SATISH VISHNU THOMBARE, INCOME TAX OFFICER, WARD-1, AHMEDNAGAR, AHMEDNAGAR vs. VARSHA PRAFULLA ZENDE, AHMEDNAGAR

6. Findings & Decision 6.1. I have carefully gone through the assessment order u/s 147 r.w.s.143(3), appellate order of CIT(A)-2, Pune, order of Hon‟ble ITAT, Pune, written submissions of the assessee and the documents furnished. 6.2. During the appellate proceedings before CIT(A)-2 Pune, the assessee submitted that the reasons recorded were wrong and the reassessment proceedings were initiated on the basis of wrong reasons. The assessee stated that reassessment proceedings were initiated after recording reasons that "bogus companies run by Mr. Anand Sharma and group had provided bogus commission entries to Bleach Chem Enterprises, prop. Smt Varsha Prafulla Zende (PAN:AABPZ2541C) during FY 2009-10 to the tune of Rs.4,29,452/-. Since, these are bogus commission entries, the assessee has inflated expenses to the tune of Rs.4,29,452/-" whereas addition was made of loan taken and interest paid thereon. Thus as per the assessee, notice u/s 148 of the Act was issued for the reason that the assessee has inflated expenses by taking bogus commission entries to the tune of Rs 4,29,452/- but the addition was made of loan taken and interest paid thereon. The order of the CIT(A) on the issue of is reproduced here as under: “5.4. In this case, the AO received information from the office of the ACIT Central- 2(1), Kolkata regarding accommodation entries given by Shri Anand Kumar Sharma to various beneficiaries for commission through his shell companies. On the basis of the information, reassessment proceedings u/s 147 of the Income Tax Act, 1961 were initiated in the case of appellant for the A.Y 2010-11. After considering the submissions of the appellant, the AO made addition of Rs 2,50,00,000/- which was declared by the appellant as loan taken by holding the same as accommodation entry. AO also made addition of Rs 8,67,123/- for the interest amount paid on loan. Thus, the AO made an addition of Rs. 2,58,67,123/-, on account of unsecured loans and the interest thereon. 5.5. However, the appellant has strongly argued that the reasons recorded were wrong and the reassessment proceedings were initiated on the basis of wrong reasons. The appellant stated that reassessment proceedings were initiated after recording reasons that "bogus companies run by Mr. Anand Sharma and group had provided bogus commission entries to Bleach Chem Enterprises, prop. Smt Varsha Prafulla Zende (PAN:AABPZ2541C) during FY 2009-10 to the tune of Rs.4,29,452/-. Since, these are bogus commission entries, the assessee has inflated expenses to the tune of Rs.4,29,452/-" whereas addition was made of loan taken and interest paid thereon. Thus as per the appellant, notice u/s 148 of the Act was issued for the reason that the appellant has inflated expenses by taking bogus commission entries to the tune of Rs 4,29,452/- but the addition was made of loan taken and interest paid thereon. 5.6. The submission has been examined. It is seen from the assessment order that the reasons for reopening the case was recorded as given below (Reproduced from Para 8.18.11 of the assessment order): In this case return of income for A.Y. 2010-11 was filed on 17.09.2010 by declaring total income of Rs.8,95,795/-. Information received on 31.03.2017 from ACIT Central Circle 2(1), Kolkata, stating that search action u/s 132 of the Act was carried out in the case of Anand Sharma and Group, during statement Shri. Anand Sharma has admitted that various concerns operated by him are indulged in providing bogus accommodation entries to the various beneficieries for commission. It is further stated that bogus commission entries are provided to Bleach Chem Enterprises, Prop. Smt. Varsha Prafulla Zende ( PAN- AABPZ2541C) during FY 2009-10 as under: Name of TAN of Name of Address Amount TDS Commissi Company deductor deductor paid on on TDS Chandraghant PNEV06054 Bleach Shrirampur 52,192 5219 226 a Dealer Pvt. G Chem Dist. Ltd. Enterprise Ahmednaga s r Chinpumi PNEV06054 Bleach Shrirampur 2,08,76 20877 104 traders Pvt. G Chem Dist. 7 Ltd. Enterprise Ahmednaga s r Chinpumi PNEV06054 Bleach Shrirampur 1,68,49 16850 84 traders Pvt. G Chem Dist. 3 Ltd. Enterprise Ahmednaga s r Total 429452

