2018 (7) TMI 816 - AT - Income Tax

Tribunal quashes Commissioner's approval under section 151, stresses on detailed review process

The Tribunal allowed the appeal, quashing the approval granted by the Principal Commissioner under section 151, and all proceedings pursuant thereto, ... Validity of initiation of proceedings under section 148 - Whether the Joint/Addl. Commissioner is satisfied on the reasons recorded by the ITO/IAC/(A) that it is a fit case for the issue a notice u/s 148? - approval in accordance of law - approval has been granted by observing thus: “Yes” - Held that:- Sections 147 and 148 of the IT Act, it is trite, are charter to the Revenue to reopen completed assessments. Section 151 of the Act provides a safe-guard that the sword of section 147 of the Act may not be used unless the competent statutory officer is satisfied that the AO has good and adequate reasons to invoke the reopening provisions. As per the mandate of section 151 (2) of the Act, the Competent Authority has to examine the reasons, material or grounds on which the reopening is sought to be based and to judge as to whether they are sufficient and adequate to the formation of the necessary belief of escapement of income from taxation on the part of the AO. It is if and only if the Competent Authority, after applying his mind, is of the opinion that the AO’s belief is well reasoned and bonfide, that he will accord his sanction thereon. See case of Shri Ghanshyam [2018 (7) TMI 143 - ITAT AGRA] - Decided in favour of assessee. Issues Involved:1. Validity of initiation of proceedings under section 148 of the Income Tax Act.2. Validity of reasons assigned by the Assessing Officer (AO) for initiating proceedings.3. Admission of additional evidence by the appellant.4. Sustaining addition towards cash deposits in the savings bank account.5. Sustaining addition towards investment in property.6. Consideration of judicial precedents by the CIT (Appeals).7. Validity of the approval granted by the Principal Commissioner under section 151 for issuing notice under section 148.Detailed Analysis:1. Validity of Initiation of Proceedings under Section 148:The assessee contended that the initiation of proceedings under section 148 was invalid. The Tribunal examined whether the approval for issuing the notice under section 148 was granted with due application of mind. It was noted that the approval was simply 'Yes,' which was deemed mechanical and without proper consideration. This was found to be inconsistent with the requirements of section 151, which mandates a meaningful application of mind by the approving authority.2. Validity of Reasons Assigned by the AO:The assessee argued that the reasons recorded by the AO were based on conjectures and surmises, and thus, invalid. The Tribunal found that the reasons provided did not constitute valid grounds for a belief that income had escaped assessment. The Tribunal referred to various judicial precedents that emphasized the need for tangible and relevant material to justify such a belief.3. Admission of Additional Evidence:The assessee contended that the CIT (Appeals) erred in not admitting additional evidence explaining the sources of funds, thereby denying substantial justice. The Tribunal did not specifically address this issue in its final judgment, focusing instead on the validity of the proceedings initiated under section 148.4. Sustaining Addition towards Cash Deposits:The assessee challenged the addition of Rs. 7,09,500 towards cash deposits in the savings bank account. The Tribunal's decision to quash the entire proceedings under section 148 rendered this issue moot, as the reassessment itself was invalidated.5. Sustaining Addition towards Investment in Property:Similarly, the assessee contested the addition of Rs. 6,62,000 towards investment in property. As with the cash deposits, this issue was also rendered academic following the quashing of the reassessment proceedings.6. Consideration of Judicial Precedents:The assessee argued that the CIT (Appeals) failed to consider binding judicial precedents. The Tribunal's judgment highlighted various precedents that supported the assessee's position on the invalidity of mechanical approvals and the necessity of proper application of mind by the approving authority.7. Validity of Approval under Section 151:The Tribunal focused extensively on the validity of the approval granted by the Principal Commissioner under section 151. It was found that the approval was mechanical, merely stating 'Yes,' without any detailed reasoning or application of mind. The Tribunal cited several cases, including 'Sunil Agrawal vs. ITO' and 'Virat Credit & Holdings (P) Ltd. vs. ITO,' which held that such mechanical approvals are invalid. The Tribunal concluded that the approval in the present case was unsustainable in law, leading to the quashing of all subsequent proceedings.Conclusion:The Tribunal allowed the appeal, quashing the approval granted by the Principal Commissioner under section 151, and all proceedings pursuant thereto, including the reassessment order. The Tribunal emphasized the necessity for a detailed and reasoned approval process under section 151, aligning with judicial precedents that safeguard against mechanical and perfunctory approvals.