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Facts
The assessee filed a return declaring a loss. The case was reopened based on a search and seizure operation. The assessment was completed determining a substantial taxable income. The assessee's appeal to the CIT(A) was dismissed.
Held
The Tribunal held that the reopening of assessment was bad in law as the approval from the competent authority was not obtained in the manner prescribed by law. The reference to an omitted section (147(b)) and the lack of a proper application of mind by the approving authority were key factors.
Key Issues
Whether the reassessment proceedings were validly initiated and whether the approval granted by the competent authority was in accordance with the law, particularly concerning the reference to an omitted section and the application of mind.
Sections Cited
147, 148, 143(3), 153C, 151, 150(1), 150(2), 292B
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Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
Before: SHRIS.RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
(Assessment Year: 2011-12) Naveen Kumar Gupta, vs. ITO, Ward 26 (1), F – 26/124, Sector 7, New Delhi. Rohini, New Delhi – 110 085. (PAN :AECPG9170M) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Kapil Goel, Advocate REVENUE BY : Ms. Sarita Kumari, CIT DR Date of Hearing : 22.04.2025 Date of Order : 18.06.2025 O R D E R
PER S.RIFAUR RAHMAN, ACCOUNTANT MEMBER :
This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax Appeals-9, New Delhi [hereinafter referred to as ‘ld. CIT (A)] dated 26.11.2019 for Assessment Year 2011-12.
Brief facts relating to the present case are, assessee filed its return of income on 30.09.2011 declaring loss of Rs.2,50,39,010/-. The business of the assessee is of trading in shares, securities, commodities, F&O, forex Trading etc. The case of the assessee was considered for reopening based on the Anand Kumar Jain and Naresh Kumar Jain group of cases on 17.12.2015. On examination of the documents seized during the course of search and bank statements of shell companies operated and controlled by the above Jain brothers and as per the reports available with the AO, assessee also an accomplice in this business for many years. Based on various informations, the case of the assessee was reopened and accordingly, notice u/s 148 of the Act was issued after taking prior approval of the competent authority requiring the assessee to file his return of income. Accordingly, the abovesaid notice was issued on 28.03.2018. Accordingly, assessment u/s 147 read with section 143(3) was passed determining the taxable income at Rs.11,93,64,350/-.
Aggrieved assessee preferred an appeal before the ld. CIT (A) and ld. CIT(A) dismissed the appeal preferred by the assessee. Subsequently, assessee preferred an appeal before the ITAT and assessee has challenged various jurisdictional issue raising several grounds. The coordinate Bench has decided one of the jurisdictional issues raised by the assessee relating to the issue of whether the assessment has to be completed u/s 153C or 147 of the Act. Accordingly, they have decided in favour of the assessee and adjudicated only ground no.1.3 raised by the assessee.
Subsequently, Revenue filed an appeal before the Hon’ble Delhi High Court and Hon’ble Delhi High Court passed an order dated 20.11.2024, remitted ITAT with a direction to examine the other grounds on which the assessee had raised in its appeal. Accordingly, the appeal is restored back to ITAT.
Based on the above background, the appeal of the assessee was taken up for hearing today and ld. AR of the assessee made submission on other jurisdictional issues raised by the assessee and the grounds are as under :-
1. That on the facts and in the circumstances of the case and in law, ld C1T-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that assumption of jurisdiction u/s 148 was by Ld AO was in violation of mandatory jurisdictional conditions stipulated under the Act; 1.1 That on the facts and in the circumstances of the case and in law, ld C1T-A erred in sustaining the order passed by Ld AO u/s 1471143 (3) without appreciating that in reasons recording proforma for seeking approval/sanction, section 147(b) is mentioned in column no.7 which provision is omitted 2 decades ago showing patent non application of mind on part of concerned authorities (Ld AO/ Ld PCIT). 1.2 That on the facts and in the circumstances of the case and in law, ld C1T-A erred in sustaining the order passed by Ld AO u/s 147/143(3) without appreciating that no date is mentioned Oil reasons of Ld AD & with stated approval of PCIT-9 which is a fatal defect coupled with mechanical approval in ritualistic manner (I am satisfied ...).
