RASI SEEDS (P) LTD.,COIMBATORE vs. DCIT, COIMBATORE

PER G. MANJUNATHA, AM: This appeal filed by assessee is directed against order of

learned Commissioner of Income Tax (Appeals)-18, Chennai,

dated 09.09.2015 and pertains to assessment year 2006-07.

“ 1) The learned CIT(A), has grossly erred in confirming the impugned proceedings u/s 143(3) r.w.s. 147 of Income Tax Act, 1961 as valid in the facts and circumstances of the case and in law.

2) The learned CIT(A), ought have quashed the impugned proceedings as ab initio void, in the facts and circumstances of the case and in law.

2 ITA No.2134/Chny/2015 3) The learned CIT(A) ought to have held that from the reasons recorded by the AO before the issue of notice u/s 148, the extended time limit u/s 147 could not have been availed by him.

4) The learned CIT(A) ought to have held that the required satisfaction u/s 151 was absent, as even assuming the learned CIT, Salem had accorded such sanction, it was mechanical and not after due application of his mind as required in law, in the facts of the case.

5) The learned CIT (A) has failed to appreciate that the additions are based purely on surmises and guesswork in the facts and circumstances of the case and not on the basis of any tangible materials in the facts and circumstances of the case and in law.

6) The learned CIT(A) ought to have deleted the addition of Rs.8,56,55,947/- made as unwarranted, in the facts and circumstances.”

the business of Research & Development of hybrid cotton

seeds filed its return of income for the assessment year 2006-

07 on 27.11.2006 declaring total income of Rs.11,88,99,130/-

under normal computation and Rs.17,64,49,883/- u/s.115JB of

the Income Tax Act, 1961. The assessment has been

completed u/s.143(3) of the Income Tax Act, 1961 on

23.12.2008 and determined total income of Rs.11,92,02,577/-.

A search & seizure operation u/s.132 of the Income Tax Act,

1961, was conducted in the premises of the assessee on

10.01.2013. The case has been subsequently reopened u/s.147

3 ITA No.2134/Chny/2015 of the Income Tax Act, 1961, for the reasons recorded as per

which income chargeable to tax had been escaped assessment

on account of inflation of expenses on the basis of

incriminating materials found during the course of search.

Therefore, notice u/s.148 dated 28.03.2013 was issued. In

response to notice, the assessee vide its letter dated

26.02.2014 submitted that return of income originally filed on

29.11.2006 may be treated as return filed in response to notice

u/s.148 of the Income Tax Act, 1961. The case has been taken

up for scrutiny and during the course of reassessment

proceedings, the Assessing Officer noticed that the assessee

has inflated purchases by booking purchases claims to have

been made from various parties on cash and thus, after

considering relevant details, including information gathered

during the course of search, coupled with statement of

Executive Director Mr. R.Rajendran made additions of

Rs.8,56,55,947/- towards bogus purchases.

preferred an appeal before the learned CIT(A). Before the

learned CIT(A), the assessee has challenged reopening of

assessment on multiple grounds, including change of opinion,

4 ITA No.2134/Chny/2015 no proper satisfaction from approval authority and also

questioning validity of notice. The sum & substance of the

arguments made by the assessee before the learned CIT(A) in

respect of legality of reassessment was that in the reasons

recorded for reopening of assessment, there is no allegation on

the part of the assessee to disclose fully and truly all material

facts necessary for assessment and further, notice u/s.148

has been issued without proper approval from the competent

authority. The assessee had also challenged additions made

by the Assessing Officer towards disallowance of bogus

purchases on the ground that except statement from the

Executive Director, there is no material with the Assessing

Officer to suggest that the assessee has booked bogus

expenses to reduce profit.

submissions of the assessee and also taken note of reasons

recorded for reopening of assessment and also form for

recording reasons for initiating proceedings u/s.147 of the Income Tax Act, 1961, and for obtaining approval of the

Commissioner of Income Tax, opined that the Assessing

Officer has reopened assessment on the basis of reasonable

5 ITA No.2134/Chny/2015 belief of escapement of income and same has been approved

by the Commissioner of Income Tax and thus, rejected legal

ground taken by the assessee. The learned CIT(A) had also

rejected arguments of the assessee that additions made by the

Assessing Officer does not have support of necessary

evidences by holding that information gathered during the

course of search u/s.132 of the Act, coupled with statement of

Executive Director clearly indicate suppression of income by

booking bogus purchases and thus, opined that the Assessing

Officer has rightly made additions towards bogus purchases

and hence, confirmed additions made by the Assessing Officer.

