GIRISH LAHORI,GANDHIDHAM vs. INCOME TAX OFFICER WARD-1 GANDHIDHAM, GANDHIDHAM

Grounds of appeal raised by the assessee are as follows: “1.That, the Ld. CIT(A) has wrongly confirmed the reopening of assessment u/s 147 of the I.T. Act, 1961. 2.That, the Learned CIT(A) has wrongly made addition on estimation basis of Rs. 18,91,257/- u/s 69 of the I.T Act, 1961 on account of 1% of profit from sale of shares and F and O transaction.

The facts of the case which can be stated quite shortly are as follows: Notice under section 148 of the Act, was issued to the assessee, on 28.03.2017 after recording of reasons. As the assessee had not filed his return of income in response to notice under section 148 of the Act, a letter was issued on 20.06.2017 to the assessee for filing of return of income. Since the assessee had not responded to the notice under section 148 of the Act or the letters issued thereafter, assessing officer framed the assessment under section 144 of the Act. The assessing officer noticed that assessing officer had traded with National Stock Exchange in shares and Future &Option during the year amounting to Rs.18,91,25, 743/-, since no details were furnished, by the assessee, therefore, assessing officer made estimated addition of 1% on the sale of such shares and Future &Options. The profit therefore worked out to Rs.18,91,257/- which was added to the assessee`s total income.

Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has confirmed the action of the assessing officer. During the appellate proceedings, the assessee has raised the technical ground, challenging the validity of reopening under section 147/148 of the Act. However, learned CIT(A) dismissed the same stating that considering, apparent discrepancies and finer facts, assessing officer has Girish Lahori categorically reasoned such estimatable/attributable profit as at 1% of assessee’s turnover and thereby there exists apparently reasonable belief on the part of assessing officer to form an opinion involving escapement of income as enshrined under Income Tax Act. So far, merit of the case is concerned, the learned CIT(A) confirmed the action of the assessing officer.

Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

The Ld. Counsel for the assessee took us through the reasons recorded by the Assessing Officer which are placed at Paper Book Page No. 21 and argued that reasons were recorded without application of mind and in the reasons recorded, the transaction value was taken, as income escaped from assessment, which is wrong, as the profit embedded in the transaction, may be taxable, therefore, reasons recorded by the assessing officer are factual incorrect. The ld. Counsel stated that the net loss earned by the assessee on account of F&O were available before the Assessing Officer, which were not considered in the reasons recorded, therefore, reasons recorded by the assessing officer, are not correct. Therefore, total transaction in F&O, that is, Girish Lahori purchase and sale cannot be treated as income escaped assessment. However, the net profit derived from the transaction in F&O, that is, the net result of sales and purchase would be the income escaped from assessment and such net income / net loss was available before the Assessing Officer. That is, the information about the net loss was available before the Assessing Officer. Therefore, reasons recorded by the Assessing Officer are bad in law and in the reasons recorded there is no application of mind. In the reasons recorded the Assessing Officer mentioned that some information was received. Therefore, it was necessary on the part of the assessing officer to verify “some information”, however, the Assessing Officer, has failed to do so. The “some information”, is a vague information, wherein the total purchases and sale transaction were treated by the Assessing Officer, as income escaped from tax. However, the net loss, out of these purchases and sale activities were available before the Assessing Officer, which he has not taken into account in the reasons so recorded by him. In the reasons recorded the Assessing Officer, it is stated that the assessee has earned the income whereas as per information available before the Assessing Officer, it was the loss incurred by the assessee. As stated above, the Assessing Officer has mentioned in the reasons recorded that some information was received, however, that some information has not been verified by the Assessing Officer, therefore, it was a borrowed satisfaction. When the “reason to believe” is not there, the reasons recorded by the Assessing Officer is bad in law and therefore, reopening of assessment under Section 147/148 of the Act is bad in law.

On other technical issue, the Ld. Counsel argued that the approval given by ld. PCIT, under Section 148 of the Act is mechanical and not in accordance with law. The Ld. Counsel for the assessee, took us through the approval given by ld. PCIT which has merely stated “yes, I am satisfied”. Therefore, Girish Lahori it is a mechanical approval and ld. PCIT has not given any specific finding that based on the reasons recorded, he was satisfied that the reasons so recorded by the Assessing Officer, were in fact correct and based on the reasons so recorded, the income of the assessee was escaped from assessment. Therefore, there is mechanical approval given by the ld PCIT stating that “yes, I am satisfied” and hence the assessment order should be quashed on this score only. For that Ld. Counsel for the assessee relied on the judgment of Jurisdictional High Court of Gujarat in the case of Adani Ports And Special Economic Zone Ltd. vs. DCIT 35 taxmann.com 338 (Guj.). The Ld. Counsel also relied on the judgment of the Hon’ble Jurisdictional Tribunal in the case of Shri Dhanji Murji Hirani vs. ITO (Int. Tax) in order dated 05.0-8.2025. The Ld. Counsel also relied on the judgment of the Hon’ble Supreme Court in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd. 64 taxmann.com 313 and stated that the approval given by the PCIT stating “yes I am satisfied” is not proper approval, in the eye of law and hence the assessment order may be quashed.