From the above it is revealed that bogus Companies run by Shri. Anand Sharma and Group has provided bogus Commission entries to Bleach Chem Enterprises, Prop. Smt. Varsha Prafulla Zende (PAN- AACPZ2541C) during FY 2009-10 to the tune of Rs.4,29,452/-. Since these are bogus commission entries, the assessee has inflated expenses to the tune of Rs.4,29,452/-. In view of the above facts, I have reasons to believe that an amount of Rs. 4,29,452/-( Rs.Four lacs twenty nine thousand four hundred fifty two only) is an escaped assessment for A.Y. 2010-11 by reason of the failure of the assessee to disclose truly and fully all material, facts necessary for her assessment fo AY 2010- 11. Hence, this is a fit case for re-opening u/s.147 by issue of notice u/s.148." 5.7. However, after examining facts of the case, the AO recorded at para 8.10 as given below: "8.10 In the light of the above, it is proven fact that the assessee is beneficiary to the accommodation entries in the nature of unsecured loan and the interest income, as also confirmed by the investigation of ACIT Cen Cir-2(1) Kolkata.” Thus, it is seen that case was reopened by recording reasons that the appellant has inflated expenses through bogus commission entries whereas later on the AO came to conclusion that that the assessee is beneficiary to the accommodation entries in the nature of unsecured loan and interest thereon. The appellant has contended that the Appellant had never paid commission or claimed expenses of the same in her books of accounts. Therefore, the basis on which the AO reopened the assessment is factually incorrect. The appellant also contended that the reasons recorded form the backbone of the reassessment proceedings and when the same are proved to factually incorrect, the reassessment proceedings should be held to be invalid. 5.8 The appellant relied upon the decision of the Hon'ble ITAT Mumbai in the case of M/s. Lark Chemicals P. Ltd. v. ACIT (ITA No. 2636/Mum/2013), the Mumbai Tribunal held at Para 10 of the order as under: “10. Even otherwise, in the case in hand, the issue upon which the reopening was done and the issue on which the addition was made were diagonally opposite to each other. The reopening was done on the suspicion of bogus billing allegedly arranged from Suryodaya Company i.e. the issue of bogus expenditure, which otherwise was proved to be wrong, however the addition has been made in respect of Share application money received i.e. in respect of unexplained cash credits. The Hon'ble jurisdictional High Court of Bombay in the case of “CIT vs. Jet Airways (I) Ltd.” (2011) 239 CTR (Bom) 183, has categorically held that the AO may assess or reassess the income in respect of any issue which comes to his notice subsequently in the course of the proceedings though the reasons for such issue were not included in the notice, however, if after issuing a notice under section 148, the AO accepted the contention of the assessee and holds that the income about which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. Similar view has been taken by the Hon'ble Rajasthan High Court in the case of “CIT vs. Shri Ram Singh”, (2008) 217 CTR (Raj.) 345. We agree with the submissions made by learned AR to the effect that when the reopening of the assessment itself was not valid and even the reasons for which reopening was made have been proved to be wrong, then in that event, any decision/addition made on the basis of said reassessment is unsustainable and becomes void. Reliance can also be placed in this respect on another authority of Hon'ble Madras High Court styled as “Ace Investments Ltd. and Another Vs. Settlement Commission and Others”, 264 ITR 571.

11. In view of the above discussion, we annul the reopening of assessment u/s.147 of the Act.” In this case, it was held that the reasons for which reopening was made have been proved to be wrong, then in that event, any decision/addition made on the basis of said reassessment is unsustainable and becomes void. 5.9 The appellant has also relied upon the decision of the Hon'ble Gujarat High Court in case of Narendrakumar Mansukhbhai Patel v. ITO (Guj.) 92 taxmann.com 259 [2018]. In this case, the case was reopened on the basis of the following reasons:- "All information has been received from the ACIT, Central Circle 2(3), Ahmedabad that a search and survey proceeding was conducted by the Investigation Wing, Ahmedabad on 18.12.2014 on the commodity traders groups such as Affluence Commodities Pvt. Ltd. Bhagwati Investments and R P Jambuwala. During the investigation and further assessment proceedings in the related cases, it was found that the above groups were indulged in booking the contrived losses by misutilization of NMCE platform and these losses were used to set off against the other incomes. As per the information provided, the assessee, Narendrakumar Mahasukhbhai Patel, has booked contrived losses of Rs. 16,51,096/- by misutilization of NMCE platform, through the broker R P Jambuwala. This loss has been used to set off against the other income and thereby income has been under reported. In view of the above, it is clear that the assessee has under reported the income by Rs. 16,51,096/- by misutilizationn of NMCE platform, through the broker R P Jambuwala and evaded the taxes thereon. Hence the income of the assessee is under assessed by Rs. 16,51,096/-. I have, therefore, reason to believe that the income chargeable to tax has escaped assessment to the extent of Rs. 16,51,096/-. Hence I satisfied that it is a fit case for reopening the assessment u/s. 147 of the IT Act, and to issue notice u/s. 148 of the I.T.Act, 1961." However, after considering the facts, the Hon'ble High Court held as under:- "6. According to the assessee, however, he had never claimed loss of Rs. 16.51 lacs and, in fact, the said figure appearing in his balance-sheet was on the credit side. The assessee had thus received the said sum of Rs. 16.51 lacs and not suffered such a loss, as alleged. The assessee pointed out this aspect to the Assessing Officer in the objection raised along with which, he had also produced his balance-sheet.

7. There is nothing on the record that the said sum of Rs. 16.51 lacs was a loss claimed by the assessee. In fact, the balance sheet would show that the said figure was the assessee's receipt through sales. If the case of the Revenue was that after showing the sale of the commodities at Rs. 16.51 lacs, the assessee had claimed artificial losses. No such ground has come on record in the reasons recorded. The Revenue is bound by the reasons recorded by the Assessing Officer for reopening assessment which reasons are shown to be palpably incorrect. On the basis of the reasons recorded, it would not be possible to allow the Revenue to carry out fresh assessment. Facts are similar in all cases.

