SEAWOOD HOSPITALITY & REALTY PVT. LTD.,MUMBAI vs. DCIT (CC) 3 (4), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

(A.Y.2010-11) – Seawoods Hospitality and Realty P. Ltd.,

3.1. In response to the said notice, assessee filed a letter dated 18/02/2016 requesting the ld. AO to treat the original return of income filed on 15/10/2010 as the return filed in response to notice u/s.148 of the Act. The assessee on receipt of reasons recorded for reopening of assessment also filed objections to the same before the ld. AO. The ld. AO disposed off the objections by way of a separate speaking order dated 19/02/2016 rejecting the contentions of the assessee. Thereafter, the ld. AO proceeded to frame re-assessment u/s.143(3) r.w.s.147 of the Act on 13/06/2016 wherein the share capital and share premium received by the 93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., assessee in the sum of Rs.3,35,00,000/- was added as unexplained cash credit u/s.68 of the Act.

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., that the ld. PCIT while according sanction in terms of Section 151(1) of the Act, had not applied his mind and had given a mechanical sanction for reopening the case even when the reasons recorded for reopening the assessment were not even placed before him by the ld. AO. Infact, in question No.11 of the prescribed proforma, the reasons recorded for reopening the assessment is one of the main question mentioned therein for which the ld. AO has replied “As per Annexure” and the said annexure is enclosed in page 7 of the paper book which is nothing but the reasons recorded for reopening the assessment which is dated on 14/01/2016. Hence, the ld. AO could not have sent the proforma for approval u/s.151(1) of the Act to the ld. PCIT on 08/01/2016 with the reasons recorded for reopening of assessment. The ld. AR placed reliance on the following decisions in support of its contention that where the ld. PCIT gave the mechanical approval for reopening of assessment without due application of mind in terms of Section 151(1) of the Act, the said re- assessment requires to be quashed:-

(a) Co-ordinate Bench decision of this Tribunal in the case of Avani Premises Pvt. Ltd., vs. ITO in for A.Y.2008- 09 dated 09/01/2020.

(b) Decision of Hon’ble Delhi High Court in the case of PCIT vs. N.C. Cables Limited reported in 391 ITR 11 (Del)

(c) Decision of the Hon’ble Supreme Court in the case of Chhugamal Rajpal vs. S.P.Chaliha & Others reported in 79 ITR 603 (SC)

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., (d) Decision of Hon’ble Madhya Pradesh High Court in the case of CIT vs. S.Goyanka Lime and Chemical Ltd. reported in 231 Taxman 73. SLP of revenue before the Hon’ble Supreme Court was also dismissed in 237 Taxman 378.

(e) Co-ordinate Bench decision of this Tribunal in the case of Astra Exim Pvt. Ltd., vs. ITO in for A.Y.2007-08 dated 31/08/2018.

5.1. Per contra, the ld. DR filed a written submission through email on 06/10/2020 on the merits of the addition and also on the arguments advanced by the ld. AR. The ld. DR placed reliance on the decision of the Hon’ble Andhra Pradesh High Court in the case of P. Munirathnam Chetty and P.Satyanarayana Chetty reported in 101 ITR 385 where according to the ld. DR, the Hon’ble High Court had observed as under:-

“Where the ITO has given elaborate reasons for reopening in his report to the CIT, mere “yes” endorsement to the CIT would amount to his satisfaction”.

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., 5.2. The ld. DR also placed reliance on the following decisions in support of his contention that reopening of assessment could be made where information has been received from external agencies as under:-

 “Sterlite Industries(lndia) Ltd. V/s. ACIT (MAD) (302 ITR 275) where it was held that information from Enforcement Directorate showing possible inflation of purchases ' notice issued u/s.148 valid'.  In AGR Investment Ltd. v/s, Addl.CIT & Anr.(Del) (333 ITR 146)

 Shalimar Buildcon (P) Ltd. Vs ITO ITAT Jaipur (136 TTJ 701) wherein it was held that information from investigation Wing ' notice u/s. 148 issued on the basis of such letter'.”

