KRISHNAN VIDYA SHANKAR ,CHENNAI vs. ITO , NFAC , NEW DELHI

आयकर अपीलीय अिधकरण, 'सी' यायपीठ, चे ई।

IN THE INCOME TAX APPELLATE TRIBUNAL 'C' BENCH: CHENNAI

ी एबी टी. वक , ाियक सदएवं ी मनोज कु मार अवाल, लेखा सद के सम

BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER

आयकर अपील सं./ITA No.1001/Chny/2022 िनधारण वष/Assessment Year: 2014-15 Mr. Krishnan Vidya Shankar, | v. | The ITO, 11 Shiva Sundar Avenue, | CHE-C-(254)(1), Chennai-600 041. | Chennai. [PAN: AAHPS 5321 B] (अपीलाथ/Appellant) | (यथ/Respondent) अपीलाथ क ओर से/ Appellant by | : | Mr. Philip George, Adv. ओर से /Respondent by यथ क | : | Ms. R. Anitha, Addl.CIT सुनवाईकतारीख/Date of Hearing | : | 01.08.2024 घोषणाकतारीख /Date of Pronouncement | : | 09.10.2024

आदेश / O R D E R

PER ABY T. VARKEY, JM:

This is an appeal preferred by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)/NFAC, (hereinafter in short "the Ld.CIT(A)"), Delhi, dated 18.10.2022 for the Assessment Year (hereinafter in short "AY") 2014-15.

end of the relevant Assessment Year, therefore, necessary sanction for issue of impugned notice as prescribed u/s.151 of the Act needs to have been taken, which is bad being without application of mind and done in a mechanical manner, which indicates that the Commissioner didn't apply his mind at all while granting sanction.

- 3. Since the assessee has raised legal issue against the re-opening of assessment, inter alia, on many grounds, first we would like to examine the validity of his contention that the sanction accorded u/s.151 of the Act for re-opening of assessment was bad in law. - 4. The brief facts relevant to the legal issue are that the assessee had filed his original return of income (RoI) for AY 2014-15 declaring total income of Rs.1,95,62,940/- on 27.11.2014 which was processed u/s.143(1) of the Act. The assessee is a Director in the company M/s.MM Forgings Ltd., and M/s.Synmax Consultations & Trading P. Ltd., and later the AO issued notice u/s.148 of the Act on 24.03.2020 for the year under consideration (AY 2014-15) and on request of the assessee by letter dated 18.02.2021, the AO provided the reasons for re-opening of assessment along with sanction granted by the JCIT as well as by the Ld.PCIT as under:


ITA No.1001/Chny/2022 (AY 2014-15) Mr. Krishnan Vidya Shankar

Name of the Ass <b>essee</b> : | Shri. K. Vidyashankar Director of M/s MM Forgings Ltd (AAACM2164L) Andress of the <b>Assessee</b> : | 6, New No-11 Sivasundar Avenue Chennai 600041 PAN of the Assessee: | AAHPS5321B Assessment year | 2014-15 Details of the Assessing Officer having jurisdiction over the Assessee: | Corporate Circle 4 (1) Chennai. The quantum of Income which has escaped assessment | More than 1 lakh Whether the assessment is proposed to be made for the first time a. Whether Voluntary return has been filed and Date of filing of voluntary return | Yes Yes 27.11.2014 the answer to item 8 is in negative, please state the Income originally assessed easons for reopening of the assessment

SHEEK VIQYASHARKAF, AAACM2164L ASST YEAR 2013-14

As per sec 2 (22) (e) of the Act, any loan or advance received from the closely held company by a person who holds 10% or more voting power in that company requires to be treated as deemed dividend and taxed in the hands of the person who received the loan/advance.

The amount of Rs 1 Crore received by the assessee during the F. Y 2013-14 from M/s Synmax Consultants and Trading Pvt Itd of which he is the director, has to be treated as deemed dividend and brought to tax under section 2 (22) (e) of the Act.

Therefore I have reason to believe that the income of the assessee has escaped assessment. It is pertinent to mention here that in this case the assesse has filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made and the return of income was only processed u/s 143(1) of the Act. In view of the above, provisions of clause (b) of explanantion 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

In this case more than four years have lapsed from the end of assessment year under consideration.

I therefore, solicit the approval of the Joint Commissioner of Income Tax -4 for issue of notice u/s 148 of the Act.