On merit, ld. Counsel for the assessee submitted that during the assessment proceedings, the on line, information was available before the assessing officer that assessee has incurred loss on future and option trading, however, despite of this, the assessing officer made the addition in the hands of the assessee.

On merit, ld DR for the revenue, argued that during the assessment proceedings, the assessee has submitted the reply before the Assessing Officer stating that he does not have taxable income, therefore, assessee did not file the Return of Income, the reply given by the assessee during the assessment stage are reproduced below:

We have heard the rival parties and have gone through the material placed on record. First, we shall take technical ground raised by the assessee, being the approval given by the PCIT stating “yes, I am satisfied”, whether it is correct approval or not. We note that the reasons for reopening have been recorded by the assessing officer, on 23/02/2017. Subsequently, the reopening has been made by obtaining approval of PCIT, Rajkot-1, Rajkot, on 23/03/2017 and notice u/s 148 of the Act, has been issued on 28/03/2017. We find that the approval, so obtained is without application of mind and mechanical in nature. The snap shot of approval given by the learned PCIT is reproduced below:

From the above approval of learned PCIT, it is vivid the date mentioned in the approval provided, is written manually, which seems like an afterthought. Further, ld. PCIT has merely stated “Yes, I am satisfied”, on the basis of which it can be said that the approval granted by PCIT, Rajkot-1, is mechanical in nature and the competent authority has not applied mind while granting approval. The approval given by ld. PCIT, by stating “yes, I am satisfied” is not correct, as the learned PCIT did not mention, as to how and why he was satisfied with the reasons recorded by the assessing officer. Therefore, we have gone through the above satisfaction / approval given by

Therefore, we note that ld PCIT (the competent authority) has merely stated that he is satisfied with the reasons recorded and is convinced that the case is fit for the reopening without having tangible material on hand and merely by relying on reasons recorded by assessing officer. We note that the provisions of section 151 of the Act are an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment previously framed after scrutiny. The compliance of such requirement is therefore, necessary before issuance of notice under section 148 of the Act as held by the jurisdictional High Court of Gujarat, in the case of Adani Ports And Special Economic Zone Ltd. V. DCIT (35 taxmann.com 338) (Gujarat) where it has been held that in the satisfaction recorded, the designated authority must reflect independent application of mind and not merely a borrowed satisfaction. The approval is given by simply relying on reasons without applying of mind and recording objective satisfaction stating documents perused and conclusion drawn based on report. Therefore, we note that the authority has failed to peruse the information on the basis of which reasons are recorded and there is no objective satisfaction recorded by approving authority which reflects that there is application of mind and not borrowed satisfaction of assessing officer.

We are so find that the jurisdictional Rajkot Tribunal in case of Shri Dhanji Murji Hirani vs ITO (Int. Tax), has held that:

On the identical facts, the Hon’ble Supreme Court in the case of CIT v. S. Goyanka Lime & Chemicals Ltd. (64 taxmann.com 313) has dismissed the SLP and held that where Joint Commissioner recorded satisfaction in mechanical manner by merely quoting “yes, I am satisfied” and without application of mind to accord sanction for issuing notice under section 148, reopening of assessment was invalid. Similar view has been taken by Hon’ble SC in the case of Chhugamal Rajpal vs. S.P. Chaliha & Ors. (SC) (79 ITR 603) stating that the court was also of the opinion that the Commissioner had 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 read 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. The Court was 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 was a fit case to issue notice under section 148. The important safeguards provided in section 147 and 151 were highly treated by the ITO as well as by the Commissioner. Both of them appeared to have taken the duty imposed on them under these provisions as of little importance. They substituted the forum for the substance. In the result this appeal was allowed, the order of the High Court was set aside and the impugned notice quashed.”

Therefore, we find that it is an established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. In view of the reasons set out above, as also bearing in mind entirety of the case, we are of the considered view that approval given by ld PCIT, as set out earlier, were not sufficient and correct approval, for reopening the assessment proceedings. We, therefore, quash the reassessment proceedings. As the reassessment itself is quashed, all other issues on merits/other technical issues of the additions, in the impugned assessment proceedings, are rendered academic and infructuous.

In the result, the appeal filed by the assessee is allowed in above terms.