2020 (2) TMI 459 - AT - Income Tax

Reopening under s.147 void where s.151 sanction was perfunctory; s.148 notice and s.68 addition set aside

ITAT DELHI - AT held the reopening under s.147 void ab initio because the sanction under s.151 consisted only of perfunctory entries ('Yes, I am ... Reopening of the assessment u/s 147 - validity of sanction granted u/s 151 - addition on account of share application money u/s 68 - HELD THAT:- The assessee filed copy of the sanction granted by Competent Authority to the reasons recorded for reopening of the assessment. Copy of the same is filed in which Addl. Commissioner of Income Tax has mentioned “Yes, I am satisfied”. The Commissioner of Income Tax, Ghaziabad noted “Yes I am satisfied. It is a fit case to issue notice under section 148.” Such an approval is not valid in Law because it would show that approval have been granted without application of mind. Hon’ble Delhi High court in the case of United Electrical Co. Pvt. Ltd., vs. Commissioner of Income Tax [2002 (10) TMI 86 - DELHI HIGH COURT] in which approval by Addl. Commissioner of Income Tax under section 151 was given in the following terms “Yes, I am satisfied that it is a fit case for issue of notice under section 148 of the I.T. Act”, similarly worded approval did not approve the same and held that “In the present case, there has been no application of mind by Addl. CIT before granting approval.” Therefore, we are of the view that reopening of the assessment is bad in Law and that sanction/approval granted by the Competent Authority is also invalid. Considering the totality of the facts and circumstances of the case, we are of the view that reopening of the assessment is illegal, bad in Law and void abinitio. - Decided in favour of assessee. Issues Involved:1. Reopening of the assessment under section 147 of the I.T. Act, 1961.2. Sanction granted under section 151 of the I.T. Act, 1961.3. Addition of Rs. 2,23,50,000/- on account of share application money under section 68 of the I.T. Act, 1961.Issue-wise Detailed Analysis:1. Reopening of the assessment under section 147 of the I.T. Act, 1961:The appeal challenged the reopening of the assessment for A.Y. 2005-2006. The A.O. issued a notice under section 148 based on information from the Investigation Wing that the assessee received accommodation entries from various concerns. However, the A.O. merely signed a fax message without having independent evidence or material. The Tribunal noted that the A.O. did not apply her independent mind and acted mechanically. The reopening was after four years from the end of the relevant assessment year, and the A.O. did not record any failure on the part of the assessee to disclose true and correct facts. The Tribunal emphasized that the validity of the re-assessment proceedings is determined by the reasons recorded for reopening. The Tribunal found that the reasons recorded were incorrect, non-existing, and the A.O. did not have the relevant material at the time of reopening. Consequently, the reopening of the assessment was deemed illegal, bad in law, and void ab initio.2. Sanction granted under section 151 of the I.T. Act, 1961:The sanction for reopening was granted by the Addl. CIT and CIT with mere notations of 'Yes, I am satisfied.' The Tribunal held that such an approval is not valid in law as it indicates a lack of application of mind. The Tribunal cited several judicial precedents, including the Hon'ble Delhi High Court and the Hon'ble Supreme Court, which held that mechanical and non-application of mind approvals are invalid. Therefore, the sanction granted under section 151 was deemed illegal and void, further invalidating the reopening of the assessment.3. Addition of Rs. 2,23,50,000/- on account of share application money under section 68 of the I.T. Act, 1961:The A.O. added Rs. 2,23,50,000/- under section 68, claiming the assessee received unexplained share application money from 12 parties. However, the Tribunal observed that the original assessment was completed under section 143(3), and the facts regarding share application money were already available to the A.O. at that time. The Tribunal noted that the A.O. did not record any failure by the assessee to disclose material facts necessary for assessment in the reasons for reopening. The Tribunal concluded that the addition made was based on incorrect and non-existing reasons, and since the reopening itself was invalid, the addition could not be sustained.Conclusion:The Tribunal set aside the orders of the authorities below, quashed the reopening of the assessment under sections 147/148, and deleted all additions. The appeal of the assessee was allowed in its entirety.