(PS Aravind)

Assistant Commissioner of Income Tax

Corporate Circle 4 (1) Chennai.

Dated:09.03.2020


"on the basis of reasons recorded by the AO, I am satisfied that it is a fit case for re-opening u/s.147 of the Act – recommended for your kind approval " recommendation dated 10.03.2020.

"YES" dated 16.03.2020.

- 7. In the light of the aforesaid facts, we have to examine the impugned action of Ld PCIT granting sanction is in accordance to law in force brought in by Finance Act 2015, which substituted earlier law, w.e.f 01.06.2015 onwards till 31.03.2021 [since notice u/s 148 was issued in the present case on 24.03.2020]. Section 151 prohibits the AO to issue notice u/s 148 without sanction of the authority as given therein (infra) and mandates that no notice u/s.148 of the Act shall be issued by the AO, after expiry of four years from the end of the relevant Assessment Year, unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied on the reasons recorded by the AO, that it is a fit case for issuance of such notice. - 8. In this case, since the notice has been issued undisputedly after expiry of four years from the end of the relevant Assessment Year, the AO can validly issue notice of re-opening u/s.148 of the Act after he gets the sanction by the authorities named (supra). The Ld.AR in this regard submitted that prior approval of the authority is required [for re-opening of assessment after expiry of four years] to ensure that the AO doesn't arbitrarily re-open the assessment. According to the Ld.AR, a mere

perusal of sanction accorded by the authority would reveal that he (the Ld.PCIT), has merely endorsed "Yes" on the recommendation made by the JCIT that it is a fit case for re-opening of assessment. According to the Ld.AR, the Ld.PCIT hasn't applied his mind and merely endorsed "Yes" and put his signature on it. Therefore, according to the Ld.AR, such an endorsement wouldn't stand the scrutiny of law for validly re-opening of assessment u/s.147 of the Act and cited the decision of the Hon'ble Madhya Pradesh High Court in the case of CIT, Jabalpur v. S. Goyanka Lime & Chemicals Ltd., reported in [2015] 231 Taxman 73 (MP) and therefore, he prayed that the AO didn't had the requisite jurisdiction to re-open the assessment and therefore, he pleaded that re-opening of assessment is bad in law and it has to be quashed.

- 10. We have heard both the parties and perused the material available on record. Brief facts relevant to the legal issue are that the assessee had filed his original return of income for AY 2014-15 declaring total income of Rs.1,95,62,940/- on 27.11.2014 which was processed u/s.143(1) of the Act. The assessee is a Director in the company M/s.MM Forgings Ltd., and M/s.Synmax Consultations & Trading P. Ltd.; and the AO issued notice u/s.148 of the Act on 24.03.2020 expressing his desire to re-open the assessment on the reasons for reopening reproduced (supra). Since sanction for issuance of notice has been granted by the Ld.PCIT as noted supra, the assessee has challenged the re-opening, inter alia, on the ground that sanction giving by the Ld.PCIT for re-opening of assessment is without proper application of mind and so is invalid in the eyes of law, because, it defeats the very purpose for which the Parliament has bestowed such power to high ranking officers, so that the AO doesn't misuse the power of re-opening after four years from the end of the Assessment Year. - 11. We note that sec.151(1) of the Act deals with sanction for issue of notice u/s.148 of the Act by the AO after expiry of four years from the end of the relevant Assessment Year by the Income Tax Authorities named therein on the reasons recorded by the AO that it is a fit case for issue of such notice. The satisfaction of the Ld.PCIT (or other officers named therein) has to be necessarily recorded by the Ld.PCIT on the


reasons recorded by the AO that it is a fit case for issue of such notice. In this context, it has to be borne in mind that recording of reasons u/s.147 of the Act is not an idle formality, but a mandatory requirement under the statute casting duty on the AO to record his reasons for issuing a notice for assessment of the escaped income. This is because the concept of assessment is governed by the time barring Rule and the assessee acquires a right as to the finality of proceedings. Quietus of the assessment, be it u/s.143(1) of the Act or u/s.143(3) of the Act, can be disturbed only by scrupulously following the procedure provided for it with statute. Sanction to issue of notice u/s.151 of the Act has been provided by the Parliament as a safeguard against arbitrary exercise of powers by the AO to re-open the assessment after four years from the end of the relevant Assessment Year. Therefore, it was incumbent on the Income Tax Authority to give his brief reasons while according sanction u/s.151 of the Act. Reasons are the heart beat of the every conclusion, without the same, it becomes lifeless. The most effective check against arbitrary exercise of power is that order can be made only after due and proper application of mind. Application of mind is demonstrated by disclosure of mind; and disclosure of mind is best demonstrated by recording the reasons which will reveal the mind of the Officer giving sanction as to whether he has taken note of the facts and law on the issue raised by the AO. It is well settled law that reason substitute subjectivity with