Thus in this case, apparently, reasons were right but only the figure of income escaped was found to be wrong. The Hon'ble High Court held that the AO has applied incorrect figures to determine whether or not the assessee's income chargeable to tax has escaped assessment and therefore the entire proceedings were held to be bad in law and without jurisdiction. 5.11 From the facts of the case, it is seen that the case was reopened by recording reasons that the appellant has inflated expenses through bogus commission entries whereas later on the AO came to conclusion that that the assessee is beneficiary to the accommodation entries in the nature of unsecured loan and the interest income. Now issue arises whether the same can be clarified to the appellant. In this regard, the decision of the Hon'ble Bombay High Court in the case of Aroni Commercials Ltd Vs ACIT [2014] 52 taxmann.com 113 (Bombay) is also relevant. IN this case the Hon'ble Court held that:- "This court has held in the case of Hindustan Lever Ltd. v. R.B. Wadkar [2004] 268 ITR 332/137 Taxman 479 (Bom.) that the challenge to the reopening of assessment proceedings can be resisted only on the basis of the reasons recorded at the time of issuing the notice and no further reasons can be added to or supplemented to support reasons recorded while issuing the impugned notice. Thus, we see no reasons to look beyond the reasons furnished to the petitioners to test the validity of the impugned reopening notice dated March 29, 2012, in seeking to reopen the assessment for the assessment year 2007-08." Thus the Hon'ble Court held that the challenge to the reopening of assessment proceedings can be resisted only on the basis of the reasons recorded at the time of issuing the notice and no further reasons can be added to or supplemented to support reasons recorded while issuing the impugned notice and also that there is no reasons to look beyond the reasons furnished to the petitioners to test the validity of the impugned reopening notice. 5.12 Similarly, in the case of Prashant S Joshi Vs ITO [2010] 189 Taxman 1 (Bombay), the Hon'ble High Court held as under: "9. Section 147 provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may subject to the provisions of sections 148 to 163, assess or reassess such income and also any other income chargeable to tax, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The first proviso to section 147 has no application in the facts of this case. The basic postulate which underlines section 147 is the formation of the belief by the Assessing Officer that any income chargeable to tax has escaped assessment for any assessment year. The Assessing Officer must have reason to believe that such is the case before he proceeds to issue a notice under section 147. The reasons which are recorded by the Assessing Officer for reopening an assessment are the only reasons which can be considered when the formation of the belief is impugned. The recording of reasons distinguishes an objective from a subjective exercise of power. The requirement of recording reasons is a check against arbitrary exercise of power. For it is on the basis of the reasons recorded and on those reasons alone that the validity of the order reopening the assessment is to be decided. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. The principle of law, therefore, is well-settled that the question as to whether there was reason to believe, within the meaning of section 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons which are recorded cannot be supplemented by affidavits. The imposition of that requirement ensures against an arbitrary exercise of powers under section 148.

notice that the assessee has understated his income or has claimed excessive loss, deduction, allowance or relief in the return. The taking of such notice must be consistent with the provisions of the applicable law. The act of taking notice cannot be at the arbitrary whim or caprice of the Assessing Officer and must be based on a reasonable foundation. The sufficiency of the evidence or material is not open to scrutiny by the Court but the existence of the belief is the sine qua non for a valid exercise of power. In the present case, having regard to the law laid down by the Supreme Court it was impossible for any prudent person to form a reasonable belief that the income had escaped assessment. The reasons which have been recorded could never have led a prudent person to form an opinion that income had escaped assessment within the meaning of section 147. In these circumstances, the petition shall have to be allowed by setting aside the notice under section 148." Thus the Hon'ble Court held that the principle of law is well-settled that the question as to whether there was reason to believe, within the meaning of section 147 that income has escaped assessment, must be determined with reference to the reasons recorded by the Assessing Officer. The reasons recorded while reopening the assessment cannot be allowed to grow with age and ingenuity, by devising new grounds in replies and affidavits not envisaged when the reasons for reopening an assessment were recorded. 5.13 It is also important to note that it is not that the appellant pointed out the mistake in reasons recorded for the first time at appellate stage. From the assessment order it is seen that after issue of notice u/s 148 on 31-03-2017, the appellant filed letter on 21-08-2017 and raised objections as given below (Para 4 of assessment order): "That return responding to your notice u/s 148 is already filed and copy of ACK of ROI is already submitted to you. One more copy is enclosed herewith for your reference. I, However object the reopening of assessment on following grounds: That the assessment is reopened in a mechanical and casual manner and without applying independent mind before entertaining belief regarding escapement of income and notice is simply issued on the basis of information received from ACIT Central Circle 2(1) Kolkatta. The reopening is not justified as there is no link between the information in your possession & the reopening you have done. That in this case original assessment u/s 143(3) was already completed and all the relevant information was obtained by the then Assessing Officer. That neither the commission entry was provided to assessee by any body nor the assessee paid Anand Sharma or his concerns. The notice issued possess with number lacunas and not maintainable On the facts & circumstances of the case, it is submitted to drop the proceedings and oblige." Thus, the appellant brought to the knowledge of AO that neither the commission entry was provided to assessee by anybody nor the assessee paid Anand Sharma or his concerns. However, the AO brushed aside the objection by stating as below (Para 5 of the assessment order): "Your objection for reopening on the above mentioned grounds is not acceptable, as from the documents seized during the course of search operation in the case of Sh Anand Kumar Sharma, it has come to knowledge of the department that Bleach Chem Enterprises has taken accommodation entries. In the course of assessment proceedings, u/s 147 of the Income-tax Act 1961, you will be provided opportunity to present your case and justify your claim on the basis of documentary evidences produced by you." Later on, a notice u/s 143(2) was issued by the AO on 08-09-2017. In response, the appellant filed a letter dated 15-09-2017 and again objected as given below (From para 6 of assessment order):

