2024 (12) TMI 1338 - AT - Income Tax

AO's mechanical approval under Section 147 invalid due to citing non-existent provisions and lack of proper consideration

ITAT Delhi held that reopening of assessment u/s 147 was invalid due to non-application of mind by the AO and mechanical approval by Pr. CIT. The AO ... Validity of Reopening of assessment u/s 147 - non-application of mind by the AO and the mechanical approval by the Principal Commissioner of Income Tax (Pr. CIT) - HELD THAT:- Undisputedly in this case there is non-application of mind by the AO in taking approval from the appropriate authority u/s 151 of the Act. Perusal of Form for recording the reasons for initiating proceedings u/s 148 and for obtaining approval of the Pr. CIT, Delhi-8, New Delhi suggests that the AO mentioned the provisions under which the assessment was reopened as 147(b) of the Act. As observed that the provisions of section 147(a)/147(b) have seized to be in the statute book from 1.4.1989. Therefore, mentioning all these incorrect and non-existent sections for obtaining approval for recording the reasons for initiating proceedings u/s 148 is a clear case of non-application of mind by the AO and also by the authorities providing satisfaction u/s 151 of the Act. Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDEREDThe judgment primarily addresses the following legal issues:Whether the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961, were valid, given the alleged non-application of mind by the Assessing Officer (AO) and the mechanical approval by the Principal Commissioner of Income Tax (Pr. CIT).Whether the failure to provide the reasons for reopening the assessment to the assessee invalidated the reassessment proceedings.Whether the invocation of reassessment proceedings based on non-existent legal provisions (Section 147(b)) affected the validity of the proceedings.Whether the reassessment proceedings were initiated at the behest of another authority, thereby compromising the independence of the AO's satisfaction.Whether the procedural irregularities, such as issuing a notice under Section 143(2) before providing the reasons for reopening, affected the validity of the reassessment.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Reassessment Proceedings under Section 147Relevant Legal Framework and Precedents: Section 147 of the Income Tax Act allows for reassessment if the AO has reason to believe that income has escaped assessment. The requirement for independent satisfaction by the AO is emphasized in precedents such as National Thermal Power Company Ltd. Vs. CIT.Court's Interpretation and Reasoning: The court found a lack of independent application of mind by the AO, as evidenced by the incorrect citation of a non-existent provision (Section 147(b)) for reopening the assessment.Key Evidence and Findings: The AO's form for recording reasons cited a non-existent section, demonstrating non-application of mind.Application of Law to Facts: The court applied the principle that reassessment proceedings must be based on valid legal grounds and independent satisfaction by the AO.Treatment of Competing Arguments: The Revenue's argument that the error was clerical and curable under Section 292B was rejected, as the error indicated a fundamental lack of application of mind.Conclusions: The reassessment proceedings were invalid due to non-application of mind and reliance on a non-existent legal provision.Issue 2: Failure to Provide Reasons for ReopeningRelevant Legal Framework and Precedents: The requirement to provide reasons for reopening is supported by decisions such as GKN Driveshaft India Ltd vs ITO.Court's Interpretation and Reasoning: The court emphasized the necessity of providing reasons to ensure fairness and transparency in reassessment proceedings.Key Evidence and Findings: The AO failed to provide reasons for reopening despite multiple requests from the assessee.Application of Law to Facts: The court applied the principle that failure to provide reasons invalidates the reassessment proceedings.Treatment of Competing Arguments: The Revenue's defense that procedural compliance was sufficient was not accepted.Conclusions: The reassessment proceedings were invalid due to the failure to provide reasons for reopening.Issue 3: Invocation of Non-Existent Legal ProvisionsRelevant Legal Framework and Precedents: Legal provisions cited must be current and applicable, as established in cases like Kalpana Shantilal Haria Vs. ACIT.Court's Interpretation and Reasoning: The court found that citing a non-existent section demonstrated a lack of due diligence and invalidated the proceedings.Key Evidence and Findings: The AO cited Section 147(b), which had been removed from the statute book.Application of Law to Facts: The court applied the principle that legal provisions must be correctly cited and applicable.Treatment of Competing Arguments: The argument that this was a clerical error was rejected as it indicated a deeper issue of non-application of mind.Conclusions: The reassessment proceedings were invalid due to reliance on a non-existent legal provision.Issue 4: Reassessment Initiated at the Behest of Another AuthorityRelevant Legal Framework and Precedents: The AO must independently satisfy themselves of the need for reassessment, as supported by CIT v. SPL's Siddhartha Ltd.Court's Interpretation and Reasoning: The court found that the reassessment was initiated based on directions from another authority, compromising the AO's independent judgment.Key Evidence and Findings: Evidence showed that the AO acted on directions from the DDIT Investigation.Application of Law to Facts: The court applied the principle that reassessment must be based on the AO's independent satisfaction.Treatment of Competing Arguments: The defense that the AO had jurisdiction was insufficient to counter the lack of independent satisfaction.Conclusions: The reassessment proceedings were invalid due to lack of independent satisfaction by the AO.Issue 5: Procedural IrregularitiesRelevant Legal Framework and Precedents: Proper procedure, including providing reasons before issuing a notice under Section 143(2), is emphasized in Mastech Technologies Pvt. Ltd. vs. DCIT.Court's Interpretation and Reasoning: The court found that procedural irregularities, such as issuing a notice before providing reasons, invalidated the proceedings.Key Evidence and Findings: The AO issued a notice under Section 143(2) before providing reasons for reopening.Application of Law to Facts: The court applied the principle that procedural compliance is essential for valid reassessment.Treatment of Competing Arguments: The Revenue's argument that procedural compliance was adequate was rejected.Conclusions: The reassessment proceedings were invalid due to procedural irregularities.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'The mentioning of these incorrect and non-existing sections is a clear case of non-application of mind by the Assessing Officer and also by the authorities providing satisfaction under section 151.'Core principles established: Reassessment proceedings require independent satisfaction by the AO, valid legal grounds, and adherence to procedural requirements.Final determinations on each issue: The reassessment proceedings were quashed due to non-application of mind, reliance on non-existent legal provisions, failure to provide reasons, initiation at the behest of another authority, and procedural irregularities.