5.3. We find that the reopening in the instant case has been made beyond four years from the end of the relevant assessment year which requires sanction of approval from the ld. PCIT u/s.151(1) of the Act. We find from page 1 of the Case Law Paper book filed by the assessee before us containing proforma in the prescribed format seeking sanction of approval u/s.151(1) of the Act, that the said proforma was sent by the ld. AO to the ld. PCIT through proper channel i.e. Additional CIT on 08/01/2016. For the sake of convenience, the entire proforma is reproduced herein:-

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., 5.4. From the aforesaid proforma, it could be seen that question No.7 specifically mandate the ld. AO to mention whether the provisions of 93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., Section 147(a) or 147 (b) or both the sections are applicable. In response thereto, the ld. AO had mentioned only 147(b). We find that the provisions of Section 147(b) has been omitted from the statute book long back and was certainly not in force for A.Y.2010-11. We find that the ld. CIT(A) without looking into these facts had accorded a mechanical approval without due application of mind. We find that reliance placed by the ld. AR on the decision of Hon’ble Jurisdictional High Court squarely clinches the issue before us in this regard in the case of Smt. Kalpana Shantilal Haria vs. ACIT referred to supra, wherein it was held that:-

“6. The grievance of the petitioner is that there is no proper sanction in view of non application of mind by the Joint Commissioner of Income Tax. The Assessing Officer has invoked a provision of law to sustain the impugned notice which is admittedly not in the statute and the Joint Commissioner has yet approved it.

7. Mr. Chanderpal, learned Counsel appearing for the Revenue tendered a copy of the letter dated 19th December, 2017 issued to the petitioner wherein the Assessing Officer has stated that the words “147(b)” were inadvertently filled in the prescribed form, instead of Section 147 of the Act while obtaining the sanction from the Joint Commissioner of Income Tax. It is further submitted on behalf of the Revenue that the same is a curable defect under section 292B of the Act. Therefore, the impugned notice cannot be held to be bad for mere incorrect mentioning of section on account of the mistake. (emphasis supplied by us) 8. There can be no dispute with regard to the application of Section 292B of the Act to sustain a notice from being declared invalid merely on the ground of mistake in the notice. However, the issue here is not with regard to the mistake / error committed by the Assessing Officer while taking a sanction from the Joint Commissioner of Income Tax but whether there was due application of mind by the Joint Commissioner of Income Tax while giving the necessary sanction for issuing the impugned notice. It is a settled principle of law that sanction granted by the higher Authority for issuing of a reopening notice has to be on due application of mind. It cannot be an mechanical approval without examining the proposal sent by the Assessing Officer. Prima facie, it appears to us that if the Joint Commissioner of Income Tax would have applied his mind to the application made by the Assessing Officer, then the very first thing which would arise is the basis of the notice, as the provision of law on which it is based is no longer in the statute. Non-pointing out the mistake / error by the Joint Commissioner of Income Tax on the part of the Assessing Officer is 93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd.,

prima facie evidence of non-application of mind on the part of the sanctioning authority while granting the sanction.” (emphasis supplied by us)

5.5. From the aforesaid proforma, it is also evident that the question No.11 mandate the ld. AO to specify the reasons which enabled him to form the belief that income of the assessee had escaped assessment and in reply to the said question, the ld. AO had mentioned “As per Annexure”. The said annexure containing the reasons recorded for reopening the assessment is enclosed in page 7 of the paper book of the assessee which is reproduced herein for the sake of convenience:-

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., 5.6. We find from the aforesaid annexure containing the reasons recorded for reopening of assessment year, the same was prepared by the ld. AO only on 14/01/2016 whereas the proforma was sent in the prescribed format by him on 08/01/2016 itself. Actually, the reasons recorded for reopening of assessment is supposed to go alongwith proforma in the prescribed format before the ld. CIT while according the sanction of approval u/s.151(1) of the Act. The aforesaid decision clearly goes to prove that at the time of seeking of approval in the prescribed proforma dated 08/01/2016, the ld. AO had not even recorded the reasons for reopening of assessment and that there was absolutely no other material available before the ld. PCIT to apply his mind and come to a conclusion that it is a fit case for reopening of assessment. Hence, it could be safely concluded that the approval given by the ld. PCIT for reopening is only a mechanical approval without due application of mind on his part. One more strange point which we note from page 1 of the case law paper book containing the prescribed proforma for reopening is that the ld. PCIT had not even mentioned the date and his name while according approval in the prescribed proforma.

