2019 (4) TMI 1744 - AT - Income Tax

Tribunal invalidates reassessment, emphasizes diligent approval process.

The Tribunal allowed the appeal due to the invalidity of reassessment proceedings initiated under sections 147/148. The approval under section 151 was ... Reopening of assessment u/s 147 - as alleged approval given u/s 151 by the superior authorities is not in accordance with the law and was given in a mechanical manner and without application of mind - HELD THAT:- Hon'ble Delhi High Court in the case of Pr. CIT vs. N.C. Cables Ltd. [2017 (1) TMI 1036 - DELHI HIGH COURT] 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. - Hon'ble Supreme Court in the case of Chhugamal Rajpal vs. S.P. Chaliha & Ors [1971 (1) TMI 9 - SUPREME COURT] 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. - Decided in favour of assessee. Issues:Validity of reassessment proceedings under sections 147/148, Approval under section 151, Addition under section 68 for share capital received, Addition for unexplained expenditure, Mechanical approval without proper application of mind.Validity of Reassessment Proceedings:The case involved the reopening of assessment by the Assessing Officer based on information regarding accommodation entries received by the assessee. The CIT(A) upheld the validity of the reassessment proceedings initiated under sections 147/148. However, the assessee challenged the approval under section 151, arguing it was mechanical and without proper application of mind. The approval simply stated, 'Yes. I am satisfied.' The Tribunal considered various decisions, including those by the Delhi High Court and the Supreme Court, emphasizing the duty of the approving authority to apply their mind before granting approval. As the approval lacked proper consideration, the reassessment proceedings were deemed invalid, and the appeal on this issue was allowed.Addition under Section 68 - Share Capital Received:The Assessing Officer made additions under section 68 for share capital received from two companies, questioning the identity, creditworthiness, and genuineness of the transactions. The CIT(A) confirmed these additions, leading to the appeal before the Tribunal. The assessee contested the additions, arguing that they were illegal and unsustainable. However, since the reassessment proceedings were deemed invalid, the Tribunal did not delve into the merits of these additions, considering them academic in nature.Addition for Unexplained Expenditure:Additionally, the Assessing Officer made an addition for commission expenses incurred for arranging accommodation entries. The CIT(A) upheld this addition, which was also challenged by the assessee in the appeal. However, as the reassessment proceedings were invalidated due to the mechanical approval under section 151, the Tribunal did not address this specific addition, deeming it academic.Mechanical Approval without Proper Application of Mind:The crux of the issue revolved around the mechanical approval granted under section 151 by the Principal Commissioner, which lacked proper consideration and application of mind. The Tribunal, following precedents from the Delhi High Court and the Supreme Court, emphasized the necessity for the approving authority to apply their mind before granting approval for reassessment proceedings. As the approval in this case was deemed mechanical, the reassessment proceedings were declared invalid, leading to the allowance of the appeal on this legal ground without addressing other substantive grounds raised by the assessee.This detailed analysis highlights the key legal issues, arguments presented, relevant case laws cited, and the ultimate decision of the Tribunal based on the lack of proper approval under section 151, rendering the reassessment proceedings invalid.