6. At the time of hearing, ld. AR of the assessee brought to our notice proforma of sanction for initiating proceeding u/s 148 was filed. With reference to above proforma of approval, ld. AR raised following issues :- A) In sanction proforma u/s 151 as supplied to assessee by ld. AO, reference is made to omitted provision of sec 147(b), which is ITAT; B) In sanction proforma where concerned PCIT has given sanction, no date is mentioned, which is also fatal to instant reopening action; C) Sanction u/s 151 is given in mechanical and generic manner without application of mind; D) Assessee is never supplied with relied upon material referred in reasons recorded u/s 148(2) S.No Aspect/Issue Brief Submission Relied upon case laws 1 In sanction In series of decisions of the On issue of fatal proforma u/s 151 Hon’ble ITAT it is impact of reference as supplied to consistently held that to omitted sec assessee by Ld reference in sanction 147(b) in sanction AO , reference is proforma of provision proforma made to omitted which is omitted would a) Delhi bench provision of sec render the reopening invalid Amit Khatri I.T.A 147(b), which is No.2430/Del/2023 no longer res (18.12.2024) integra and is held to be fatal in b) Delhi bench series of cases by Rajeev Kumar this hon’ble ITAT Arora 641, 698 & 642/Del/2024 (16.10.2024) c) Delhi Bench Montreaux Resorts Pvt. Ltd (09.10.2024) & 2353/Del/2024 2 In sanction Undated sanction is held to On undated proforma where be invalid sanction PCIT a) Ahd bench in has given sanction Amrutbhai G. , no date is Prajapat (I.T.A. mentioned, which No. is also fatal to 362/Ahd/2019) instant reopening 17.01.2020 action b) Hon’ble P&H High court in case of PCIT vs Prahalad Singh of 2019 (27.02.2020)
7. In this regard, ld. AR submitted that in the proforma of sanction for approval u/s 151 in column 7, reference is made to the omitted provisions of section 147(b) of the Act which is no longer res integra and it is held to be fatal in series of cases decided by the ITAT. In this regard, he relied on the following decisions :- a) Delhi bench Amit Khatri (18.12.2024) b) Delhi bench Rajeev Kumar Arora 641, 698 & 642/Del/2024 (16.10.2024) c) Delhi Bench Montreaux Resorts Pvt. Ltd (09.10.2024) ITA Nos. 2352/Del/ 2024 & 2353/Del/ 2024
8. Further with regard to proforma of approval, he submitted that there is no date mentioned for sanctioning the proceedings by the ld. Pr.CIT, Delhi-9. He brought to our notice that the date column was left open without mentioning any date which is also fatal to the proceedings initiated u/s 147 of Act. He submitted that undated sanction is held to be invalid. Accordingly, he relied on the following cases :- a) Ahd bench in Amrutbhai G. Prajapat (I.T.A. No. 362/Ahd/ 2019) 17.01.2020 b) Hon’ble P&H High court in case of PCIT vs Prahalad Singh of 2019 (27.02.2020) c) ITAT, Mumbai Bench in the case of M/s. Sukanya Properties Pvt. Ltd. vs. DCIT in dated 14.02.2025.
