INCOME TAX OFFICER, AYAKAR BHAVAN vs. SUKANIYA PROPERTIES PVT LTD, MUMBAI

As mentioned above, the notice was issued on 20/02/2015 and\nthe approval was sought on 11/02/2015 but it can be seen that no date\nis mentioned for granting approval, therefore, we do not know whether\nit was before issuing the notice u/s 148 of the Act or after.\n8.\nThe ld. Counsel vehemently argued that the approval is not only\nmechanical but cryptic and full of errors inasmuch as, at point no. 7., the\nquestion is "Whether the provisions of Sec. 147(a) or 147(b) are applicable or\nboth the sections are applicable” and the answer is “Only 147(b)". We find\nthat the provisions of Section 147(b) have been deleted long bank.\n9.\nOn identical set of facts, the Co-ordinate Bench in dated 28/10/2020, had the occasion to consider an identical\napproval and held as under:-\n“5.

We find that the reopening in the instant case has been made beyond four\nyears from the end of the relevant assessment year which requires sanction of\napproval from the ld. PCIT u/s.151(1) of the Act. We find from page 1 of the Case\nLaw Paper book filed by the assessee before us containing proforma in the prescribed\nformat seeking sanction of approval u/s.151(1) of the Act, that the said proforma was\nsent by the ld. AO to the ld. PCIT through proper channel i.e. Additional CIT on\n08/01/2016. For the sake of convenience, the entire proforma is reproduced herein:-\n5\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 3309/Mum/2024\n FOR RECORDING THE REASONS FOR INITIATING PROCEEDINGS UNDER\nSECTION 148 AND FOR OBTAINING THE APPROVAL OF THE COMMISIONER OF\nINCOME-TAX / CENTRAL BOARD OF DIRECT TAXES\n1.\n2.\n3.\n4.\n5.\n6.\nName & Address of the assesse\nPermanent Account No.\nStatus\nDistrict/Circle\n Assessment Year in respect of which it is\nproposed to issue notice u/s 148\nThe Quantum of income which has\nescaped assessment\nM/s. Seawood Hospitality & Realty\nPvt. Ltd.\n1-A. Hill View Apartment, J. P.\nRoad, Mumbai-400058\nAAMCS1472M\nCOMPANY\nCen. Cir-3(4). Muinbal\nΑ.Υ. 2010-11\nRs.3,35,00,000/-\n7.\nWhether the provisions of Sec. 147(a) or\n147(b) are applicable or both the sections\nare applicable\nOnly 147(b)\n8.\nWhether the assessment is proposed to\nbe made for the first time. If the reply is\nin the affirmative please state\n(a) Whether any voluntary return has\nalready been filed: and\nYES\n(b)\n9.\nIf so, the date of filing the said return\nplease state:\nIf the answer to item 8 is in the negative,\n15.10.2010\n(a)\nThe income originally assessed\n(b)\nΝ.Α.\nWhether it is A\ncase\nof under:\nassessment, assessment at too low a\nrate, assessment which has been made\nthe subject of excessive relief or allowing\nof excessive loss or depreciation.\nΝ.Α.\n10\nWhether the provisions of Section 150(1):\nNo\nare applicable. If the reply is in the\naffirmative the relevant facts may be\nstated against item No.11 and it may\nalso be brought out that provisions of\nSection 150(2) would not stand in the\nway of initiating proceedings under\nsection 147.\n11\nReasons for the belief that income has\nescaped assessment\nDate: 08-01-2016\n12\nAs per Annexure\n(DEEPIKA ARORA)\nDCIT CC-3(4), Mumbai.\nWhether the Addl. Commissioner is\nsatisfied on the reasons recorded by the\nDCIT, that it is a fit case for the issue of\na notice under section 148\nDate:\nAddl. Commissioner of Income-Tax\nCentral Range-3, Mumbai\n13\nWhether the Pr.Commissioner is satisfied\non the reasons recorded by the DCIT,\nthat it is a fit case for the issue of a\nnotice under section 148\nDate:\nnotie u/s148.\nPr. Commissioner of Income-Tax\nCentral -2. Mumbai\n6\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 3309/Mum/2024\nI.T.A. No. 3711/Mum/2024\n5.4.\nFrom the aforesaid proforma, it could be seen that question No.7 specifically\nmandate the ld. AO to mention whether the provisions of Section 147(a) or 147 (b)\nor both the sections are applicable. In response thereto, the ld. AO had mentioned\nonly 147(b). We find that the provisions of Section 147(b) has been omitted from the\nstatute book long back and was certainly not in force for A.Y.2010-11. We find that\nthe ld. CIT(A) without looking into these facts had accorded a mechanical approval\nwithout due application of mind. We find that reliance placed by the ld. AR on the\ndecision of Hon'ble Jurisdictional High Court squarely clinches the issue before us\nin this regard in the case of Smt. Kalpana Shantilal Haria vs. ACIT referred to supra,\nwherein it was held that:-\n“6. The grievance of the petitioner is that there is no proper sanction in view of non\napplication of mind by the Joint Commissioner of Income Tax. The Assessing Officer\nhas invoked a provision of law to sustain the impugned notice which is admittedly\nnot in the statute and the Joint Commissioner has yet approved it.