Aggrieved by the learned CIT(A) order, the assessee is in

appeal before us.

ground no. 1 to 4 of the assessee appeal is validity of reopening

of assessment u/s.147 and consequent reassessment

proceedings. The learned A.R. for the assessee submitted that the learned CIT(A) has grossly erred in sustaining validity of

reopening of assessment u/s.147 of the Income Tax Act, 1961,

even though, reasons recorded by the Assessing Officer does

6 ITA No.2134/Chny/2015 not show any light on quantification of escapement of income

and also failure on the part of the assessee to disclose fully and

truly all material facts necessary for assessment. The learned

A.R. for the assessee further referring to page no.9 to 14 of the

paper book which contain copy of reasons recorded for

reopening of assessment, form for recording reasons for

initiating proceedings u/s.147 of the Income Tax Act, 1961, and

for obtaining approval of the CIT submitted that nowhere in the

reasons recorded for reopening of assessment, the Assessing

Officer alleged that there is failure on the part of the assessee

to disclose fully and truly all material facts necessary for

reopening of assessment. Further, reasons recorded for

reopening of assessment does not quantify escapement of

income. The form for recording reasons for initiating

proceedings and obtaining approval of the Commissioner of

Income Tax clearly shows non-application of mind from the

JCIT, Range-1, Salem and Commissioner of Income Tax,

Salem, for granting approval, because both authorities have

simply stated that ‘Yes, approval is granted’, and ‘Yes, I am

satisfied’, without any application of mind to reasons recorded

by the Assessing Officer to form reasonable belief of

7 ITA No.2134/Chny/2015 escapement. The learned AR further submitted that it is well

established principle of law by decisions of various courts,

including decision of the Hon’ble Bombay High Court in the

case of Nirmal Bang Securities Pvt.Ltd. Vs. ACIT (2016) 382

ITR 93, unless there is an allegation from the Assessing Officer

on failure of the assessee to disclose fully and truly all facts

necessary for assessment, notice issued u/s.148 is invalid,

when the assessment has been reopened after a period of four

years from the end of relevant assessment year. The learned

AR further referring to decision of the Hon'ble Supreme Court

in the case of CIT Vs. Goyanka Lime & Chemical Ltd. (2016)

237 taxman 378 submitted that where the JCIT or

Commissioner of Income Tax recorded satisfaction in

mechanical manner and without application of mind to accord

sanction for issuing notice u/s.148 of the Act, reopening of

assessment was invalid. In this regard, the assessee has relied

upon decision of the Hon’ble High Court of Madhya Pradesh in

the case of CIT Vs. S.Goyanka Lime & Chemicals Ltd. (2015)

231 taxman 73 and also decision of the ITAT., Mumbai in the

case of Astra Exim Pvt. Ltd Vs. ITO in ITA No.277/Mum/298

dated 31.08.2018.

8 ITA No.2134/Chny/2015 7. The learned D.R., on the other hand, supporting order of

the learned CIT(A) submitted that reasons recorded for

reopening of assessment is self-explanatory. If you go through

reasons given for reopening of assessment, the Assessing

Officer has clearly arrived at reasonable belief of escapement

of income on the basis of fresh tangible materials and hence,

question of disclosure of all material facts necessary for

assessment does not arise. Further, if you go through form for

initiation of proceedings u/s. 147 of the Act, and for getting

approval from the Commissioner of Income Tax, it is very clear

that reasons are reproduced and after going through reasons,

concerned authorities have accorded their approval. No doubt,

there is no discussion on the reasons recorded by the

Assessing Officer on the issue for reopening of assessment by

the Assessing Officer. However, on going through reasons,

both the authorities have clearly expressed their satisfaction of

escapement of income and in absence of any specified format

for granting approval, it cannot be said that authorities have not applied their mind before according their approval.

available on record and gone through orders of the authorities

9 ITA No.2134/Chny/2015 below. The facts borne out from records indicate that original

assessment has been completed u/s.143(3) of the Income Tax

Act, 1961 on 23.12.2008. It is also an admitted fact that notice

u/s.148 of the Act was issued on 25.03.2013, which is beyond

four years from end of the relevant assessment year. Therefore,

reasons recorded for reopening of assessment has to be

examined in light of proviso to section 147 of the Income Tax

Act, 1961 and as per said proviso, where an assessment under

sub-section (3) of Section 143 has been made for relevant

assessment year, no action shall be taken under this section

after expiry of four years from end of the relevant assessment

year, unless any income chargeable to tax has escaped

assessment for such assessment year by reason of the failure

on the part of the assessee to disclose fully and truly all facts

necessary materials for assessment in that assessment year. In

this case, main argument in light of reasons recorded for

reopening of assessment dated 18.03.2013 is that there is no

allegation from the Assessing Officer on failure of the assessee

to disclose fully and truly all facts necessary for assessment.