9. Further he submitted that sanction granted u/s 151 of the Act is given in mechanical and generic manner without application of mind. He submitted that merely using generic remarks, sanction would not be adequate for requisite application of mind. In this regard, he relied on the following decisions :- a) ITAT, Delhi Bench in the case of Jagbir Singh (08.01.2025) b) Hon’ble Bombay High Court in case of Saraswat Cooperative Bank Ltd vs ACIT 473 ITR 205 c) ITAT, Delhi Bench in ACIT vs. Vikas Strips Pvt. Ltd. in dated 17.04.2025 10. Further he brought to our notice that assessee was never supplied with relied upon material while recording the reasons u/s 148 (2) of the Act. He submitted that assessee was never supplied with correspondence/letter etc. received by the AO which are referred/relied in reasons recorded which is again fatal to the reopening of the assessment. On this issue also, he relied on the following decisions :- a) Hon’ble Delhi High Court in case of Saraswati Petrochem Pvt Ltd vs ITO 470 ITR 47 b) Hon’ble Rajasthan High court in case of Micro Marbles Pvt Ltd vs ITO 457 ITR 569 11. On the other hand, ld. DR of the Revenue objected to the submissions made by the ld. AR and submitted that with regard to non-mention of date while sanctioning on the proforma of approval, he submitted that AO has recorded the date 27.03.2018, therefore, it cannot be argued that no date was mentioned in the sanction letter. With regard to supply of reasons, he submitted that it is already recorded in the assessment order and submitted that there is no record brought on record by the assessee whether the assessee has asked for the same during assessment proceedings and finally he heavily relied on the findings of the lower authorities.
Considered the rival submissions and material placed on record. Before us, ld. AR of the assessee made detailed submissions on other jurisdictional issues raised by the assessee. At the time of hearing, assessee has raised four jurisdictional issues before us which relate to obtaining/initiating proceedings u/s 148 and for obtaining the approval u/s 151 of the Act. As per the proforma for sanction/ approval u/s 151 of the Act brought on record by the assessee, for the sake of clarity, the same are reproduced below :-
13. It is specifically brought to our notice point no.7 wherein the provisions of section 147(b) was referred which was omitted and which is no longer applicable. It was submitted that this provision was mechanically applied by the Revenue. Further it is brought to our notice that the above sanction was granted without recording the date of sanction. We observed that no doubt, Pr.CIT has granted the approval and not mentioned any date. We observed that on the similar facts on record, the ITAT, Mumbai has considered the similar issue in (supra) and ITAT, Mumbai has considered the issue of undated sanction of approval and also the issue of reference to section 147(b) and held as under :- “7.1. As mentioned above, the notice was issued on 20/02/2015 and the approval was sought on 11/02/2015 but it can be seen that no date is mentioned for granting approval, therefore, we do not know whether it was before issuing the notice u/s 148 of the Act or after.
The ld. Counsel vehemently argued that the approval is not only mechanical but cryptic and full of errors inasmuch as, at point no. 7., the question is “Whether the provisions of Sec. 147(a) or 147(b) are applicable or both the sections are applicable” and the answer is “Only 147(b)”. We find that the provisions of Section 147(b) have been deleted long bank.
On identical set of facts, the Co-ordinate Bench in 94/Mum/2019, dated 28/10/2020, had the occasion to consider an identical approval and held as under:- “5.3. We find that the reopening in the instant case has been made beyond four years from the end of the relevant assessment year which requires sanction of approval from the ld. PCIT u/s.151(1) of the Act. We find from page 1 of the Case Law Paper book filed by the assessee before us containing proforma in the prescribed format seeking sanction of approval u/s.151(1)
Act, that the said proforma was sent by the ld. AO to the ld. PCIT through proper channel i.e. Additional CIT on 08/01/2016. For the sake of convenience, the entire proforma is reproduced herein:- ……….. 5.4. From the aforesaid proforma, it could be seen that question No.7 specifically mandate the ld. AO to mention whether the provisions of Section 147(a) or 147 (b) or both the sections are applicable. In response thereto, the ld. AO had mentioned only 147(b). We find that the provisions of Section 147(b) has been omitted from the statute book long back and was certainly not in force for A.Y.2010-11. We find that the ld. CIT(A) without looking into these facts had accorded a mechanical approval without due application of mind. We find that reliance placed by the ld. AR on the decision of Hon’ble Jurisdictional High Court squarely clinches the issue before us in this regard in the case of Smt. Kalpana Shantilal Haria vs. ACIT referred to supra, wherein it was held that:- “6. The grievance of the petitioner is that there is no proper sanction in view of non application of mind by the Joint Commissioner of Income Tax. The Assessing Officer has invoked a provision of law to sustain the impugned notice which is admittedly not in the statute and the Joint Commissioner has yet approved it.