\n7.\nMr. Chanderpal, learned Counsel appearing for the Revenue tendered a copy\nof the letter dated 19th December, 2017 issued to the petitioner wherein the Assessing\nOfficer has stated that the words “147(b)” were inadvertently filled in the prescribed\nform, instead of Section 147 of the Act while obtaining the sanction from the Joint\nCommissioner of Income Tax. It is further submitted on behalf of the Revenue that\nthe same is a curable defect under section 292B of the Act. Therefore, the impugned\nnotice cannot be held to be bad for mere incorrect mentioning of section on account\nof the mistake.\n(emphasis supplied by us)\n8.\nThere can be no dispute with regard to the application of Section 292B of the\nAct to sustain a notice from being declared invalid merely on the ground of mistake\nin the notice. However, the issue here is not with regard to the mistake / error\ncommitted by the Assessing Officer while taking a sanction from the Joint\nCommissioner of Income Tax but whether there was due application of mind by the\nJoint Commissioner of Income Tax while giving the necessary sanction for issuing\nthe impugned notice. It is a settled principle of law that sanction granted by the\nhigher Authority for issuing of a reopening notice has to be on due application of\nmind. It cannot be an mechanical approval without examining the proposal sent by\nthe Assessing Officer. Prima facie, it appears to us that if the Joint Commissioner of\nIncome Tax would have applied his mind to the application made by the Assessing\nOfficer, then the very first thing which would arise is the basis of the notice, as the\nprovision of law on which it is based is no longer in the statute. Non-pointing out\nthe mistake / error by the Joint Commissioner of Income Tax on the part of the\n7\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 3309/Mum/2024\nI.T.A. No. 3711/Mum/2024\nAssessing Officer is prima facie evidence of non-application of mind on the part of\nthe sanctioning authority while granting the sanction.”\n(emphasis supplied by us)\n5.5.\nFrom the aforesaid proforma, it is also evident that the question No.11\nmandate the ld. AO to specify the reasons which enabled him to form the belief that\nincome of the assessee had escaped assessment and in reply to the said question, the\nld. AO had mentioned “As per Annexure”. The said annexure containing the reasons\nrecorded for reopening the assessment is enclosed in page 7 of the paper book of the\nassessee which is reproduced herein for the sake of convenience:-\nANNEXURE\nDCIT, CC-3/4), MUMBAI\nREASONS RECORDED FOR ISSUE OF NOTICE U/S. 148 OF THE INCOME TAX ACT, 1961 IN\nTHE CASE OF M/S. SEAWOOD HOSPITALITY\nREALTY PVT. LTD (PAN: AANCS 1472M) FOR AY 2010-11\nIn this case, the assessee has filed return of income u/s 139(1) of the L.T. Act, for AY\n2010-11 on 15.10.2010 declaring therein the total loss at Rs.45,010/-. The return was\nprocessed u/s 143(1) of the Act on 15.04.2011, accepting the returned loss.\nA search and seizure action u/s 132[1] of the LT. Act was carried out in the Mahavir\nGroup of cases. During the pre-search enquiries, it was found that M/s Mahavir Roads &\nInfrastructure Pvt. Ltd. (MRIPL), the flagship company of the Mahavir Group, and its directors\nhad received unsecured loans from M/s Seawood Hospitality & Realty Pvt. Ltd. It was also\nfound that the assessee company had received substantial share capital/share premium from\nKolkata and Mumbai based entities. Therefore the assesse company was covered under Survey.\naction u/s 133A on 21.11.2013.\nDuring the surwy proceedings conducted on 21.11.2013 at the business premises of the\nassesse company, It'was discovered that the assessee has issued shares at premium to Kolkata\nand Mumbai based entities. The share premium received in without any basis or justification,\nas financial standing of these concerns does not justify receipt of such huge share premium.\nThe gist of share premium/share capital introduced by these concerns is as under:\nTOTAL\nSr.\nNo.\n1.\nName of the Company\nM/s Seawood Hospitality &\nRealty Pvt. Ltd.\nFY\n2009-10\nShare\nCapital\n22880000\nTOTAL\n22880000\nShare\nPremium\n205920000\n205920000\n228800000\n228800000\nIn order to verify the genuineness of the claim of receipt of share capital with share\npremium further enquires were made in Kolkata wherein 48 sham companies were identified. It\nwas gathered that a search action u/s 132 was carried out by the DDIT(Inv), Unit1(3), Kolkata\non 14.11.2011 at the premises of one Shri Deepak Patwari. Shri Patwari in his statement\nrecorded u/s 14.11.2011, u/s 131 on 01.02.2012 and u/s 131 on 22.07.2013 had\nadmitted that he has floated more than 100 companies through dummy directors to provide\naccommodation entries to various concerns. On the basis of such enquiries, out of the\nquantum of total shafe capital with premium, share investment to the tune of Rs..3.35 crores\nhave been detected as hogus, as listed below:-\nName of the Assesfice\nM/s Seawood Hospitality & Realty Pvt. Ltd.