5.7. From the aforesaid proforma, it could be seen that the ld. PCIT had only mentioned for question No.13 as under:-

“Question Number 13. Whether the Pr. Commissioner is satisfied on the reasons recorded by the DCIT, that it is a fit case for the issue of a notice under section 148. Reply: Yes, it is fit case for issue of notice u/s.148.”

5.8. We find that the aforesaid approval granted by the ld. PCIT does not constitute proper sanction in terms of the Section 151(1) of the Act

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., and rather it would only tantamount to mechanical approval granted by him without due application of mind. In this regard, we would like to place reliance on the Co-ordinate Bench decision of this Tribunal which has been rightly relied upon by the ld. AR in the case of that Avani Premises Pvt. Ltd., vs. ITO in dated 09/01/2020 wherein the approval was obtained from Additional CIT in terms of Section 151 of the Act and question No.12 thereon and the reply given by the Additional CIT was as under:-

“Whether the Addl. Commissioner is satisfied on the reasons recorded by the DCIT, that it is a fit case for the issue of a notice under Section 148.” Reply: Yes, I am so satisfied 5.8.1. The operative portion of decision of this tribunal in dated 09/01/2020 is reproduced hereunder:-

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., satisfied" which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.' 8. If the case in hand is analysed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration.

9. As far as explanation to Section 151, brought into force by Finance Act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue.

10. In view of the concurrent findings recorded by the learned appellate authorities and the law laid down in the case of Arjun Singh (supra), we see no question of law involved in the matter, warranting reconsideration.”

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., the exercise appears to have been ritualistic and formal rather than meaningful, which is the rationale for the safeguard of an approval by a higher ranking officer. For these reasons, the court is satisfied that the findings by the Income-tax Appellate Tribunal cannot be disturbed.”

8. The learned Counsel for the assessee also relied on the decision of Hon’ble Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha and Others and stated that Hon’ble Supreme Court long back in 1971 while adjudicating the issue of according of sanction for issue of notice under section 148 of the Act has considered this issue and finally observed as under: - “Further his report mentions: "Hence proper investigation regarding these loans is necessary". In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under section 148. Before issuing a notice under section 148, the Income-tax Officer must have either reasons to believe that by reason of the omission or failure on the part of the assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of clause (a) or clause (b) of section 147 are satisfied, the Income-tax Officer has no jurisdiction to issue a notice under section 148. From the report submitted by the Income-tax Officer to the Commissioner, it is clear that he could not have had reasons to believe that by reason of the assessee's omission to disclose fully and truly all material facts necessary for his assessment for the accounting year in question, income chargeable to tax has escaped assessment for that year; nor could it be said that he, as a consequence of information in his possession, had reasons to believe that the income chargeable to tax has escaped assessment for that year. We are not satisfied that the Income-tax Officer had any material before him which could satisfy the requirements of either clause (a) or clause (b) of section 147. Therefore, he could not have issued a notice under section 148. Further, the report submitted by him under section 151(2) does not mention any reason for 93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., coming to the conclusion that it is a fit case for the issue of a notice under section 148. We are also of the opinion that the Commissioner has mechanically accorded permission. He did not himself record that he was satisfied that this was a fit case for the issue of a notice under section 148. To question No. 8 in the report which reads "Whether the Commissioner is satisfied that it is a fit case for the issue of notice under section 148", he just noted the word "Yes" and affixed his signature thereunder. We are of the opinion that if only he had read the report carefully, he could never have come to the conclusion on the material before him that this is a fit case to issue notice under section 148. The important safeguards provided in sections 147 and 151 were lightly treated by the Income-tax Officer as well as by the Commissioner. Both of them appear to have taken the duty imposed on them under these provisions as of little importance. They have substituted the form for the substance.”