Mr. Chanderpal, learned Counsel appearing for the Revenue tendered a copy of the letter dated 19th December, 2017 issued to the petitioner wherein the Assessing Officer has stated that the words “147(b)” were inadvertently filled in the prescribed form, instead of Section 147 of the Act while obtaining the sanction from the Joint Commissioner of Income Tax. It is further submitted on behalf of the Revenue that the same is a curable defect under section 292B of the Act. Therefore, the impugned notice cannot be held to be bad for mere incorrect mentioning of section on account of the mistake. (emphasis supplied by us) …………..
5.12. Since the entire reopening of assessment had been quashed on the aforesaid aspect, we need not go into other grounds raised by the assessee both on law as well as on merits and they are hereby left open. 9.1. In this common order, is of the assessee for AY 2010-11. On finding parity of facts, respectfully following the decision of the Co-ordinate Bench, we have no hesitation in quashing the impugned assessment order.”
Further it was submitted before us that approval was granted u/s 151 with the standard proforma wherein it was mentioned at Sl.No.13 or Point No.13 “on the basis of reasons recorded, I am satisfied that it is a fit case for the issue of notice u/s 148 of the Act.” Below that ld. Pr.CIT merely signed it without recording the date of sanction. In this regard, it was argued before us that ld. Pr.CIT has sanctioned the same without application of mind and it is only a mechanical approval. In the case of ACIT vs. Vikas Strips Pvt. Ltd. in dated 17.04.2025, the coordinate Bench has held as under:- “5. The assessee is engaged in the business of manufacturing and trading of iron and steel i.e. C.R. sheet and H.R strips. The assessee filed a letter dated 24-04-2015 stating that the return originally filed by it on 7-8-2008 may be treated as a return in response to notice under section 148 of the Act. Thereafter, the assessee sought the copy of reasons recorded for reopening the assessment, which were duly furnished to the assessee on 9-11-2015. During the course of hearing, the approval papers under section 151 of the Act granted by the Learned JCIT, Range- 26, New Delhi was placed on record. On perusal of the proforma seeking approval u/s 151 of the Act, we find that the learned JCIT had merely stated that ‘Yes, it’s a fit case for issue of notice u/s 148’ 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. Goenka 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.”
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. Accordingly, the entire reassessment proceedings are hereby quashed. Hence, one of the legal grounds in the Rule 27 Petition 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 in the Rule
27. Petition as well as the grounds raised by the revenue on merits need not be adjudicated and they are left open.”
15. In the above case, the ld. Pr.CIT has stated in the sanction letter “Yes, it is fit case for issue of notice u/s 148 for reopening”. However, in the given case, there is a standard format and ld. Pr.CIT has not even mentioned anything on the face of the proforma, and simply recorded his signature without any date on top of the standard format written as, “13. On the basis of reasons recorded, I am satisfied that it is a fit case for the issue of a notice under section 148 of the I.T. Act, 1961”. It clearly indicates that it is only mechanical approval and following the aforesaid decision, we are inclined to quash the reassessment proceedings which are against the provisions of section 151 of the Act.
Further ld. AR of the assessee also submitted that no reasons were supplied to the assessee which was relied upon by the AO to record the reasons for reopening of the same. We observed that the AO has no doubt mentioned the same in the assessment order, however, no record was brought to our notice that the abovesaid reasons were supplied to the assessee during assessment proceedings. We observed that Hon’ble Delhi High Court in the case of Saraswati Petrochem Pvt. Ltd. vs. ITO reported in 470 ITR 47 has held as under :-
“17. It is against the backdrop of these facts that one must arrive at a conclusion as to whether the AO had triggered the reassessment proceedings in accordance with well-established principles enunciated by the courts.
