with GKN Driveshafts (India) Ltd. v. ITO. The principal controversy concerned whether the prescribed authority had granted valid approval and whether the approval was mechanical.
Read SC Judgment in this case: Section 151 Sanction Valid Without Separate Reasons: SC Declines Interference
During the writ proceedings, the Department produced the relevant approval records through supplementary counter affidavits. These established that the Principal Commissioner of Income Tax-I, Patna, had approved reopening for Assessment Years 2012-13 and 2013-14. The approval stated that, based on the reasons recorded by the Assessing Officer, the Commissioner was satisfied that it was a fit case for issuing notice under Section 148. Consequently, the initial objection concerning the identity and competence of the sanctioning authority did not survive.
The petitioner nevertheless argued that the approval lacked independent reasons and was mechanical. Reliance was placed on PCIT v. N. C. Cables Ltd., (2017) 391 ITR 11 (Delhi High Court), PCIT v. Pioneer Town Planners Pvt. Ltd., (2024) 465 ITR 356, and Chhugamal Rajpal v. S. P. Chaliha, (1971) 79 ITR 603 (Supreme Court). These decisions dealt with situations where sanction had been expressed merely through words such as “Approved” or “Yes”, without adequate indication of application of mind.
The High Court distinguished those authorities. It observed that the Assessing Officer had recorded reasons for believing that income had escaped assessment and that those reasons accompanied the request for sanction. The Commissioner expressly recorded satisfaction on the basis of the Assessing Officer’s reasons. The Court held that Section 151 does not require the Commissioner to separately record elaborate or independent reasons, provided the requisite satisfaction on the Assessing Officer’s recorded reasons is expressed. This was materially different from an unexplained one-word approval.
Accordingly, the High Court declined to interfere with the reassessment notice and dismissed the writ petition. It nevertheless preserved the petitioner’s liberty to challenge the assessment order through a statutory appeal. Considering that the writ petition had been pending since 17 February 2020, the Court observed that the period of its pendency could be considered for condonation of delay if an appeal was filed within two months of uploading the judgment. The decision turns on the actual wording and supporting record of the sanction, rather than treating every brief approval as necessarily mechanical.
List of Cases Discussed:
1. PCIT v. Pioneer Town Planners Pvt. Ltd., (2024) 465 ITR 356 (Delhi High Court) — The Delhi High Court held that merely writing “Yes” as approval did not establish the requisite satisfaction under Section 151. Distinguished on the facts of the present case.
2. PCIT v. N. C. Cables Ltd., (2017) 391 ITR 11 (Delhi High Court) — The Delhi High Court held that a bare endorsement of “Approved” did not adequately reflect the sanctioning authority’s satisfaction. The principle is discussed in Section 151 Sanction for Issue of Income Tax Notice by Higher Authorities. The Patna High Court distinguished the facts while accepting that satisfaction must be recorded.
3. GKN Driveshafts (India) Ltd. v. Income Tax Officer and Others, (2003) 259 ITR 19 (Supreme Court) — Prescribed the procedure for seeking recorded reasons and raising objections after receipt of a reassessment notice.
4. Chhugamal Rajpal v. S. P. Chaliha and Other, (1971) 79 ITR 603 (Supreme Court) — The Supreme Court disapproved reassessment founded on vague suspicion and mechanical sanction. The decision is discussed in Sanctity of Approval of Higher Authority under Section 151. Distinguished because the Assessing Officer’s recorded reasons and the Commissioner’s express satisfaction were available in the present case.
FULL TEXT OF THE JUDGMENT/ORDER
The petitioner is concerned with the assessment year 2013-14; on which a notice has been issued under Section 148 of the Income Tax Act, 1961. The petitioner carries on the business of iron and steel and had filed the returns for the subject assessment year marked as Annexure-1. A notice was issued under Section 148 on 26.03.2019; as per Annexure-2 pursuant to which, Annexure-3 was also filed on 24.04.2019. The petitioner then, by Annexure-4 sought for the reasons recorded in writing, for the purpose of issuing a notice under Section 148; as has been held by the Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. v. Income Tax Officer and Others; (2003) 259 ITR 19(SC). Eventually, the reasons were supplied by the subsequent notices, as admitted by the petitioner in the writ petition.
2. Sri D. V. Pathy, learned Counsel for the petitioner has specifically spoken of the approval having not been recorded, as is required under Section 151.
3. By order dated 10.01.2024, a Division Bench of this Court noticed the proviso to Section 151 specifically prescribing that any notice issued after the period shall be sanctioned by the Principal Commissioner of Income Tax, especially noticing the fact that the satisfaction in the instant case is of the Commissioner of Income Tax-I, Patna; explicit from Annexure-2. The Division Bench directed the order of approval of the appropriate authority to be produced and any notification issued designating the Commissioner of Income Tax as the Principal Chief Commissioner.
