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Facts
The assessee challenged the jurisdiction for reassessment initiated under Section 147, asserting that the approval granted by the Pr.CIT under Section 151 was mechanical and without proper application of mind. The AO had reopened the assessment for AY 2011-12 based on alleged escapement of income from cash transactions related to land deals, despite the assessee having maintained a cash book with these entries.
Held
The Tribunal held that the sanction granted by the Pr.CIT under Section 151 was a 'rubber-stamped' approval, lacking proper application of mind, and thus rendered the reassessment proceedings initiated under Section 147 and the consequent Section 148 notice invalid. The Tribunal quashed the reassessment order, emphasizing that Section 151 is a safeguard against arbitrary exercise of power.
Key Issues
Whether the approval granted by the Principal Commissioner of Income Tax (Pr.CIT) under Section 151 for initiating reassessment proceedings under Section 147 was valid, requiring proper application of mind.
Sections Cited
147, 148, 143(1), 143(3), 148(1), 148(2), 151, 250, 150(1), 150(2)
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Income Tax Appellate Tribunal, DELHI BENCH “F” DELHI
Before: SHRI PRADIP KUMAR KEDIA & SHRI SUDHIR KUMAR
The captioned appeal has been filed at the instance of the Revenue against the first appellate order passed by the Commissioner of Income Tax (Appeals)-VIII, New Delhi [‘CIT(A)’ in short], dated 06.12.2019 under s. 250 of the Act arising from re- assessment order dated 22.12.2018 passed by the Assessing Officer (AO) under Section 143(3) r.w. Section 147 of the Income Tax Act, 1961 (the Act) concerning AY 2011-12. The Assessee has also filed cross objection memo in the revenue appeal.
As per the Cross Objection, the assessee has raised grounds touching the assumption of jurisdiction under Section 147 of the Act. The challenge thus strikes to the root of the litigation and hence acquires primacy over other issues. The cross objection is thus taken up for adjudication at the first instance.
When the matter was called for hearing, the ld. Counsel for the assessee submitted at the outset that the assessee filed return of income for A.Y. 2011-12 on 30.07.2011 declaring total income at Rs.20,53,602/-. The assessment was concluded under s. 143(1) of the Act. However, based on certain information stated to be collected by the AO alleging escapement of income in the hands of the assessee, the AO recorded reasons under Section 148(2) of the Act dated Nil proposing reopening of the concluded assessment under Section 147 of the Act by issuing notice under Section 148(1) of the Act. For the purposes of reopening the assessment and issuance of notice under s. 148 of the Act, an approval was sought by the AO from the competent authority namely, Principal Commissioner of Income Tax (Pr.CIT) in terms of Section 151 of the Act. The approval as per requisition memo was accorded by the Pr.CIT, Delhi on 29.03.2018. Based on such approval under Section 151 of the Act, a notice dated 29.03.2018 was issued under Section 148 of the Act and served upon the assessee with a view to assess the alleged escapement of chargeable income.
3.1 The ld. Counsel at this stage challenged the legality of assumption of jurisdiction under s. 147 r.w.s 148 of the Act. The Ld. Counsel submitted that the AO did not met the pre-requisites of s. 147 of the Act and thus the proceedings initiated under s. 147 is without jurisdiction and thus a nullity. The ld. Counsel in the same breath also pointed out that the requirement of s. 151 has also not been satisfied at the end of the PCIT while recording concurrence with the reasons forwarded to him by the AO for sanction thereof. The ld. Counsel exhorted that powers vested under s. 147 is also contingent upon the proper sanction of the competent authority under s. 151 of the Act and in the absence of proper sanction, the issuance of notice under s. 148 stands vitiated and rendered non-est in law.