9. On the other hand, the learned Sr. Departmental Representative, Shri Michael Jerald strongly opposed the issue raised because this issue was never raised before CIT(A) by the assessee and even now before Tribunal this issue is not raised, hence, he strongly opposed the adjudication of this issue. When it was pointed out to the learned Sr. Departmental Representative that the Revenue itself has filed this information regarding according of approval for issuance of notice under section 148 of the Act and approval accorded under section 151 of the Act, still he opposed the adjudication of this issue because this issue has not been raised before the lower authorities by the assessee.

mechanical way which is unsustainable in law. Hence, on this very jurisdictional issue, we set aside the orders of the lower authorities and allow this appeal of the assessee. 11. As regards to the other grounds raised by the assessee, since we have adjudicated the issue on jurisdiction and quash the reopening, we need not to go into the other issues raised on jurisdiction as well as the merits of the case.

12. In the result, the appeal of the assessee is allowed.”

5.9. We find that the aforesaid decision of Mumbai Tribunal considers the decision of the Hon’ble Madhya Pradesh High Court in 231 Taxman 73, wherein revenue SLP was subsequently dismissed by the Hon’ble Supreme Court in 237 Taxman 378. We also find similar view was expressed by the Hon’ble Supreme Court in the case of Chhugamal Rajpal vs. S.P.Chaliha & Others reported in 79 ITR 603 (SC) supra wherein the Hon’ble Supreme Court had emphasised the fact that the Additional Commissioner of Income Tax granting mechanical permission by simply saying the words “yes” and affixing the signature in the prescribed proforma does not tantamount to proper sanction in terms of Section 151 of the Act. In view of the aforesaid decisions of various other High Courts and also by the decision of the Hon’ble Supreme Court on the impugned issue, it could be safely concluded that the ld. PCIT, being a competent authority had granted mechanical approval without due application of mind on the prescribed proforma for reopening of assessment in terms of Section 151 of the Act. We find that the case law relied upon by the ld. DR of Hon’ble Andhra Pradesh High Court in the case of P. Munirathnam Chetty and P.Satyanarayana Chetty reported in 101 ITR 385 does not advance the case of the revenue and there is no need for us to go into it at this juncture in view of various other High Court decisions and Supreme Court decision in favour of the assessee on the similar issue. Respectfully following the aforesaid judicial precedents,

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., we have no hesitation to hold that the entire re-assessment has been initiated without obtaining proper sanction in terms of Section 151(1) of the Act from the ld. PCIT and hence, we hold that the approval accorded by the ld. PCIT in a mechanical way is unsustainable in law, hence, on this very jurisdictional issue, we set aside the orders of the lower authorities and allow the appeal of the assessee.

5.10. We find the ld. DR vehemently argued the validity of reopening by placing reliance on the following decisions:- a. GKN Drive Shafts case rendered in 259 ITR 19 (SC) on providing reasons recorded for reopening the assessment to the assessee. b. Raymond Wollen Mills Ltd., case reported in 236 ITR 34 (SC) on the aspect of sufficiency of reasons while reopening the assessment. c. Rajesh Jhaveri Stock Brokers Pvt. Ltd., reported in 291 ITR 500 (SC) on the aspect of sufficiency of reasons while reopening the assessment. d. Decision of Hon’ble Madras High Court in the case of Sterlite Industries (India) Ltd., vs. ACIT reported in 302 ITR 275 wherein it was held that information from Enforcement Directorate showing inflation of purchases could be a good ground for issuing notice u/s.148 of the Act. e. Decision of the Hon’ble Delhi High Court in the case of AGR Investment Ltd., reported in 333 ITR 146 and the decision of Jaipur Bench in the case of Shalimar Buildcon 136 TTJ 701 wherein it was held that the notice u/s.148 of the Act could be issued based on information from Investigation Wing about tainted transactions carried out by the assessee.