\nPY\n2010-11\nAmount of bogus share\ncapital with premium\ndetECTED\nRs.3,35,00,000/-:\nTherefore, it is evident that the assessee company, i.e., M/s Seawood Hospitality & Realty\nPvt. Ltd. has failed to disclose fully and truly all material facts-relevant to the assessment year\nunder consideration. Further the balance amount of share capital with share premium also\ndoes not appear to be genuine and is most likely accommodation entry.\nIn the above factual background, I, therefore, have reasons to believe that bogus share\ncapital with premium amounting to Rs.3,35,00,000/-, for the AY relevant to the FY under\nconsideration, which is chargeable to tax has escaped the assessment within the meaning of\nprovisions of Section 147 of the Income Tax Act, 1961. This issue has come to light only after\nthe search and survey action. Therefore, on the basis of fresh tangible information/material.\ngathered in the cosarge of search action in the case of Mahavir Group of eases and survey action\nu/s 133A in the cause of the assessen company, action u/e. 147 is justified even after the expiry\nof 4 years from the end of A.Y. 2009-10. Accordingly the instant case for A.Y. 2010-11 is\nbeing reopened by issuing notice under section 148 of the Income Tax Act, 1961.\nDATED 14-01-2016\n(DEEPIKA ARORA)\nDCIT CC-3(4), Mumbai.\n8\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 3309/Mum/2024\nI.T.A. No. 3711/Mum/2024\n5.6.\nWe find from the aforesaid annexure containing the reasons recorded for\nreopening of assessment year, the same was prepared by the ld. AO only on\n14/01/2016 whereas the proforma was sent in the prescribed format by him on\n08/01/2016 itself. Actually, the reasons recorded for reopening of assessment is\nsupposed to go alongwith proforma in the prescribed format before the ld. CIT while\naccording the sanction of approval u/s.151(1) of the Act. The aforesaid decision\nclearly goes to prove that at the time of seeking of approval in the prescribed proforma\ndated 08/01/2016, the ld. AO had not even recorded the reasons for reopening of\nassessment and that there was absolutely no other material available before the ld.\nPCIT to apply his mind and come to a conclusion that it is a fit case for reopening of\nassessment. Hence, it could be safely concluded that the approval given by the ld.\nPCIT for reopening is only a mechanical approval without due application of mind\non his part. One more strange point which we note from page 1 of the case law paper\nbook containing the prescribed proforma for reopening is that the ld. PCIT had not\neven mentioned the date and his name while according approval in the prescribed\nproforma.\n5.7.\nFrom the aforesaid proforma, it could be seen that the ld. PCIT had only\nmentioned for question No.13 as under:-\n“Question Number 13. Whether the Pr. Commissioner is satisfied on the reasons\nrecorded by the DCIT, that it is a fit case for the issue of a notice under section 148.\nReply: Yes, it is fit case for issue of notice u/s.148.\"\n5.8.\nWe find that the aforesaid approval granted by the ld. PCIT does not\nconstitute proper sanction in terms of the Section 151(1) of the Act\nand rather it would only tantamount to mechanical approval granted by him\nwithout due application of mind. In this regard, we would like to place reliance on\nthe Co-ordinate Bench decision of this Tribunal which has been rightly relied upon\nby the ld. AR in the case of that Avani Premises Pvt. Ltd., vs. ITO in ITA\nNo.1664/Mum/2019 dated 09/01/2020 wherein the approval was obtained from\nAdditional CIT in terms of Section 151 of the Act and question No.12 thereon and\nthe reply given by the Additional CIT was as under:-\n“Whether the Addl. Commissioner is satisfied on the reasons recorded by the DCIT,\nthat it is a fit case for the issue of a notice under Section 148.”\nReply: Yes, I am so satisfied\n5.8.1.\nThe\noperative\nportion\nof\ndecision\nof\nthis\ntribunal\nin dated 09/01/2020 is reproduced hereunder:-\n9\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 3309/Mum/2024\nI.T.A. No. 3711/Mum/2024\n6.\nThe learned Counsel for the assessee stated that this issue is squarely covered in\nfavour of assessee by wherein mechanical approval is held to be no approval by\nHon'ble Madhya Pradesh High Court in the case of CIT vs.