".... It is your allegation that Anand Sharma and his group concerns has arranged for me bogus accommodation entries in the form of commission which resulted in to inflation of expenses and to that extent income has escaped assessment. …….. My submission is that I have never paid any commission to anybody or any company whose name are given by you in the reasons supplied to me vide your letter dated 29-05-2017." Thus, right after receiving reasons for reopening, the appellant brought the mistake in reasons for reopening to the notice of the AO, however, such objections were not dealt with. 5.14 In view of the above facts, discussion and judicial pronouncements, it is held that the notice issued u/s 148 of the Act based upon palpably incorrect reasons is bad in law. Accordingly, Grounds No 1 & 3 of the appellant are ALLOWED.” 6.3. The CIT(A)-2, Pune has thus allowed the Grounds of appeal

1 and 3 of the assessee in his order stating that the notice u/s 148 was based on incorrect reasons and bad in law. CIT(A)-2, Pune after considering the case laws and reproducing it in his order has allowed the appeal of the assessee. However, the CIT(A)-2, Pune has proceeded to adjudicate on merits of the case and allowed the grounds of appeal of the assessee on merits. 6.4. The matter was taken to ITAT, Pune where cross appeals were filed by the department as well as Cross Objections (CO) filed by the appellant. The AR of the appellant in Tribunal submitted that there was no valid sanction taken from appropriate authority with regards to reopening u/s 147. The AR further raised the issue that at the time of issuance of notice there was no information with the AO at all. The AR prayed that these issues were not adjudicated by the CIT(A) and the matter be remanded back to the file of CIT(A) after due verification. In this manner, the Tribunal considering that certain issues were left un-adjudicated and without going into the merits of the case, set aside the order of the CIT(A) and remanded back to the file of the CIT(A) in its order dated 24/08/2023. 6.5. In this present appellate proceeding the assessee has raised the issue of reassessment proceedings being initiated without satisfying the requirements of section 151. The brief fact is that the assessee applied to the AO for a copy of inward and outward register maintained between 24.03.2017 to 05.04.2017 but the request was rejected citing that those were confidential records and cannot be provided. Thereafter, the assessee requested for a copy of online approval from PrCIT u/s 151. The AO however stated that the approval was obtained offline as system was slow due to the day being the last working day. 6.6. On refusal of the AO to provide the certified copy of outward register maintained in the office of PCIT, Pune for the period of 24.03.2017 and onwards, indicating the dispatch of the sanction letter of the PCIT u/s151 of the Act, the assessee filed the application under the RTI Act,2005 on 01/06/2020.The said application of the assessee got rejected vide order dated17/06/2020 passed u/s 7(1) of the RTI Act,2005. Aggrieved by the order dated 17/06/2020, the assessee filed second appeal before the Central Information Commission to take appropriate legal action against the CPIO u/s20 of the RTI Act,2005. The second appeal of the assessee was duly allowed vide order dated 28/05/2020 and therefore CPIO was directed to provide required Information to the assessee within a period of 15 days of receipt of the order. A copy of the order dated 17/06/2020 passed u/s7(1) of the RTI Act,2005 has been attached and a copy of the order dated 28/05/2020 passed by the Central Information Commission has also been attached with her reply by the assessee. 6.7. Subsequently, letter dated 07/08/2020 was issued to the assessee along with enclosures pertaining to approval given u/s 151 of the Act and copy of Outward register maintained at the PCIT's Office for the period of 24/03/2017 and onwards. The copies of said document have been attached by the assessee. On perusal of the attached photocopies of outward register, the assessee submitted that at the top of page no.63 date mentioned is 24/04/2017. Below that date tapal bearing nos. 217 to 219 are entered. On the next page, reference of approval for initiating the reassessment proceeding u/s147 of the Act in case of the assessee is written against the tapal bearing no.235. The approval of the PCIT provided to the assessee vide letter dated 31.03.2023 (as specified in para4.2supra) bears a letter no. as PN/Pr.CIT- /1/u/s148/VPZ/-235.This letter contains the outward tapal no. 235 at the end of the letter number. Thus, from the above facts the assessee submitted that the PCIT's sanction letter dated 31.03.2017 was dispatched by the PCIT only on 24.04.2017 and therefore could not have been received by the AO on 31.03.2017 as claimed. 6.8. The assessee cited the following case laws in her favor. a. River Valley Meadows and Township (P.) Ltd v. DCIT reported at [2022] 134 taxmann.com

20. (Bombay). b. Svitzer Hazira (P.) Ltd v. ACIT [2022] 135 taxmann.com c. ITO Ward- 2(3)(7) vs. Shri Asok Jain bearing [Surat Tribunal] d. Mrs. Anima Rasool v.Income Tax Officer reported at [2014]49 taxmann.com40 {AmritsarTribunal}. 6.9. Relevant extracts of the decision in the case of River Valley Meadows and Township (P.) Ltd v. DCIT reported at [2022] 134 taxmann.com

20. (Bombay) is reproduced here as under:- “2. There are various grounds raised in the Petition, the first of which is that the notice dated 25/06/2019 itself was issued without having prior mandatory approval of the Additional CIT which was required in law under Section 151(2) of the Act. We are satisfied that no such mandatory approval was in place before the issuance of this notice and for the sake of brevity, we do not wish to go into the other grounds.