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., 5.11. We find that all the aforesaid case laws referred by the ld. DR did not address on the crucial point canvassed by the ld. AR that ld. PCIT had only granted mechanical approval u/s.151(1) of the Act without proper application of mind. Hence the reliance placed on the aforesaid decisions by the ld. DR does not come to the rescue of the revenue in the instant case.

5.12. Since the entire reopening of assessment had been quashed on the aforesaid aspect, we need not go into other grounds raised by the assessee both on law as well as on merits and they are hereby left open.

6. In the result, appeal of the assessee in A.Y.2010-11 is allowed.

ITA No.93/Mum/2019 – (A.Y.2009-10) M/s. Sukaniya Properties P. Ltd., 7. The facts of M/s. Sukaniya Properties Pvt. Ltd., in are exactly the same to the facts of the case of Seawoods Hospitality and Realty P. Ltd., in . We find that the proforma sent by the ld. AO in terms of Section 151(1) of the Act seeking approval of the ld. PCIT is dated 02/02/2016 and the reasons recorded for reopening of assessment were done on 11/02/2016. For the sake of convenience, the proforma as well as the reasons recorded are reproduced herein:-

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., 7.1. In view of the identical facts, the decision rendered by us in would apply mutatis mutandis for this appeal also. Accordingly, we quash the reopening of assessment for the A.Y.2009-10 in the case of Sukaniya Properties Pvt. Ltd., in ITA No.93/Mum/2019. – (A.Y.2010-11) M/s. Sukaniya Properties P. Ltd.,

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., Sukaniya Properties P. Ltd., in except the fact that the reasons were recorded for reopening the assessment was done by the ld . AO on 08/01/2016 , whereas the proforma in the prescribed format seeking approval of ld. PCIT under section 151(1) of the Act was sent on 19/01/2016. Here the reasons recorded were part of the proforma sent to ld. PCIT for his approval in terms of section 151(1) of the Act. The only distinguishing fact is that the ld. AO proposed to add in the re- assessment a sum of Rs.1,50,00,000/- as unexplained cash credit towards receipt of share capital and share premium from certain parties, which sum was already added by the ld. AO in the original assessment and against such assessment order, an appeal was pending before the ld. CIT(A) at the time of recording of reasons and seeking approval from ld. PCIT in terms of section 151(1) of the Act. In other words, the ld. AO was only trying to reopen the assessment for A.Y.2010-11 in order to make an addition of Rs.1.50 Crores towards bogus share capital and share premium which had already been added in the original assessment and subject matter of appeal before the ld. CIT(A) thereby contemplating to make double addition. In this order, the ld. AO in response to question No.7 in the prescribed proforma had mentioned Section 147(c) of the Act which was also omitted from the statute book and which was not at all part of the question in the said proforma, meaning thereby- the ld. AO had given a reply which is not as per the question before him in the prescribed proforma and despite his mistake, the ld. PCIT proceeds to accord sanction in terms of Section 151(1) of the Act. For the sake of convenience, the concerned proforma seeking approval u/s.151(1) of the Act is reproduced hereunder for the A.Y. 2010-11 :-

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., 8.1. This shows the complete non-application of mind both by the ld. AO who is seeking approval from the ld. PCIT and complete non-application of mind on the part of the ld. PCIT who had sanctioned approval in mechanical manner.

93& 94/Mum/2019 M/s. Seawood Hospitaly and Realty P. Ltd., & M/s. Sukaniya Properties P. Ltd., 8.2. In view of the identical facts, the decision rendered by us in would apply mutatis mutandis for this appeal also. Accordingly, we quash the reopening of assessment for the A.Y.2010-11 in the case of Sukaniya Properties Pvt. Ltd., in ITA No.94/Mum/2019.

Order pronounced on 28/10/2020 by way of proper mentioning in the notice board.