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Facts
The assessee filed a return of income declaring Rs. 21,05,130/-. The Assessing Officer (AO) sought to reopen the assessment under section 147, citing cash deposits and capital gains as escaped income. The AO issued a notice under section 148. The assessee challenged the validity of the assumption of jurisdiction under section 147.
Held
The tribunal held that the approval for reopening the assessment under section 151 was granted mechanically and without proper application of mind by the Principal Commissioner of Income Tax (PCIT). Additionally, the notice under section 148 was issued by an officer without proper jurisdiction, violating CBDT instructions. Consequently, the reassessment proceedings were vitiated.
Key Issues
Validity of assumption of jurisdiction under Section 147 of the Act due to mechanical approval under Section 151 and lack of proper jurisdiction in issuing notice under Section 148.
Sections Cited
143(3), 147, 148, 151, 139(1)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “C”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI SUDHIR KUMAR
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2012-13, arises out of the order of the ld National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 16.09.2024 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 26.12.2019 by the Assessing Officer, ACIT, Circle-2(2)(1), Ghaziabad (hereinafter referred to as ‘ld. AO’).
We find that the assessee had raised additional grounds before us challenging the validity of assumption of jurisdiction u/s 147 of the Act. Since this being a legal issue going to the root of the matter and facts relevant for its adjudication are on record, we deem it fit to admit the same and first address the assumption of jurisdiction u/s 147 of the Act.
We have heard the rival submissions and perused the material available on record. The assessee has filed its return of income on 26.09.2012 for AY 2012-13 declaring total income of Rs. 21,05,130/-. The assessee is engaged in the business of trading of Air Conditioners. The learned AO received information that there were some cash deposits amounting to 51,60,120/- made with Punjab National Bank. The learned AO issued notice dated 22.2.2019 under section 133(6) of the Act to enquire about the source of cash deposit. The assessee filed reply dated 6.3.2019 explaining the source and filed financial statements together with the copy of ITR acknowledgement before the learned AO. Ignoring the said reply, the Learned AO sought to reopen the case of the assessee under section 147 of the Act on the ground that cash deposit of Rs 51,60,120/- and capital gain on sale of property of Rs 33,51,500/- had escaped assessment. Notice under section 148 of the Act stood issued to the assessee on 30.3.2019. The reasons recorded for reopening the assessment together with the approval granted by the Learned Principal Commissioner of Income Tax, Ghaziabad in terms of section 151 of the Act are enclosed in pages 24 to 27 of the Paper Book. On perusal of the proforma seeking approval u/s 151 of the Act, we find that the Learned PCIT had merely stated that he is satisfied that this is fit case for reopening. This sort of approval granted u/s 151 of the Act was held to be approval granted without application of mind and construed as mechanical by the Hon’ble Madhya Pradesh High Court in the case of CIT Vs. S. Goyenka Lime and Chemicals Ltd reported in 56 taxmann.com 390 (MP HC). The Special Leave Petition (SLP) filed by the revenue against this decision was dismissed by the Hon'ble Supreme Court reported in 64 taxmann.com 313. Further, we find that the Hon’ble Jurisdictional High court in the case of PCIT Vs. NC Cables Ltd reported in 391 ITR 11 (Del) had also held the same, wherein, the approving authority had merely stated “approved” in the proforma while granting approval in terms of section 151 of the Act. This approval was held by the Hon’ble Jurisdictional High court to be a mechanical approval. The relevant observation of the Hon’ble Jurisdictional High Court in this regard are reproduced herein:-
“11. Section 151 of the Act clearly stipulates that the CIT (A), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression 'approved' says nothing. It is not as if the CIT (A) 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. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the Court is satisfied that the findings by the ITAT cannot be disturbed.
12. The substantial questions of law framed are answered in favour of the assessee and against the Revenue. The appeal is dismissed.”
4. The Hon’ble Delhi High Court in the recent decision in the case of SBC Minerals P Ltd vs ACIT reported in 475 ITR 360 (Del) had held as under:-
“8. During arguments, learned counsel for the petitioner has restricted the challenge only to the grant of sanction under section 151 of the Act, stating that the same has been granted mechanically and without due application of mind, and therefore, the grant of sanction is liable to be declared as nullity and invalid, and resultantly, the impugned order passed under section 148A(d) and the impugned notice under section 148 issued consequent to the grant of sanction are liable to be quashed.