3. The notice under Section 148 of the Act dated 25/06/2019 states, „This notice is being issued after obtaining the necessary satisfaction of the RANGE 1(3), MUMBAI ‟. Copy of approval at Exh.E to the Petition in which the Additional CIT, Range 1(3), Mumbai has, by hand noted, "Yes, I am satisfied that it is fit case for the issue of notice u/s 147 of the Act - Sd/- 26/06/2019".

4. Mr. Kamat submitted that if this necessary satisfaction / approval was granted only on 26/06/2019, how did Respondent No.1 issue notice under Section 148 on 25/06/2019, i.e., a day prior thereto.

5. Mr. Suresh Kumar requested for some more time to file reply. Since we were satisfied with the submissions of Mr. Kamat, we found no purpose would be served by adjourning the matter to file a reply and in any event Respondents had sufficient time and they could have filed the reply earlier.

6. Mr. Suresh Kumar submitted that his instructions are that in one copy it is erroneously written „26/06/2019‟ whereas in the other copy in the file of Respondent, it is „25/06/2019‟. In our view, that also shows that there was non-application of mind while granting the approval. Moreover, in the order dated 21/09/2021 passed by Respondent dealing with the objections filed by Petitioner, the stand of the Assessing Officer is not what Mr. Suresh Kumar stated in Court today. In the objection dated 17/09/2021, Petitioner has brought to the notice of the Assessing Officer that notice issued under Section 148 dated 25/06/2019 was illegal and was issued without approval of competent authority and approval dated 26/06/2019 was an afterthought to cover up the action of the learned Deputy CIT. In the order dated 21/09/2021 rejecting this objection, the Assessing Officer does not deny that the approval was dated 26/06/2019 whereas the notice was dated 25/06/2019 but simply states that the reason of escapement of income was sent for approval to learned Additional CIT on 14/06/2019 much before the notice under Section 148 was issued.

7. In our view, therefore, the Petitioner‟s submission that the notice dated 25/06/2019 issued under Section 148 of the Act was illegal since there was no prior approval as required under Section 151(2) of the Act has to be accepted.” 6.10. Relevant extracts of the decision rendered in the case of Svitzer Hazira (P.) Ltd v. ACIT [2022] 135 taxmann.com is reproduced here as under: “5. On 31/03/2019, Respondent No.1 uploaded a notice under Section 148 of the Act and reasons for reopening the assessment on the ITBA portal, informing that the assessment for AY 2014-15 has been reopened and requested the Petitioner to file a return of income for that year. The notice was uploaded at 2.40 p.m. on 31/03/2019 on the portal under the digital signature of Respondent No.1. Respondent No.1 furnished a copy of the approval necessary before issuing notice. Petitioner contends that said approval was signed at 2.55 p.m. on 31/03/2019 by the specified authority under Section 151 of the Act.

6. On 26/04/2019, Petitioner filed the original return of income in response to the said notice under Section 148 of the Act. On 14/06/2019, Petitioner filed objections against the reopening of assessment, stating that the notice issued under Section 148 was issued merely based on a change of opinion without any fresh or tangible material on record. It is also stated that the notice under Section 148 had been issued without prior sanction under Section 151 of the Act, and in any case, the sanction had been granted without any application of mind.

7. On 09/10/2019, Respondent No.1 issued a notice under Section 143(2) of the Act and Section 142(1) of the Act requesting Petitioner to attend his office on 16/10/2019 at 11.00 a.m. Petitioner, vide order dated 15/10/2019, informed Respondent No.1 that the objections against the reopening notice have not been disposed of. On 29/11/2019, Respondent No.1 passed the order of disposing of objections holding that notice under Section 147 is based on tangible material.

8. Petitioner has filed the present petition for the reliefs stated above. This Court, on 18/12/2019, granted time to Respondents to file a reply. However, the Respondents, till today, have failed to file their reply. Therefore, the petition is being decided without the reply of Respondents.

9. Mr. Nishant Thakkar, learned Counsel for Petitioner, inter alia, submitted that Respondent No.1 has committed an error of jurisdiction by passing the re-assessment order without there being valid sanction as contemplated under Section 151 of the Act. He submitted that prior approval under Section 151 of the Act is mandatory. From the copy received by the Petitioner, it is clear that the notice was issued at 2.40 p.m. and sanction under Section 148 was granted at 2.55 p.m. He submitted that Respondent No.1 was not justified in observing while disposing of the objections that the approval of competent authority was taken physically. After that, approval was granted online. He submitted that the proceedings under Section 148 of the Act are therefore vitiated.

10. Mr. Sham Walve, learned Counsel for Respondent Nos.1 and 2, submitted that Respondent No.1 had initially granted prior approval physically. However, online approval was granted after that, which was uploaded by digital signature at 2.55 p.m. on 31/03/2019. He, therefore, submitted that there is substantial compliance of prior approval as contemplated by Section 151 of the Act.