reopening of assessment, which is available in page 11 & 12 of

10 ITA No.2134/Chny/2015 paper book filed by the assessee and from the reasons

recorded, there is no allegation from the Assessing Officer on

the part of the assessee to disclose fully and truly all material

facts necessary for assessment. Therefore, from the above it is

very clear that when the assessment has been reopened after a

period of four years from end of the relevant assessment year,

there should be allegation from the Assessing Officer on the

part of the assessee to disclose fully & truly all material facts

necessary for assessment. Unless there is an allegation from

the Assessing Officer, assessment cannot be reopened,

because as per proviso to section 147 of the Income Tax Act,

1961, when the original assessment has been completed

u/s.143(3) of the Income Tax Act, 1961, no action can be taken

under this section without alleging failure on the part of the

assessee to disclose fully & truly all material facts necessary for

assessment. Since, there is no allegation from the Assessing

Officer in the reasons recorded for reopening of assessment on

failure of the assessee, reopening of assessment on the basis

of said reasons is invalid and consequently, reassessment

proceeding becomes null and void. This legal principle is

supported by the decision of the Hon’ble Bombay High Court

11 ITA No.2134/Chny/2015 in the case of Nirmal Bang Securities Pvt.Ltd. Vs. ACIT (supra)

where the Hon’ble High Court has clearly held that in absence

of allegation in the notice regarding non-disclosure of material

facts, assessment cannot be reopened after a period of four

years from end of the relevant assessment year, when the

original assessment has been completed u/s.143(3) of the

Income Tax Act, 1961.

for the assessee has also challenged validity of reassessment

proceedings in light of provisions of section 151 of the Act in the

context of approval required to be accorded from the CIT for

initiating proceedings u/s.147 of the Income Tax Act, 1961.

According to the learned counsel for the assessee, sanction

accorded by the competent authority is mechanical and without

any application of mind, because both the authorities have

simply stated that ‘yes, we are satisfied’, without clearly

specifying how reasonable belief of escapement of income

formed by the Assessing Officer is having nexus with fresh

tangible material and failure of the assessee to disclose fully &

truly all material facts necessary for assessment. We have

gone through arguments advanced by the learned counsel for

12 ITA No.2134/Chny/2015 the assessee in light of provisions of section 151 of Income Tax

Act, 1961, and as per said provisions, approval from the

competent authority is must before issuing notice u/s.148 of the

Income Tax Act, 1961. In this case, original assessment has

been completed u/s.143(3) of the Act, and reopening of

assessment is beyond four years from end of the relevant

assessment year and thus, no notice u/s.148 shall be issued by

the Assessing Officer, unless the Principal CIT or Chief CIT or

Principal Commissioner or Commissioner is satisfied on the

reasons recorded by the Assessing Officer that it is a fit case for

issue of such notice. The assessee has produced copy of form

for recording reasons for initiating proceedings u/s.147 of the

Income Tax Act, 1961, and for obtaining approval of the

Commissioner dated 18.03.2013. We have gone through

relevant form, which is available in the paper book filed by the

assessee and we find that the Assessing Officer has recorded

reasons for reopening of assessment on 18.03.2013 without

any allegation on the part of the assessee to disclose fully and

truly all material facts necessary for assessment of that

assessment year and the JCIT, Range-1, Salem has approved

on very same date i.e. 18.03.2013 by stating that 'Yes, approval

13 ITA No.2134/Chny/2015 may please be granted for issue of notice u/s.148’ and on very

same date, the Commissioner of Income Tax, Salem, has

accorded approval by stating that “Yes, I am satisfied”. From

the above, what we could understand is that authority

concerned for according approval u/s.151 of the Income Tax

Act, 1961, has mechanically granted approval without recording

his satisfaction as to whether it is a fit case for issue of notice

u/s.148 of the Income Tax Act, 1961, or not on the basis of

reasons recorded by the Assessing Officer that reasonable

belief of escapement of income formed by the Assessing Officer

is having any nexus with escapement of income and further,

such escapement is on the failure of assessee to disclose fully

and truly all material facts necessary for assessment. From the

reasons recorded by the Assessing Officer nothing is

discernible whether is there any basis for formation of belief of

escapement of income, because in the said reasons there is

quantification of escapement of income and also there is no

allegation on the part of the assessee to disclose fully and truly

all material facts necessary for assessment. Therefore, we are

of the considered view that while granting approval for

issuance of notice u/s.148 of the Act, the Commissioner of

14 ITA No.2134/Chny/2015 Income Tax should have applied his mind to the reasons

recorded by the Assessing Officer for reopening of assessment

and then satisfy himself about reasons to ascertain whether it

is a fit case for issuance of notice u/s.148 of the Act. In absence

of such satisfaction, it can be safely held that approval

accorded by the Commissioner of Income Tax in the given facts

& circumstances of the case is mechanical and without

application of mind.