3.2 The ld. Counsel alleged that while the competent authority namely PCIT has granted sanction under s. 151 of the Act, such sanction does not meet the requirement of law. The act of sanction by the PCIT is a mere tokenism and a mechanical action. The Ld. Counsel adverted to the requisition for approval forwarded to the PCIT through the office of Additional CIT, seeking his approval under s. 151 of the Act and essentially submitted that the approval granted is clearly plagued with non-application of mind. The ld. Counsel pointed out that the Additional CIT concerned per Row No.11 of the requisition memo states that ‘I am satisfied that it is a fit case for issue of notice u/s. 148’. Thereafter, as per row no. 12, the ultimate authority vested with powers u/s. 151 of the Act, i.e., Pr.CIT, granted approval stating ‘action u/s. 148 approved’ 3.3 Delineating further, the ld. counsel vociferously asserted that the Pr.CIT while granting approval has adopted a completely nonchalant approach as evidenced from the casual assertions ‘action u/s. 148 approved’. The ld. counsel alleged that the Pr.CIT, apparently rubber stamped the attempt of the AO to reopen and disturb the concluded assessment while granting sanction to do so. While granting a ritualistic approval, the Pr.CIT has evidently not applied his mind to the crucial aspects forming basis of allegation of escapement of income towards cash received in land deals. Significantly, in the reasons recorded, the AO himself conceded that the assessee had furnished cash book showing entries towards purchase and sale of land in rural areas in cash. Thus, impliedly the cash transactions in question forming the basis for alleged escapement were already forming part of the books of account. The Pr.CIT was thus expected to look and offer some comment to justify his sanction to reopen the case in such circumstances. Some of the comments showing application of mind in the circumstances could be (a) whether when the transactions are recorded, a preliminary case of escapement can be made out or not (b) the maintainability of allegation on non-reporting of such transaction in ITR etc. The Ld. Counsel contended that there is no requirement in ITR to report such transactions received by way of advances made or refund of advances. In the absence of any specific column assigned, the assessee was estopped from making disclosure of such transactions in the ITR and therefore such assertions giving rise to belief towards escapement owing to non disclosure is also without any foundation.
3.4 The ld. counsel adverted to sanction so accorded by the PCIT and submitted that a generic and cosmetic approval ‘action u/s. 148 approved’ apparently smacks of a colourless and listless sanction, devoid of an iota of reflection towards application of mind, if any. The ld. Counsel pointed out that various Courts and Tribunals have repeatedly expressed their disapproval to such perfunctory approvals in the context of s. 151 and quashed the reassessment notice on the grounds of non- application of mind by the sanctioning authority by holding such approval as non-est in the eyes of law.
3.5 The ld. counsel submitted that the jurisdictional High Court as well as the Hon’ble Courts of different jurisdictions have echoed in chorus that simply noting down the expressions such as ‘Yes’ or ‘action under section 148 approved” etc. against the column of sanction without application of mind being discernible, cannot be considered to be a proper and valid sanction by the competent authority. The ld. counsel referred to judgments rendered in the case of PCIT vs. N.C. Cables Ltd., 391 ITR 11 (Delhi); Pr.CIT vs. Pioneer Town Planners Pvt. Ltd., judgment dated 20.02.2014 (Delhi High Court); CIT Jabalpur vs. M/s. S. Goyanka Lime and Chemicals Ltd., ITA No.82 of 2012 judgment dated 14.01.2014 (M.P. High Court) (SLP by the Revenue dismissed in CIT vs. S. Goyanka Lime and Chemicals Ltd., (2023) 453 ITR 242 (SC); Manujendra Shah vs. CIT, WP(C) 12677/2018 judgment dated 18.07.2023 and plethora of Co-ordinate Bench judgments to contend that the competent authority while discharging statutory obligation under Section 151 of the Act is not expected to function mechanically and accord sanction on dotted lines. The satisfaction of the competent authority must be drawn with some degree of objectivity on some objective material. The ld. counsel thus submitted that on this ground alone, the issuance of notice under Section 148 based on a cryptic sanction is vitiated and consequently, the re-assessment order framed as a sequel thereto, is rendered bad in law.