13. In the facts of the present case, it is clear from the digital signature on the notice issued by Respondent No.1 that the notice was issued at 2.40 p.m. on 31/03/2019. The sanction by the authority under Section 151 was digitally signed at 2.55 p.m. on 31/03/2019. The explanation furnished by Respondent No. 1 in the order of disposing of objections that initially physical approval was granted and thereafter online approval was granted has not been supported by any material on record. We fail to understand the need to grant online approval at 2.55 p.m. if physical approval was already granted before 2.40 p.m. In the absence of valid explanation by cogent material, we cannot accept explanation by Respondent No.1 in the order of disposing of objections that physical approval was granted before issuance of notice under Section 148 of the Act. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx 16. We are, therefore, satisfied that there is complete non application of mind on the part of Joint CIT, Range 5(3), Mumbai, while granting sanction under section 151 of Act. There is no prior sanction granted by Respondent No.2 before issuance of notice under Section 148 of the Act. Therefore, the jurisdictional condition of complying with Section 151 was not satisfied, resulting in Respondent No.1 committing the error of jurisdiction by issuing notice under Section 148 of the Act calling for interference under Article 226 of the Constitution of India.”

6.11. I have considered the facts of the case and examined the documents attached by the assessee in support of her contention. I have perused the case laws cited by the assessee. The assessee submitted that the PCIT's sanction letter dated 31.03.2017 was dispatched by the PCIT only on 24.04.2017 and therefore could not have been received by the AO on 31.03.2017. It is undisputed that the copy of Outward register has been furnished to the assessee by CPIO. Therefore, it can be safely presumed that the facts are all correct, and there is no question of manipulation in this matter. Seen in the light of this observation, I am of the opinion that the PCIT‟s sanction letter was issued on a later date as per Outward register. Thus, this is case where the jurisdictional condition of complying with Section 151 was not satisfied. Therefore, proceeding initiated in the instant case was against the provisions of section 151 and hence the said re- assessment proceedings is bad in law as held in the judgments of the jurisdictional High Court and decision of the ITAT cited above. 6.12. In the light of the discussion as held in para 7.3, where the CIT(A)- 2,Pune has held the notice u/s 148 issued as bad in law and the findings as discussed in 7.5 to 7.11 as above which have brought out the fact that the provisions of section 151 have not been complied with in this case and respectfully following the judgments of the Honorable courts, I am of the considered view that notice issued u/s 148 is bad in law and the reopening u/s 147 is not sustainable and liable to be quashed. Hence, the notice u/s. 148 issued by the AO and the consequent assessment order passed by AO are hereby quashed without going into the merits of the case.”

“1. The order of the Ld. CIT(A) is contrary to law and to the facts and circumstances of the case.

2. The learned Commissioner of Income-tax(Appeals) grossly erred in holding that nature of expenses as contained in the satisfaction note is the final verdict of the AO, ignoring the fact that prima-facie reasons are sustainable and held to be true.

3. The learned Commissioner of Income-tax(Appeals) erred in holding that the reasons for which reopening was made have been proved to be wrong, and further holding that, in that event, any decision/addition made on the basis of the said reassessment is unsustainable and becomes void.

4. The Learned Commissioner of Income-tax (Appeals) grossly erred. in holding the reassessment proceedings unsustainable and void without appreciating the fact that even though the case was reopened by recording the reasons that the appellant has inflated expenses through Bogus commission entries of Rs 4,29,452/-, addition was made treating the said amount of Rs.4,29,452/- as Bogus Interest expenses, and ignoring the fact that the Loans and the Interest were bogus and basically accommodation entries.

5. The Learned Commissioner of Income-tax (Appeals) grossly erred, in holding the reassessment proceedings unsustainable and void without appreciating the fact that the assessing officer had made an addition of Rs.4.29,452/-being bogus interest expenses towards the loans which are nothing but accommodation entries. Further, the said loans being accommodation entries are subject matter of addition u/s 68 of the Act in the instant case which has been confirmed by the ld. CIT(A) in the appellate order.

6. For these and such other grounds as may be urged at the time of hearing, the Order of the Ld. Commissioner of Income-tax (Appeals) may be vacated and that of the Assessing officer be restored.

7. The appellant craves to add, amend, alter or delete any of the above ground of appeal during the course of appellate proceedings before the Hon'ble Tribunal.”

5.1 On the issue relating to challenge of validity of reassessment proceedings by issue of notice u/s 148, the Ld. AR submitted the notice was issued on the basis of incorrect reason recorded. The Ld. AR submitted that the Ld. AO had recorded reason to believe that the amount of Rs.4,29,452/- had escaped assessment and initiated the reassessment proceedings u/s 147 by issue of notice dated 31.03.2017 u/s 148 of the Act based on the information received by him from the search action u/s 132 of the Act carried out on Mr. Anand Sharma and group wherein he had admitted that various concerns operated by him were indulged in providing bogus accommodation entries to various beneficiaries, the assessee being one of them in the form of commission. The assessee inflated the expenditure by providing the fake commission entry of Rs.4,29,452/- and deducted TDS while making payment. Referring to the notice dated 31.03.2017 u/s 148 of the Act and a copy of reason recorded by the Ld. AO provided to the assessee vide letter dated 29.05.2017 (pages 1, 2 and 3 of the paper book refers), the Ld. AR submitted that the above stated reason was the solitary reason on the basis of which the case of the assessee was reopened. However, the Ld. AO in the assessment order (para 8 of the assessment order refers) has discussed a completely new issue and made addition of Rs.2,58,67,123/- (Rs.2.5 crore towards loan + Rs.8,67,123/- towards interest on loan) on account of cash credits u/s 68 of the Act. Relying on the decision of the Bombay High Court in the case of CIT Vs. Jet Airway (I) Ltd. reported in (2010) 195 Taxman 117 (Bombay) the Ld. AR submitted that the impugned assessment order is bad in law.

