RAGHAV TECHNOLOGY P.LTD,NEW DELHI vs. ITO, WARD-20(4), NEW DELHI

Facts of the case, in brief, are that the assessee is a company and filed its return of income on 23rd September, 2009 declaring nil income. Subsequently, on the basis of information received from the Office of the Director of Income-tax (Investigation- II), Jhandewalan Extension, New Delhi, that the assessee has received accommodation entries from certain companies floated by Shri Surendra Kumar Jain group of cases which was detected during the course of search and post search inquiries conducted in the case of Shri Surendra Kumar Jain group of cases, the Assessing Officer reopened the assessment by recording reasons and by issue of notice u/s 148. Subsequently, the assessee asked for reasons recorded which was provided to the assessee. The assessee filed objections to the notice issued u/s 148 which was rejected by the Assessing Officer. Subsequently, during the course of assessment proceedings, the Assessing Officer noted that the assessee has received share capital of Rs.35 lakhs from M/s Shalini Holdings Ltd. and M/s Virgin Capital Services Pvt. Ltd. Since the assessee could not explain satisfactorily the identity, credit worthiness and genuineness of the transaction of the two companies in terms of the provisions of section 68, the Assessing Officer, relying on various decisions made addition of Rs.35 lacs to the total income of the assessee under the provisions of section 68. The Assessing Officer further made addition of Rs.60,000/- being the commission expenses incurred for arranging the accommodation entry being 1.8% of the total bogus share application money. Thus, the Assessing Officer completed the assessment at a total income of Rs.35,63,000/-.

Before the CIT(A), the assessee, apart from challenging the addition on merit, challenged the validity of the reassessment proceedings initiated under the provisions of section 147/148. However, the ld.CIT(A) was also not satisfied with the arguments advanced by the assessee and dismissed the appeal filed by the assessee on both the grounds i.e., he upheld the validity of the reassessment proceedings and also confirmed the addition made by the Assessing Officer u/s 68 of the IT Act and on account of unexplained expenditure for earning such commission income.

That under thefacts andcircumstances, addition of Rs. 10 lacs under section 68 for the share capital / share premium received from Virgin Capital Services (P) Ltd. by holding the same as received from alleged entry operator is illegal and unsustainable in law as well as on merits.

The ld. counsel for the assessee, at the outset, challenged the validity of the re- assessment proceedings on the ground that the approval given u/s 151 of the IT Act by the superior authorities is not in accordance with the law and was given in a mechanical manner and without application of mind. Referring to the approval given u/s 151 of the IT Act, copy of which is placed at pages 20 and 21 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to Column No.13 where the Principal Commissioner had given his approval by mentioning: ‘Yes. I am satisfied.’ Referring to the decision of the Hon'ble Delhi High Court in the case of United Electrical Company Pvt. Ltd. vs. CIT & Ors, reported in 258 ITR 317, he submitted that under identical circumstances, the Hon'ble High Court has held that the CIT is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The said power cannot be exercised casually and in a routine manner. Referring to the decision of the Hon'ble Delhi High Court in the case of Pr. CIT vs. N.C. Cables reported in 391 ITR 11 (Del), he submitted that when there is no proper application of mind by the sanctioning authority for issuing notice u/s 147 or 148, reassessment proceedings are not valid. In this case also the approval u/s 151 was given as ‘approved.’ Referring to the decision of the Hon'ble Bombay High Court in the case of German Remedies Ltd. vs. DCIT (2006) 287 ITR 494 (Bom), he submitted that while granting approval, the CIT was required to verify whether there was any failure on the part of the assessee to disclose full and true relevant facts in the return and to consider whether or not power to reopen is being invoked within a period of four years from the end of the relevant assessment year. When none of these aspects was considered by him, the approval granted suffers from non-application of mind and is liable to be quashed. Referring to the decision of the Hon'ble Supreme Court in the case of Chhugamal Rajpal vs. S.P.

He accordingly submitted that on this issue itself the reassessment proceedings should be quashed because the ld. CIT while giving approval has given the same in a mechanical manner and without application of mind.

The ld. DR, on the other hand, supported the order of the CIT(A) on this issue. The ld. counsel for the assessee, in his rejoinder, submitted that although it was argued before the CIT(A) on the issue of approval u/s 151 of the IT Act, however, the ld.CIT(A) has conveniently ignored the same while deciding the issue of validity of reassessment proceedings.

I have considered the rival arguments made by both the sides and perused the material available on record. It is an admitted fact that the case of the assessee was reopened by the Assessing Officer after recording reasons and issue of notice u/s 148 as per the provisions of section 147 and 148 of the Act on the basis of the information received from the Investigation Wing that the assessee is a beneficiary of accommodation entry obtained from Surendra Kumar Jain group of cases towards introduction of share capital of Rs.35 lacs. I find, the assessee has taken a specific ground before the CIT(A) challenging the validity of reassessment proceedings on the ground that approval u/s 151 of the Act of the superior authorities is not in accordance with law. The relevant ground of appeal No.2 taken before the CIT(A) reads as under:-

I find the above ground has been extracted by the CIT(A) in the body of the order. She has also mentioned at para 3.2 of the order that the assessee contended that there was no proper compliance of the provisions of section 151 of the IT Act, 1961.

I find, the Hon'ble Delhi High Court in the case of United Electrical Company Pvt. Ltd. (supra) while deciding an identical issue has held that the power vested in the commissioner u/s 151 to grant or not to grant approval to the Assessing Officer to reopen an assessment is coupled with a duty. The commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. That power cannot be exercised casually and in a routine manner. Accordingly, the Hon'ble High Court quashed the notice, since there was no proper application of mind by the Addl.CIT.

I find the Hon'ble Delhi High Court in the case of Pr. CIT vs. N.C. Cables Ltd., while deciding an identical issue has held that section 151 of the Act clearly stipulates that the CIT, who is the competent authority to authorize the reassessment notice has to apply his mind and form an opinion. Mere appending of the expression ‘approved’ says nothing. It is not as if the commissioner has to record elaborate reasons for agreeing with the noting put up before him. At the same time, satisfaction has to be recorded of the given case which can be reflected in the briefest possible manner. When such 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 official, the finding of the Tribunal quashing the reassessment proceedings cannot be disturbed.

I find the Hon'ble Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha & Ors (supra) has held that where the commissioner had mechanically recorded permission and the important safeguards provided in the section 147 and 151 were lightly treated by the officer and the commissioner, the notice issued u/s 148 was held as invalid. The various other decisions relied on by the ld. counsel for the assessee in the paper book also support his case. Since, in the instant case, admittedly, the ld. PCIT while granting approval has simply mentioned ‘Yes. I am satisfied’ therefore, following the decisions of the jurisdictional High Court (cited supra) on this issue which are binding on the Tribunal, the reassessment proceedings are to be treated as not in accordance with the law since the approval has been given in a mechanical manner without due application of mind by the approving authority. I, therefore, allow ground of appeal No.2 by the assessee challenging the validity of reassessment proceedings. Since the assessee succeeds on this legal ground, the various other grounds raised by the assessee are not being adjudicated being academic in nature.

In the result, the appeal filed by the assessee is allowed. The decision was pronounced in the open court on 29.04.2019.