of courts and Tribunals that sanction for issue of notice

prescribed u/s.151 is not mere procedure, but power conferred

on the competent authority to exercise his powers in a quasi

judicial manner and thus, while exercising such powers the

authority must record his satisfaction in writing and state how

and why it is necessary to issue notice u/s.148 of the Income

Tax Act, 1961 . The Hon’ble Madhya Pradesh High Court in the

case of S.Goyanka Lime & Chemicals (supra) while answering

substantial question of law on the issue of recording sanction

by approval authority held that merely writing on format ‘yes, I

am satisfied’ cannot be considered as satisfaction required to

be recorded by the competent authority while granting approval

15 ITA No.2134/Chny/2015 for issuance of notice u/s.148 of the Income Tax Act, 1961. The

Hon'ble Supreme Court has dismissed SLP filed by the

Revenue and affirmed decision of the Hon’ble Madhya

Pradesh High Court and held that where JCIT recorded

satisfaction in mechanical manner and without application of

mind to accord sanction for issuing notice u/s.148 of the Act,

reopening assessment was invalid. The ITAT., Mumbai

Benches in the case of Astra Exim Pvt. Ltd. in ITA

No.277/Mum/2018 vide order dated 31.08.2018 had

considered an identical issue and held that mere mentioning

‘Yes, I am satisfied’ is considered to be mechanical action, if

learned CIT did not apply his mind on the issue of reopening of

assessment without referring to reasons recorded by the

Assessing Officer for reopening of assessment, contrary to

provisions of section 151 of the Income Tax Act, 1961. The sum

and substance of ratio laid down by various High Courts and

Tribunals are that sanction for issue of notice as provided

u/s.151 is not a mere procedural aspect, but proceedings

which has to be carried out with due diligence and thus, in a

case, where there is no proper approval or mechanical

approval without any application of mind of the sanctioning

16 ITA No.2134/Chny/2015 authority to the reasons recorded for reopening of assessment,

then, it can be safely concluded that the concerned authority

has accorded approval in a mechanical manner, contrary to

scheme of provisions of Section 151 of the Income Tax Act,

1961.

u/s.147 of the Act, and for granting approval of the

Commissioner of Income Tax for issuance of notice u/s.148 of

the Act, it is abundantly clear that the Assessing Officer has

recorded reasons for reopening of assessment without there

being any allegation on the part of the assessee to disclose fully

and truly all material facts necessary for that assessment year

and said reasons had been mechanically approved by the

Commissioner of Income Tax, Salem, by stating that “Yes, I am

satisfied”. Therefore, we are of the considered view that notice

issued u/s.148 of the Act dated 25.03.2013 in pursuant to

reasons recorded for reopening of assessment dated

18.03.2013 and consequent approval granted by the learned CIT, Salem is without any application of mind and thus,

reopening of assessment on the basis of said approval is bad in

law and liable to be quashed. Hence, we quash notice issued

17 ITA No.2134/Chny/2015 u/s.148 of the Income Tax Act, 1961 and consequent

reassessment proceedings completed u/s.143(3) r.w.s 147 of

the Act.

additions made by the Assessing Officer towards disallowance

of bogus purchases on the ground that except statement

recorded from the Executive Director, nothing is on record to

show that the assessee has inflated purchases by booking bogus expenditure. Although, the assessee has raised grounds

on merits of issue, but, because assessment order passed by

the Assessing Officer has been quashed on legal grounds,

other grounds taken by the assessee challenging issues

involved on merit does not require to be adjudicated at this

juncture and thus, ground no.5 & 6 of grounds of appeal raised

by the assessee are dismissed as infructuous.

Sd/- Sd/- ( वी. दुगा� राव) (जी. मंजुनाथ) (V.Durga Rao) (G.Manjunatha) #या�यक सद%य /Judicial Member लेखा सद%य / Accountant Member चे#नई/Chennai, (दनांक/Dated 29th July, 2022

18 ITA No.2134/Chny/2015 DS आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A) 4. आयकर आयु-त/CIT 5. +वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.