2024 (12) TMI 1167 - AT - Income Tax

Assessment reopening invalid without proper section 151 approval from competent authority

The ITAT AGRA held that the reopening of assessment was invalid due to lack of proper approval under section 151. The AO recorded reasons in March 2018 ... Validity of Reopening of assessment - no approval u/s 151 from the competent authority - HELD THAT:- AO at the time of recording reasons in March 2018 was not in possession of any information which could have led him to form a belief that income of the assessee had escaped assessment warranting reopening. We find that in the case of PCIT Vs. NC Cables Ltd. [2017 (1) TMI 1036 - DELHI HIGH COURT] had also held the same, wherein, the approving authority had merely stated “approved” in the proforma while granting approval in terms of section 151 of the Act. This approval was held to be a mechanical approval. Thus, we hold that the reopening has been made in the instant case by not taking approval under section 151 of the Act from the competent authority in the manner known to law. Appeal of assessee allowed. Issues Involved:1. Validity of the assumption of jurisdiction under section 147 of the Income Tax Act, 1961.2. Adequacy and legality of the reasons for reopening the assessment.3. Application of mind and mechanical approval under section 151 of the Act.4. The legitimacy of transactions with M/s Perfect Polychem Private Limited.Detailed Analysis:1. Validity of the assumption of jurisdiction under section 147 of the Income Tax Act, 1961:The primary issue in this case was whether the Assessing Officer (AO) validly assumed jurisdiction under section 147 of the Income Tax Act for reopening the assessment. The tribunal examined whether the AO had any tangible material to justify the reopening of the assessment. It was found that the AO relied on the statement of Mr. Vijay Goyal, a director of M/s Perfect Polychem Private Limited, which did not mention the assessee. The tribunal concluded that the AO's assumption of jurisdiction was based on conjecture and lacked a legal basis, as there was no live link to suggest that the income of the assessee had escaped assessment.2. Adequacy and legality of the reasons for reopening the assessment:The tribunal scrutinized the reasons recorded by the AO for reopening the assessment. The AO alleged that sales to M/s Perfect Polychem Private Limited were bogus and merely accommodation entries, without any physical delivery of goods. However, the tribunal noted that the AO's conclusions were based on surmise rather than any concrete evidence. The statement of Mr. Vijay Goyal did not implicate the assessee, and the AO's reliance on it was deemed unfounded. The tribunal emphasized that the AO lacked any tangible material to categorize the transactions as accommodation entries, rendering the reasons for reopening inadequate and legally untenable.3. Application of mind and mechanical approval under section 151 of the Act:The tribunal also addressed the issue of whether the approval for reopening the assessment under section 151 was granted with due application of mind. It was observed that the Additional CIT merely stated satisfaction without any substantive reasoning. The tribunal referenced judicial precedents, highlighting that mechanical approval without proper application of mind is not valid. The tribunal cited decisions from the Hon'ble Madhya Pradesh High Court and the Hon'ble Delhi High Court, which held that mere expressions like 'approved' do not suffice for a valid approval under section 151. Consequently, the tribunal concluded that the approval was mechanical and did not meet the legal standards required for reopening.4. The legitimacy of transactions with M/s Perfect Polychem Private Limited:The tribunal examined the legitimacy of the transactions between the assessee and M/s Perfect Polychem Private Limited. It was noted that the assessee had provided comprehensive documentation supporting the genuineness of the transactions, including invoices, consignment notes, and ledger accounts. These documents were submitted at various stages, including during the original scrutiny assessment and in response to notices. The tribunal found that the AO did not adequately challenge these documents or provide evidence to the contrary. Additionally, the tribunal highlighted that M/s Perfect Polychem Private Limited's scrutiny assessment accepted the purchases from the assessee as genuine, further undermining the AO's claim of bogus transactions.Conclusion:In light of the above observations, the tribunal quashed the reassessment proceedings, citing multiple reasons, including the lack of tangible material, improper assumption of jurisdiction, and mechanical approval under section 151. The tribunal allowed the appeal of the assessee and dismissed the appeal of the revenue, without adjudicating other legal grounds, as the reassessment itself was invalidated.