5.2 Without prejudice to the above submission, the Ld. AR further contended that no relevant material/information was available with the Ld. AO at the time of issuance of notice u/s 148 of the Act. Based on the certified copies of certain documents provided by the Ld. AO on the assessee’s request, it was noted that the information on the basis of which the assessee’s case was reopened was received by the ACIT, Ahmednagar on 05.04.2017 which is evident from the stamp on the said documents. Accordingly, initiation of reassessment proceedings vide notice dated 31.03.2017 issued u/s 148 of the Act is bad in law as the Ld. AO was not in the possession of the relevant information on 31.03.2017 and the said information was received for the first time only on 05.04.2017 (pages 14 and 15 of the paper book refers). Further, referring to page 16 of the paper book which contains a certified copy of the letter dated 25.09.2017 issued by the ACIT, Ahmednagar to ACIT, Kolkata, the Ld. AR submitted that the ACIT, Ahmednagar reopened the case of the assessee in a mechanical manner and without conducting any independent inquiry since on 31.03.2017 he was not in a possession of the relevant documents which were crucial in forming a reason to believe that the income of the assessee had escaped assessment. This clearly shows non-application of mind by the Ld. AO.

5.3 The Ld. AR also contended that the assessee’s case has been reopened without satisfying the requirement of section 151 of the Act. He submitted that the notice u/s 148 of the Act was issued on 31.03.2017 by relying on the reason recorded provided by the Ld. AO vide letter dated 29.05.2017. The Ld. AO also provided a copy of the approval of the PCIT- 1, Pune to the assessee which contained the letter No. PN/Pr.CIT- 1/u/s148/VPZ/-235 dated 31.03.2017 received by him from the ITO(Hq.), O/o The Pr. CIT-1,Pune (pages 17,18, and 19 of the paper book refers). Referring to these documents, the Ld. AR submitted that all the relevant events took place on 31.03.2017 itself before issue of notice u/s 148 to the assessee on 31.03.2017. He submitted that the information was received by the Ld. AO from the ACIT, Kolkata on 31.03.2017, the Ld. AO recorded his satisfaction note on 31.03.2017 and the said satisfaction note was sent to the PCIT in Pune from ACIT, Ahmednagar for approval u/s 151 of the Act on 31.03.2017. The Ld. PCIT received the same and agreed with the satisfaction recorded by the Ld. AO on 31.03.2017. The approval of the Ld. PCIT u/s 151 of the Act was sent from Pune to Ahmednagar on 31.03.2017. The Ld. AO received the said approval in Ahmednagar and issued the notice u/s 148 of the Act to the assessee on 31.03.2017.

5.4 Thereafter, the assessee had requested for provision of certain documents from the Ld. AO. The Ld. AO provided some of them vide letter dated 14.06.2018, however, he did not provide the assessee with the certified copy of inward and outward register for the period 24.03.2017 to 05.04.2017 and certified copy of proposal submitted online in prescribed format to Pr. CIT-1, Pune for seeking online sanction for reopening the assessment. The assessee therefore obtained the said documents from CPIO under the RTI Act, 2005 (pages 27 to 62 of the paper book refers).

5.5 The Ld. AR then submitted that on perusal of the copies of the outward register (placed at page 61 of the paper book), the date mentioned therein is 24.04.2017. Below that date, tapal bearing Nos. 217 to 219 are entered. On the next page (page 62 of the paper book refers), reference of approval for initiating the reassessment proceedings u/s 147 of the Act in case of the assessee is written against the tapal bearing no.

5.6 In support of its above contention, the Ld. AR placed reliance on the following judgments wherein it has been held that notice issued u/s 148 of the Act is illegal because prior approval as required u/s 151 of the Act was not taken. i. River Valley Meadows and Township (P.) Ltd. Vs. DCIT reported in (2022) 134 taxmann.com 20 (Bom). ii. Svitzer Hazira (P.) Ltd. Vs. ACIT reported in (2022) 135 taxmann.com 136 (Bom). iii. ITO Vs. Shri Asok Jain in (Surat Tribunal). iv. Mrs. Anima Rasool Vs. Income Tax reported in (2014) 49 taxmann.com 40 (Amritsar-Tribunal).

“11. The rival submissions which have been urged on behalf of the revenue and the assessee can be dealt with, both as a matter of first principle, interpreting the section as it stands and on the basis of precedents on the subject. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has the power to assess or reassess the income, which he has reason to believe had escaped assessment and also any other income chargeable to tax. The words "and also cannot be ignored. The interpretation which the Court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words "assess or reassess such income and also any other income chargeable to tax which has escaped assessment", the words "and also" cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word "or". The Legislature did not rest content by merely using the word "and". The words "and", as well as "also" have been used together and in conjunction. The Shorter Oxford Dictionary defines the expression "also" to mean 'further, in addition, besides, too. The word has been treated as being relative and conjunctive. Evidently, therefore, what Parliament intends by use of the words "and also" is that the Assessing Officer, upon the formation of a reason to believe under section 47 and the issuance of a notice under section 148(2) must assess or reassess: (i) 'such income'; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently the course of the proceedings under the section. The words 'such income refer to the income chargeable to ax which has escaped assessment and in respect of which the Assessing Officer has formed a reason to blieve that it has escaped assessment. Hence, the language which has been used by Parliament is indicative the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceedings as having escaped assessment. If the come, the escapement of which was the basis of the formation of the season to believe is not assessed or assessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not be open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from 1-4-1989 clearly stipulated that the Assessing Officer has to assess or reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceedings. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter.