9. Per contra, learned counsel for the respondent while defending the order granting approval, has submitted that the approval has been granted based upon the material placed before PCCIT. It is further submitted that the order granting approval need not mention the reasons as the same is based on a prima facie finding arrived at from the record.
Before considering the merits of the contentions of the parties, it would be apposite to examine the relevant legal framework.
Section 151 of the Act, as it stood prior to the substitution by Act of 13 of 2001 is reproduced hereunder:- "151. Sanction for issue of notice.—(1) No notice shall be issued under section 148 by an Assessing Officer, after the expiry of a period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. (3) For the purposes of sub-section (1) and sub- section (2), the Principal Chief Commissioner or the Chief Commissioner or the Principal Commissioner or the Commissioner or the Joint Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself."
A plain reading of the aforesaid provision clearly indicates that the prescribed authority must be "satisfied", on the reasons recorded by the Assessing Officer ["AO"], that it is a fit case for the issuance of such notice. Thus, the satisfaction of the prescribed authority is a sine qua non for a valid approval.
It is a trite law that the grant of approval is neither an empty formality nor a mechanical exercise. The Competent Authority must apply its mind independently on the basis of material placed before it before grant of sanction.
Perusal of the record reveals that the request for approval under section 151 of the Act in a printed format was placed before the Principal Chief Commissioner of Income-tax ["PCCIT"] on 20-3-2023. PCCIT granted the approval the same day. The approval accorded by the PCCIT in Column No. 22 is extracted below:- 22 Reasons for according Remarks: Approved u/s 148A(d) as a fit approval/rejection by the case. specified authority to order u/s Name: RAJAT BANSAL 148A(d) AND/OR issuance of Designation: PCCIT, DELHI notice under section 148 of the Date: 20/03/2023 Income-tax Act, 1961?
It is evident that the approval order is bereft of any reasons. It does not even refer to any material that may have weighed in the grant of approval. The mere appending of the word "approved" by the PCCIT while granting approval under section 151 to the re-opening under section 148 is not enough. While the PCCIT is not required to record elaborate reasons, he has to record satisfaction after application of mind. The approval is a safeguard and has to be meaningful and not merely ritualistic or formal. The reasons are the link between material placed on record and the conclusion reached by the authority in respect of an issue, since they help in discerning the manner in which the conclusion is reached by the concerned authority. Our opinion in this regard is fortified by the decision of the Apex Court in Union of India v. Mohan Lal Capoor AIR 1974 SC 87. The grant of approval by PCCIT in the printed format without any line of reason does not fulfil the requirement of Section 151 of the Act.
We note that dealing with an identical challenge of approval having been accorded mechanically and without due application of mind had arisen for our consideration in the case of Pr. CIT v. Pioneer Town Planners (P.) Ltd. [2024] 160 taxmann.com 652/465 ITR 356 (Delhi)/SCC OnLine Del 1685, wherein, we had held as follows:- "13. The primary grievance raised in the instant appeal relates to the manner of recording the approval granted by the prescribed authority under Section 151 of the Act for reopening of assessment proceedings as per Section 148 of the Act. ** ** ** 17. Thus, the incidental question which emanates at this juncture is whether simply penning down "Yes" would suffice requisite satisfaction as per Section 151 of the Act. Reference can be drawn from the decision of this Court in N. C. Cables Ltd., wherein, the usage of the expression "approved" was considered to be merely ritualistic and formal rather than meaningful. The relevant paragraph of the said decision reads as under:- "11. Section 151 of the Act clearly stipulates that the Commissioner of Income-tax (Appeals), who is the competent authority to authorize the reassessment notice, has to apply his mind and form an opinion. The mere appending of the expression "approved" says nothing. 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. In the present case, the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the court is satisfied that the findings by the Income-tax Appellate Tribunal cannot be disturbed."