objectivity. Failure to give reasons amounts to denial of justice [refer Mangalore Ganesh Beedi Works v. CIT AIR 2005 SC 1308]. And that recording of reasons in support of a decision ensures that the decision is reached according to law and is not result of caprice, whim or fancy. If the order is subjected to an appeal, the appellate authority has no material on which to determine the appeal, if order is without reasons [refer Mahabir Prasad Santosh Kumar v. State of UP- AIR 1970 SC 1302] and the most effective check against an arbitrary exercise of power is that order can be made only after due and proper application of mind. Application of mind is demonstrated by disclosure of mind and disclosure of mind is best demonstrated by recording reasons [refer Maya Devi v. Raj Kumari Batra (2010) 9 SCC 486 & similar view in Ankush Shivaji Gaikwad v. State of Maharashtra (2013) 6 SCC 770]. And that, if reasons are not given, it becomes virtually impossible for the Courts to perform their appellate function or exercise power of judicial review in adjudicating validity of decision [refer State of Punjab v. Bhag Singh 2004(1) SCC 547].

the importance of granting sanction to issue notices have been explained. It has to be borne in mind that as per law in force for the relevant Assessment Year, two conditions had to be satisfied before the AO usurped jurisdiction to issue notice u/s.148 of the Act in respect of assessment beyond the period of four years but within the period of six years from the end of the relevant year viz., i) the AO had reason to belief income chargeable to tax had escaped assessment and he must record his reasons to be initiating proceedings as required by sec.147 of the Act. Another condition precedent [if notice is issued after expiry of four years from the end of the relevant Assessment Year], then the Commissioner/Ld.PCIT should be satisfied on the reasons recorded by the AO that it is a fit case for the issue of such notice. Therefore, according to us, in the present case, [reopening of assessment is accorded after four years from the end of the relevant Assessment Year] the Ld.PCIT while according permission for taking action u/s.147 of the Act had to necessarily apply his mind on the relevant facts of the case, and examine whether there was reason to believe escapement of income, discernable from the reasons recorded by the AO and thereafter, permit re-opening of the assessment in question. In this case, we note that the Ld.PCIT while according permission u/s.151 of the Act, acted mechanically, because, the Ld.PCIT has not expressed his satisfaction that it was a fit case for issuance of notice u/s.148 of the Act, but merely endorsed 'Yes' under

recommendation of JCIT, which action of Ld PCIT cannot be countenenced. For such a conclusion, we rely on the decision of the Hon'ble Madhya Pradesh High Court in the case of S. Goyanka Lime & Chemicals Ltd., (supra) wherein, their Lordships had held as under:

7- We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so "Yes, I am satisfied". In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:-

"The Commissioner acted, of course, mechanically in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format "Yes, I am 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 analyzed 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. - 11- The appeals are, therefore, dismissed. - 13. Therefore, the assessee succeeds on the legal issue and we hold that since requirement u/s.151 of the Act has not been fulfilled, the impugned notice issued u/s.148 of the Act dated 24.03.2020 is vitiated and the resultant re-assessment flowing therefrom would be invalid and

so quashed. Since assessee succeeds on legal issue, other grounds have become academic and so, not adjudicated.

Order pronounced on the 09th day of October, 2024, in Chennai.

Sd/- (मनोज कु मार अवाल) (MANOJ KUMAR AGGARWAL) लेखा सदय/ACCOUNTANT MEMBER

Sd/- (एबी टी. वक ) (ABY T. VARKEY) याियक सदय/JUDICIAL MEMBER

चे ई/Chennai, !दनांक/Dated: 09th October, 2024. TLN, Sr.PS

आदेश क ितिलिप अ\$ेिषत/Copy to:

- 1. अपीलाथ/Appellant - 2. थ/Respondent - 3. आयकरआयु/CIT, Chennai / Madurai / Salem / Coimbatore. - 4. िवभागीय ितिनिध/DR - 5. गाडफाईल/GF