17.1 The first and foremost principle of law, to which the AO must be wedded, is the obligation cast on him to furnish material and information that helped him to form a belief that income, otherwise chargeable to tax, had escaped assessment. Admittedly, the AO had in his possession a letter dated 12.03.2018 addressed to him by ITO (Nahan), which in turn contained the intimation supplied by ADIT (Inv)/Unit-4(2). It appears that the information furnished suggested that cash deposits had been made in the account bearing no. 083005000211 maintained with the ICICI bank by Ram Singh, the proprietor of Para Impex Chem, out of which monies were remitted via RTGS to the two bank accounts of the petitioner/assessee maintained with HDFC Bank. Neither the letter nor the intimation of the ADIT(Inv)/Unit-4(2), New Delhi was furnished to the petitioner/assessee. 17.2 Although the petitioner/assessee has also flagged the issue that copies of the FIR and the chargesheet filed by CBI were not furnished to it, we do not lay much store by this assertion made in the behalf as, in the ordinary course, this information would have been made available to the petitioner/assessee, as it is not disputed by it that the names of its directors were included in the list of accused. That said, as indicated above, the petitioner/assessee was entitled to receive copies or relevant extracts from the letter dated 12.03.2018 and the intimation of the ADIT (Inv)/Unit-4(2). 17.3 Furthermore, the AO could have only considered the information concerning the period in issue, FY 2010-11 (AY 2011-12). However, the remittances received via RTGS from Para Impex Chem in the two bank accounts maintained by the petitioner/assessee with the HDFC Bank concerned the preceding period, i.e., FY 2009-10 (AY 2010-11). The AO was also unaware of the 'nature' of the deposits in the two HDFC banks received by the petitioner/assessee, which is evident from the following observations made by him: "...may be in the guise of Share Capital, including Share Premium, bogus sales to M/s Para Impex Chem, or Long term loans or all...". 17.4 Lastly, the mere increase in the source of funds from the previous AY amounting to Rs. 61,87,061/- in the form of share capital, security premium, share application money, and long-term unsecured loans without corroborating evidence, in itself, cannot be the basis of the belief that income, otherwise chargeable to tax, had escaped assessment.
17.5 It is evident that the AO had, perhaps, no tangible material available with him to form a belief that income, otherwise chargeable to tax, had escaped assessment. The phraseology used by the AO reveals that he “suspected” that income chargeable to tax had escaped assessment. Therefore, according to us, this approach of the AO breached the other well-established principle of law that suspicion and conjecture cannot form the basis for triggering reassessment proceedings qua an assessee.
In our view, the AO did not employ diligence while triggering the reassessment proceedings against the petitioner/assessee. It appears that because AO realized that the information received by him from ITO (Nahan) via letter dated 12.03.2018 concerned the preceding period, he attempted to commence reassessment proceedings under Section 147/148 of the Act by simply comparing the „source of funds‟ reflected under various heads in the balance sheets for the preceding AY and the AY in issue. Furthermore, that there was a gap in the enquiry is evident from the following. First, the respondent/revenue emphasized the fact that information was sought from the petitioner/assessee via notice dated 20.03.2018 before it issued the impugned notice on 31.03.2018. The notice dated 20.03.2018 could not have reached the petitioner/assessee [and nothing to the contrary has been placed on record by the respondent/revenue] as concededly, it did not bear the complete address of the petitioner/assessee. Second, the AO did not even have the list of shareholders of the petitioner/assessee, as indicated in the “reason to believe‟.
We are of the opinion that the AO did not have the tangible material on record that could have persuaded him to form a belief that income, otherwise chargeable to tax, had escaped assessment. The AO did not carry forward the enquiry process once he had received communication from ITO (Nahan). As noticed above, the AO did not furnish either the letter dated 12.03.2018 received from ITO (Nahan) or the relevant intimation received from the ADIT(Inv)/Unit-4(2) New Delhi, along with the document containing „reason to believe.‟ Had the AO furnished the documents, he would have been able to reach a firmer conclusion that crossed the threshold of suspicion and conjecture.”
17. Even on this count, the reassessment is bad in law and the same is accordingly quashed. 18. In view of our above findings and respectfully following the aforesaid decisions, we quash the reassessment proceedings and accordingly allow the grounds of appeal nos.1 to 1.2.
19. Since we have quashed the reassessment proceedings, other grounds on merit are not argued before us and the same are not adjudicated and they are left open.
20. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on this 18th day of June, 2025.