\nS. Goyanka Lime & Chemicals Ltd. (2015) 231 Taxman 73 (Madhya Pradesh),\nwherein Hon'ble High court has considered the satisfaction accorded by the Joint\nCommissioner of Income Tax, wherein it is recorded that “Yes I am satisfied" and\nHon'ble High court held that the mechanical way of recording satisfaction by the\nJCIT, which accords sanction for issuing notice under section 148 of the Act is\nunsustainable. The Hon'ble Madhya Pradesh High court held as under: -\n“7. We have considered the rival contentions and we find that while according\nsanction, the Joint Commissioner, Income Tax has only recorded so "Yes, I am\nsatisfied". In the case of Arjun Singh (supra), the same question has been considered\nby a Coordinate Bench of this Court and the following principles are laid down:\n'The Commissioner acted, of course, mechanically in order to discharge his statutory\nobligation properly in the matter of recording sanction as he merely wrote on the\nformat "Yes, I am satisfied" which indicates as if he was to sign only on the dotted\nline. Even otherwise also, the exercise is shown to have been performed in less than\n24 hours of time which also goes to indicate that the Commissioner did not apply his\nmind at all while granting sanction. The satisfaction has to be with objectivity on\nobjective material.'\n8.\nIf the case in hand is analysed on the basis of the aforesaid principle, the\nmechanical way of recording satisfaction by the Joint Commissioner, which accords\nsanction for issuing notice under section 148, is clearly unsustainable and we find\nthat on such consideration both the appellate authorities have interfered into the\nmatter. In doing so, no error has been committed warranting reconsideration.\n9.\nAs far as explanation to Section 151, brought into force by Finance Act, 2008\nis concerned, the same only pertains to issuance of notice and not with regard to the\nmanner of recording satisfaction. That being so, the said amended provision does not\nhelp the revenue.\n10.\nIn view of the concurrent findings recorded by the learned appellate\nauthorities and the law laid down in the case of Arjun Singh (supra), we see no\nquestion of law involved in the matter, warranting reconsideration.”\n7.\nThe learned Counsel for the assessee then drew our attention to the decision of\nHon'ble Supreme Court in SLP, wherein SLP is being dismissed against the\njudgement of Hon'ble Madhya Pradesh High Court in the case of CIT vs. S Goyanka\nLime & Chemical Ltd. (2016) 237 Taxman 378 (SC). The learned Counsel for the\nassessee also relied on the decision of Hon'ble Delhi High Court in the case of PCIT\nvs. N.C. Cables Ltd. (2017) 391 ITR 11 (Delhi), wherein Hon'ble Delhi High Court\nhas considered the issue of application of mind while according sanction for issue of\nnotice under section 147 or 148 of the Act and this provision of section 151 of the\nAct was considered by Hon'ble Delhi High Court and held as under:-\n“11. Section 151 of the Act clearly stipulates that the Commissioner of Income-tax\n(Appeals), who is the competent authority to authorize the reassessment notice, has\n10\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 3309/Mum/2024\nI.T.A. No. 3711/Mum/2024\nto apply his mind and form an opinion. The mere appending of the expression\n\"approved\" says nothing. It is not as if the Commissioner of Income-tax (Appeals)\nhas to record elaborate reasons for agreeing with the noting put up. At the same time,\nsatisfaction has to be recorded of the given case which can be reflected in the briefest\npossible manner. In the present case, the exercise appears to have been ritualistic and\nformal rather than meaningful, which is the rationale for the safeguard of an approval\nby a higher ranking officer. For these reasons, the court is satisfied that the findings\nby the Income-tax Appellate Tribunal cannot be disturbed.\"\n8.\nThe learned Counsel for the assessee also relied on the decision of Hon'ble Supreme\nCourt in the case of Chhugamal Rajpal vs. S.P. Chaliha and Others and stated that\nHon'ble Supreme Court long back in 1971 while adjudicating the issue of according\nof sanction for issue of notice under section 148 of the Act has considered this issue\nand finally observed as under: -\n“Further his report mentions: "Hence proper investigation regarding these loans is\nnecessary". In other words his conclusion is that there is a case for investigating as\nto the truth of the alleged transactions. That is not the same thing as saying that\nthere are reasons to issue notice under section 148. Before issuing a notice under\nsection 148, the Income-tax Officer must have either reasons to believe that by reason\nof the omission or failure on the part of the assessee to make a return under section\n139 for any assessment year to the Income-tax Officer or to disclose fully and truly\nall material facts necessary for his assessment for that year, income chargeable to tax\nhas escaped assessment for that year or alternatively notwithstanding that there has\nbeen no omission or failure as mentioned above on the part of the assessee, the\nIncome-tax Officer has in consequence of information in his possession reason to\nbelieve that income chargeable to tax has escaped assessment for any assessment year.