18. Further, this Court in the case of Central India Electric Supply Co. Ltd. v. ITO [2011 SCC OnLine Del 472] has taken a view that merely rubber stamping of "Yes" would suggest that the decision was taken in a mechanical manner. Paragraph 19 of the said decision is reproduced as under: - "19. In respect of the first plea, if the judgments in Chhugamal Rajpal [1971] 79 ITR 603 (SC), Chanchal Kumar Chatterjee [1974] 93 ITR 130 (Cal) and Govinda Choudhary and Sons case [1977] 109 ITR 370 (Orissa) are examined, the absence of reasons by the Assessing Officer does not exist. This is so as along with the proforma, reasons set out by the Assessing Officer were, in fact, given. However, in the instant case, the manner in which the proforma was stamped amounting to approval by the Board leaves much to be desired. It is a case where literally a mere stamp is affixed. It is signed by an Under Secretary underneath a stamped Yes against the column which queried as to whether the approval of the Board had been taken. Rubber stamping of underlying material is hardly a process which can get the imprimatur of this court as it suggests that the decision has been taken in a mechanical manner. Page | 5 Even if the reasoning set out by the Income-tax Officer was to be agreed upon, the least which is expected is that an appropriate endorsement is made in this behalf setting out brief reasons. Reasons are the link between the material placed on record and the conclusion reached by an authority in respect of an issue, since they help in discerning the manner in which conclusion is reached by the concerned authority. Our opinion is fortified by the decision of the apex court in Union of India v. M. L. Capoor, AIR 1974 SC 87, 97 wherein it was observed as under: "27.. .. We find considerable force in the submission made on behalf of the respondents that the 'rubber stamp' reason given mechanically for the supersession of each officer does not amount to 'reasons for the proposed supersession'. The most that could be said for the stock reason is that it is a general description of the process adopted in arriving at a conclusion. 28.... If that had been done, facts on service records of officers considered by the Selection Committee would have been correlated to the conclusions reached. Reasons are the links between the materials on which certain conclusions are based and the actual conclusions. They disclose how the mind is applied to the subject-matter for a decision whether it is purely administrative or quasi-judicial. They should reveal a rational nexus between the facts considered and the conclusions reached. Only in this way can opinions or decisions recorded be shown to be manifestly just and reasonable."[emphasis supplied]."
19. In the case of Chhugamal Rajpal, the Hon'ble Supreme Court refused to consider the affixing of signature alongwith the noting "Yes" as valid approval and had held as under:- "5. --- 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 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 signatures 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 those provisions as of little importance. They have substituted the form for the substance."
This Court, while following Chhugamal Rajpal in the case of Ess Adv. (Mauritius) S. N. C. Et Compagnie v ACIT [2021 SCC OnLine Del 3613], wherein, while granting the approval, the ACIT "This is fit case for issue of notice under section 148 of-has written the Income- tax Act, 1961. Approved", had held that the said approval would only amount to endorsement of language used in Section 151 of the Act and would not reflect any independent application of mind. Thus, the same was considered to be flawed in law.
The salient aspect which emerges out of the foregoing discussion is that the satisfaction arrived at by the prescribed authority under section 151 of the Act must be clearly discernible from the expression used at the time of affixing its signature while according approval for reassessment under section 148 of the Act. The said approval cannot be granted in a mechanical manner as it acts as a linkage between the facts considered and conclusion reached. In the instant case, merely appending the phrase "Yes" does not appropriately align with the mandate of Section 151 of the Act as it fails to set out any degree of satisfaction, much less an unassailable satisfaction, for the said purpose.
So far as the decision relied upon the Revenue in the case of Meenakshi Overseas Pvt. Ltd. is concerned, the same was a case where the satisfaction was specifically appended in the proforma in "Yes, I am satisfied". Moreover, paragraph 16 of-terms of the phrase the said decision distinguishes the approval granted using the expression "Yes" by citing Central India Electric Supply, which has already been discussed above. The decision in the case of Experian Developers P. Ltd. would also not come to the rescue of the Revenue as the same does not deal with the expression used in the instant appeal at the time of granting of approval 23. Therefore, it is seen that the PCIT has failed to satisfactorily record its concurrence. By no prudent stretch of imagination, the expression "Yes" could be considered to be a valid approval In fact, the approval in the instant case is apparently akin to the rubber stamping of "Yes" in the case of Central India Electric Supply."