The ld. DR for the Revenue, on the other hand, supported the action of the Revenue Authorities and contended that jurisdiction under Section 147 has been assumed on the basis of valid and proper sanction of the competent authority under Section 151 of the Act. The ld. DR contended that the approval of PCIT under s. 151 are administrative in nature and there is no requirement in law that competent authority needs to record its own reasons for sanction under Section 151 of the Act. Once, the approval is granted, the statutory presumption is to be drawn that the competent authority has acted with due application of mind. The ld. DR thus submitted that the sanction granted by the Pr.CIT cannot be faulted in law having regard to the plain language of the provisions of Section 151 of the Act.
We have carefully weighed the rival contentions and perused the material available on record.
5.1 While several facets challenging the assumption of jurisdiction under Section 147 are involved, we consider it expedient to address ourselves on the legitimacy of approval granted by Pr.CIT under Section 151 of the Act as vehemently questioned on behalf of the assessee.
5.2 Since the primary issue hinges around the validity of approval to the reasons for reopening concluded assessment, the typed copy of such Approval Memo / requisition memo under s. 151 of the Act is reproduced hereunder for easy reference;
“Certified True Copy of form for recording the reason for initiating proceedings under Section 148 and obtaining the approval of the pr. Commissioner of Income Tax”
Name and Address of the assessee Ram Kumar Shokeen D-9, Pushpanjali Farms, VPO Bijwasan, New Delhi- 110061 2. Permanent Account Number ATSPS5897A 3. Status Individual 4. District/Circle/Range ACIT, Circle-23, New Delhi 5. Assessment Year in respect of which it is 2011-12 proposed to issue notice u/s.148 6. The quantum of income which has escaped assessment. 7. Whether the provisions of Section 147 are Yes applicable 8. Whether the assessment is proposed to be Yes made for the first time. If the reply is in the affirmative please state Whether any voluntary return had already been filed; and Yes If so, the date of filing the said return 30.07.2011 9. If the answer to item 8 is in the negative please state:- (i) The income originally assessed N.A. (ii) Whether it is a case for under assessment at too low a rate, assessment N.A. which has been made the subject of excessive relief or allowing of excessive loss or depreciation. 10. Whether the provisions of Section 150(1) are N.A. applicable. If the reply is in the affirmative the relevant facts may be noted against item No.11 and it may also be brought out that the provisions of Section 150(2) would not stand in the way of initiating proceedings u/s.147 11. Reasons for the belief that income has As per Annexure escaped assessment Dated: 13.-03-2018
11. Whether the Addl. Commissioner is satisfied I am satisfied that this is on the reasons recorded by the Assessing the fit case for issue of Officer that it is a fit case for the issue of notice u/s.148 notice u/s.148.
Whether the Pr. Commissioner of Income Tax Action u/s.148 approved. is satisfied on the reasons recorded by the Assessing Officer that is a fit case for issue of notice u/s.148
It is hereby certify that approval for re-opening in the said case was obtained from PCIT-8 after due discussion with him on 09/03/2018. Note: You have been given approval and reasons for re-opening multiple times. Now given last opportunity. Henceforth, the compliances shall be made in this regard otherwise the office will be compelled to proceed in this given case as per law.
5.3 A bare glance of the approval memo shows that the AO has proceeded to initiate the action under Section 147 of the Act on the basis of satisfaction of the Pr.CIT towards escapement as forwarded to him by the AO through the office of the Additional Commissioner of Income Tax. In other words, the prior approval of the Pr.CIT under Section 151 of the Act in the instant case has set the proceedings under Section 147 of the Act into motion. As the law envisage, the permission of superior authority as statutorily designated is a sine qua non to prior to initiation of action under Section 147/148 of the Act. The Pr.CIT in the instant case was the competent authority statutorily designated for this purpose. It was thus on the basis of satisfaction and approval of the Pr.CIT that the re-assessment was initiated and completed. The legitimacy of satisfaction of the PCIT for the purposes of sanction under s. 151 has however been called into question in the instant case.