4. The Department by a supplementary counter affidavit dated 19.01.2024 produced Annexure-S, which is a communication issued by the Income Tax Officer (Tech.) on behalf of the Principal Commissioner of Income Tax-I, Patna. This speaks of approval of issue of notices under Section 148 with respect to four assessees; the writ petitioner being one of them. The notices approved in the case of the petitioner was with respect to two assessment years; 2012-13 and 2013-14.
5. By a further supplementary counter affidavit dated 15.04.2024, is produced Annexure-T, which is the approval of the Principal Commissioner of Income Tax-I, Patna. Annexure-T comprise of two separate approvals, for the two assessment years of 2012-13 and 2013-14. Column 11 of Annexure-T indicates the reasons for belief entertained by the Assessing Officer, as separately enclosed by Annexure-A.
6. For both the years, the Commissioner’s approval is recorded in the following manner:-
“Based on the reasons recorded, I am satisfied that this is a fit case for issuing notice under Section 148.”
7. Obviously, the confusion with respect to sanction having been granted by the Commissioner of Income Tax does not survive. However, the learned Counsel for the petitioner urged that the approval is mechanical and does not disclose any reasons. He relies on two judgments of the Delhi High Court and one of the Hon’ble Supreme Court.
8. In Principal Commissioner of Income Tax v. N. C. Cables Ltd; (2017) 391 ITR 11 (Del), therein the reasons recorded for re-opening of assessment under Section 148; after the expiry of 4 years, which required approval of the Commissioner of Income Tax, when put up to the approving authority, was approved by a single word i.e. ‘Approved’. The mere expression ‘approved’ denotes nothing, was the finding of the High Court of Delhi.
9. Principal Commissioner of Income Tax v. Pioneer Town Planners Pvt. Ltd.; (2024) 465 ITR 356 (Del) also indicated the mere phrase ‘Yes’ having been appended as approval which was held to be mechanical, on the face of it. The question dealt with was as to whether simply penning down a ‘Yes’ would be requisite satisfaction, as per Section 151 of the Act. N. C. Cables (supra) was relied on to find the approval to be not in consonance with the approval required under Section 151.
10. Chhugamal Rajpal v. S. P. Chaliha and Other; (1971) 79 ITR 603 (SC) was a case in which it was found that even the Income Tax Officer had not come to a prima facie conclusion that the loan transactions to which he referred were not genuine transactions and he appeared to have entertained only a vague feeling that they might be bogus transactions, which conclusion did not fulfill the requirement of Section 151(2). It was held that the Assessing Officer has to give reasons for issuing a notice under Section 148 and there should be some prima facie grounds before him, for taking such action. Therein, the reasons recorded by the Income Tax Officer that proper investigation regarding some loans is necessary, was itself faulted. The conclusion of the Assessing Officer was only that there is a case for investigation as to the truth of the alleged transactions, which was held to be not a reason to issue notice under Section 148. Further, the Commissioner had noted the word ‘Yes’ as an approval without anything more.
11. Obviously, that is not the case here. The Assessing Officer had recorded reasons for believing that there was income escaping assessment which reasons, were also appended to the request for approval made to the Commissioner. The Commissioner had obviously read the reasons and made a written order that he was satisfied on the basis of reasons recorded, that this was a fit case for notice issued under Section 148. Section 151 requires the Principal Commissioner to be satisfied of the reasons recorded by the Assessing Officer, that it was a fit case for issuance of such notice, where the notice was issued beyond expiry of 4 years. There is no requirement for the Commissioner to record his own reasons and it would suffice that he records the satisfaction regarding the reasons recorded by the Assessing Officer.
12. In N.C. Cables (supra) the High Court of Delhi held in para 11, that: “It is not as if the Commissioner of Income-tax (Appeals) has to record elaborate reasons for agreeing with the noting put up. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner.” (sic para 11) This is in consonance with our finding in the previous paragraph.
13. We find absolutely no reason to interfere with the notice issued under Section 148, on the grounds raised in the writ petition.
14. The assessment order, amenable to statutory appeal can be challenged, subject to just exceptions on limitation. On that count, we notice that the above writ petition was registered on 17.02.2020 and has been pending till date, which period obviously can be considered for condonation, if an appeal is filed within a period of 2 months from the date of uploading of this order. We make it clear that we have not looked at the delay, otherwise than the pendency of the writ petition; which period alone we observe, is entitled to condonation. The writ petition stands dismissed with the above liberty.