The decision in Pioneer Town Planners (P.) Ltd. (supra) case has been followed by this Court in number of other cases including the recent case of Pr. CIT v. MDLR Hotels (P.) Ltd. [IT Appeal No. 593 of 2023, dated 30-7-2024].
As noticed aforesaid, we are of the firm opinion that the PCCIT has failed to satisfactorily record its concurrence. By no stretch of imagination, the mere use of expression "approval" could be considered to be a valid approval as the same does not reflect any independent application of mind. Grant of approval in such manner in this case is flawed in law.
Hence, for the reasons stated above, we are of the view that the approval granted by the PCCIT for issuance of order under section 148A(d) is not valid. Consequently, the order passed under section 148A(d) and the notice under section 148 issued pursuant to order under section 148A(d) are set aside and quashed.
20. Writ Petition is disposed in terms of the aforesaid order.
5. Similar view was also taken by the Hon’ble Bombay High Court in the case of Vodafone India Ltd vs DCIT reported in 464 ITR 385 (Bom). For the sake of convenience, the entire order is reproduced below:-
“ORDER
1. Petitioner is impugning a notice dated 30th March 2023 under Section 148A(b) of the Income Tax Act, 1961 ("the Act"), an order dated 19th April 2023 passed under Section 148A(d) of the Act and a notice dated 19th 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:
3. Mr. Mistri states this ground could not have been taken in the Petition because the sanction was made available only with the surrejoinder filed by L. A. Janbandhu, Deputy Commissioner of Income Tax-5(2)(1), Mumbai and affirmed on 5th 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 30th March 2023 issued under Section 148A(b) of the Act, visa-vis., an amount in order dated 19th April 2023 reads as under: Summary of Amount reflected in notice dated 30.03.2023 vis-a-vis Amounts in order dated 19.04.2023 Entity Information amount as per Notice Amounts as per Order Differences Name dtd 30.03.2020 19.04.2023 VCL 88,327,187,135 23796537779 64,530,649,356 VDL 64,194,219,901 16356031168 47,838,188,733 VEL 16,331,855,448 4454592437 11,877,263,011 VSL 154,472,355,369 50735554674 103,736,800,695 VSPL 57,285,990,365 18694379653 38,591,610,712 VWL 47,973,121,393 10282828775 37,690,292,618 Grand 428,584,729,611 124,319,924,486 304,264,805,125 Total Amt. in 42,858.47 12,431.99 30,426.48 Crs.
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 19th 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.
We, therefore, quash and set aside the impugned order dated 19th April 2023 passed under Section 148A(d) of the Act. The consequent notice issued under Section 148 of the Act also dated 19th 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.
Respectfully following the aforesaid decisions, we hold that the reopening has been made in the instant case by not taking approval u/s 151 of the Act from the competent authority in the manner known to law, which would vitiate the entire reassessment proceedings.
Further we find that the assessee had filed his original return of income under section 139(1) of the Act declaring total income of Rs 21,05,130/-. Hence the jurisdiction of the assessee’s case lies with Assistant Commissioner of Income Tax (ACIT), Circle -2, Ghaziabad , whereas the notice under section 148 of the Act was issued on 30-3- 2019 by ITO Ward 2(5), Ghaziabad. Infact the case of the assessee was transferred from ITO Ward 2(5), Ghaziabad to ACIT, Circle 2, Ghaziabad vide letter dated 15.11.2019 by clearly stating that the income returned is more than Rs 15 lakhs and hence the jurisdiction does not lie with ITO and instead it lies only with ACIT in view of CBDT Instruction No. 1/2011 dated 31.1.2011. Hence the assumption of jurisdiction by the ITO Ward 2(5), Ghaziabad is in direct violation of CBDT Instruction No.1/2011 dated 31.1.2011 which also would vitiate the entire reassessment proceedings.
In view of the aforesaid observations, the entire reassessment proceedings are hereby quashed for more than one reason. Hence, the legal issue raised in the additional grounds challenging the validity of assumption of jurisdiction u/s 147 of the Act is allowed in the above mentioned terms. Since the reassessment is quashed, the other legal grounds raised by the assessee as well as the grounds raised by the assessee on merits need not be adjudicated and they are left open.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 27/03/2026.