As pointed out on behalf of the assessee, the Pr.CIT has simply recorded ‘action u/s. 148 approved’ towards sanction of reassessment proceedings. Ostensibly, the sanction granted is muted and non-descript. Section 151 of the Act operates as one of the potent safeguards against the arbitrary and disproportionate exercise of powers under Section 147 by the AO. It ensures that powers under s. 147 are not exercised by the AO unless the designated superior officer is satisfied that the condition precedent for exercise of powers as provided under erstwhile Section 147 of the Act is fulfilled. As a corollary, to meet this avowed objective enshrined in enactment of s. 151 of the Act, it is incumbent upon the superior authority to apply its mind innately to the basis derived by AO for alleged escapement while granting sanction to the proposal for reopening.
Significantly, erstwhile s. 151 of the Act is silent on opportunity to the assessee before sanction. The absence of any formal opportunity to assessee rationally calls for greater degree of circumspection and restraint while evaluating the proposed action of the AO. The sanctioning authority while exercising power under Section 151 of the Act, is thus expected to examine the reasons, material or grounds and to judge whether they are relevant to formation of necessary belief on the part of the AO and thereafter to record necessary satisfaction which should not be mechanical but as a result of application for the issuance of notice under Section 148 of the Act by the AO as held in Chhugamal Rajpal Vs. S.P. Chaliha (1971) 79 ITR 603 (SC).
The requirement of sanction under Section 151 is salutary as it ensures that reopening notices are not lightly issued and to shun any misconception or misunderstanding on the part of the AO resulting in harassment to a tax payer. Thus, such sanction must reflect application of mind in earnest to the reasons so recorded and consequent decision making thereon. In the peculiar facts of the instant case, few inseparable points do occur from the reasons recorded for consideration of the sanctioning authority. In the instant case, the assessee has admittedly produced the cash book before the AO prior to initiation of action under Section 147 of the Act in which, the cash transactions alleged to be escaped income, were duly found recorded in the books. The Pr.CIT was thus expected to deal on this crucial aspect while endorsing allegation of escapement. Secondly, the AO claims that assessee has not disclosed the transactions in the return of income. The Pr.CIT should have examined the plausibility of such allegation having regard the Statutory Form (ITR) designed for filing ROI. The omnibus approval without any comment granted betrays the application of mind on such foundational points. The approval granted do not utter a word towards any reasons which induced him to do so. Under the circumstances, we are compelled to think that the approval under s. 151 suffers from the vice of non application of mind. The Hon’ble Delhi High Court in the case of N.C.
Cables (supra); Pioneer Town Planners (supra); Manujendra Shah (supra) have struck a balance and declined to endorse the rubber stamped approval granted by the Pr.CIT under Section 151 of the Act.
In the light of delineation made, we see palpable merit in the plea of the assessee that the sanction granted under Section 151 of the Act is extraneous and an empty formality and do not accord with its purpose. The validity of the reassessment order is contingent upon a valid approval under s. 151. Where the requirement to grant approval under Section 151 of the Act is not fulfilled, the notice issued under Section 148 as a sequel to such sanction and resultant reassessment flowing therefrom would also be vitiated in law.
We are thus disposed to hold that the re-assessment proceedings under Section 147 as a consequence of such invalid approval is without sanction of law and consequently the re-assessment order in question is bad in law. Hence, the jurisdiction usurped by the AO based on such approval is required to be cancelled and set aside. This being so, the other aspects of jurisdiction and other grounds of Cross Objection are rendered infructuous and hence not adjudicated. The Revenue appeal arising from a non-est re-assessment order also merges in void.
In the result, the appeal of the Revenue is dismissed whereas the Cross Objection of the assessee is allowed.
Order pronounced in the open Court on 13/06/2024