12. In CIT v. Sun Engg. Works (P) Ltd. [1992] 198 ITR 2971, the Supreme Court dealt with the following question of law in the course of its judgment:-

"Where an item unconnected with the escapement of income has been concluded finally against the assessee, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item for the purpose of computation of the escaped income?" The issue which arose before the Supreme Court was whether, in the course of a reassessment on an escaped item of income could an assessee seek a review in respect of an item which stood concluded in the original order of assessment. The Supreme Court dealt with the provisions of section 147, as they stood prior to the amendment on 1-4-1989. The Supreme Court held that the expression "escaped assessment" includes both "non-assessment as well as "under assessment. Income is said to have escaped assessment within the meaning of the section when it has not been charged in the hands of an assessee during the relevant assessment year. The expression "assess" refers to a situation where the assessment of the assessee for a particular year is, for the first time, made by resorting to the provisions of section 147. The expression reassess refers to a situation where an assessment has already been made but the Assessing Officer has reason to believe that there is under assessment on account of the existence of any of the grounds contemplated by Explanation 1 to section 147. The Supreme Court adverted to the Judgment in V Jaganmohan Rao v. CIT (1970) 75 ITR 373, which held that once an assessment is validly reopened, the previous under assessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Court held that the object of section 147 enures to the benefit of the revenue and it is not open to the assessee to convert the reassessment proceedings as an appeal or revision and thereby seek relief in respect of items which were rejected earlier or in respect of items not claimed during the course of the original assessment proceedings. The judgment in V. Joganmohan Rao's case (supra) dealt with the language of sections 22(2) and 34 of the Act of 1922 while the judgment in Sun Engg. Works (P.) Ltd.'s case (supra) interprets the provisions of section 147 as they stood prior to the amendment on 1-4-1989.

13. The effect of the amended provisions came to be considered in two distinct lines of precedent on the subject. The first line of authority, to which a reference has already been made earlier, adopted the principle that where the Assessing Officer has formed a reason to believe that income has escaped assessment and has issued a notice under section 148 on certain specific issues, it was not open to him during the course of the proceedings for assessment or reassessment to assess or reassess any other income, which may have escaped assessment but which did not form the subject- matter of the notice under section 148. This view was adopted in the Judgment of the Punjab and Haryana High Court in Vipan Khonna's case (supra) and in the judgment of the Kerala High Court in Travancore Cements Ltd.'s case (supra). This line of authority, would now cease to reflect the correct position in law, by virtue of the amendment which has been brought in by the insertion of Explanation 3 to section 147 by Finance (No. 2) Act of 2009. The effect of the Explanation is that once an Assessing Officer has formed a reason to believe that income chargeable to tax has escaped assessment and has proceeded to issue a notice under section 148, it is open to him to assess or reassess income in respect of any other issue though the reasons for such issue had not been included in the reasons recorded under section 148(2).

8. In light of the factual matrix of the instant case and the legal position set out above and in the absence of any material/evidence /judicial precedents brought on record by the Ld. AO in rebuttal of the above contention to enable us to take a different on this issue, we hold that the reassessment proceedings initiated by the Ld. AO are invalid and bad in law and liable to be quashed.

11. So far as the assessee’s challenge pertaining to reopening without satisfying the requirement of section 151 of the Act is concerned, we find that this issue is no more res-integra. The facts of the present case and the issues involved are squarely covered in favour of the assessee by the decision(s) of the Jurisdictional Bombay High Court in the case of River Valley Meadows and Township (P.) Ltd (supra) and Svitzer Hazira (P.) Ltd (supra). We find that the relevant facts pertaining to this issue has been duly considered by the Ld. CIT(A)/NFAC during the remand proceedings wherein the Ld. CIT(A)/NFAC has recorded a categorical finding that the reassessment proceedings were initiated without satisfying the requirements of section 151 of the Act on the ground the sanction letter dated 31.03.2017 was dispatched by the Ld. PCIT only on 24.04.2017 and therefore could not have been received by the Ld. AO on 31.03.2017 and these facts have been duly confirmed from the outward register of the Ld. PCIT provided to the assessee through the order of the CPIO. The Ld. DR has not brought on record any material/evidence to controvert this finding of the Ld. CIT(A)/NFAC and the contention of the assessee. We, therefore, do not find any reason to interfere with the findings of the Ld. CIT(A)/NFAC and accordingly, hold that the reassessment proceedings are bad in law as it was initiated without obtaining prior approval of the Ld. PCIT in light of the decision(s) of the Jurisdictional Bombay High Court (supra).

12. Since, we have quashed the reassessment proceedings, the other grounds raised by the Revenue on merits become academic in nature and require no adjudication.

Order pronounced in the open court on 29th October, 2025.