\nUnless the requirements of clause (a) or clause (b) of section 147 are satisfied, the\nIncome-tax Officer has no jurisdiction to issue a notice under section 148. From the\nreport submitted by the Income-tax Officer to the Commissioner, it is clear that he\ncould not have had reasons to believe that by reason of the assessee's omission to\ndisclose fully and truly all material facts necessary for his assessment for the\naccounting year in question, income chargeable to tax has escaped assessment for\nthat year; nor could it be said that he, as a consequence of information in his\npossession, had reasons to believe that the income chargeable to tax has escaped\nassessment for that year. We are not satisfied that the Income-tax Officer had any\nmaterial before him which could satisfy the requirements of either clause\n(a) or clause (b) of section 147. Therefore, he could not have issued a notice under\nsection 148. Further, the report submitted by him under section 151(2) does not\nmention any reason for coming to the conclusion that it is a fit case for the issue of a\nnotice under section 148. We are also of the opinion that the Commissioner has\nmechanically accorded permission. He did not himself record that he was satisfied\nthat this was a fit case for the issue of a notice under section 148. To question No. 8\nin the report which reads "Whether the Commissioner is satisfied that it is a fit case\nfor the issue of notice under section 148", he just noted the word "Yes" and affixed\n11\nआयकर अपीलीय अधिकरण\nINCOME TAX APPELLATE TRIBUNAL\nI.T.A. No. 3309/Mum/2024\nI.T.A. No. 3711/Mum/2024\nhis signature thereunder. We are of the opinion that if only he had read the report\ncarefully, he could never have come to the conclusion on the material before him that\nthis is a fit case to issue notice under section 148. The important safeguards provided\nin sections 147 and 151 were lightly treated by the Income-tax Officer as well as by\nthe Commissioner. Both of them appear to have taken the duty imposed on them\nunder these provisions as of little importance. They have substituted the form for the\nsubstance.\"\n9.\nOn the other hand, the learned Sr. Departmental Representative, Shri Michael\nJerald strongly opposed the issue raised because this issue was never raised before\nCIT(A) by the assessee and even now before Tribunal this issue is not raised, hence,\nhe strongly opposed the adjudication of this issue. When it was pointed out to the\nlearned Sr. Departmental Representative that the Revenue itself has filed this\ninformation regarding according of approval for issuance of notice under section 148\nof the Act and approval accorded under section 151 of the Act, still he opposed the\nadjudication of this issue because this issue has not been raised before the lower\nauthorities by the assessee.\n10.\nWe have heard rival contentions and gone through the facts and circumstances\nof the case. We noted that this is purely a legal issue and legal issue regarding\nreopening was raised before CIT(A) by the assessee, and CIT(A) has adjudicated the\nissue of reopening. This is one of the facet of reopening and that facts relating to this\nissue are available on record and no new facts are to be brought on record. Even the\nRevenue vide order dated 30.09.2019 has filed this information, which is part of the\nrecord of the assessment, that the Addl. CIT while granting approval for issuance of\nnotice under section 148 of the Act issued by the AO, the satisfaction recorded is just\nthat “Yes I am so satisfied”. We noted that this issue has time and again came up\nbefore Hon'ble High courts and Hon'ble High courts and Hon'ble Supreme Court\nhas categorically held that the satisfaction should not be mechanical satisfaction and\nthe important safe guards provided in section 147 to 151 of the Act, are not to be\ntaken lightly by the department as well as by the concern Additional CIT or CIT as\nthe case may be. While granting approval, the concern authority should be satisfied\nobjectively. We also noted that in the present case, the authorities have accorded the\nsatisfaction in a mechanical way which is unsustainable in law. Hence, on this very\njurisdictional issue, we set aside the orders of the lower authorities and allow this\nappeal of the assessee.\n11.\nAs regards to the other grounds raised