2025 (4) TMI 158 - AT - Income Tax

Reopening of Assessment Quashed: AO's Failure to Consider Revised Return and PCIT's Mechanical Approval Invalidates Section 147/148 Proceedings

Pradeep Kumar Banerjee Versus Cit (Appeals) Delhi

The ITAT quashed the reopening of assessment under sections 147/148 of Income Tax Act, finding it void ab initio due to procedural defects. The AO failed ... Validity of reopening of assessment - original return of income earlier filled which was revised later however, the ld. AO while reopening the assessment and while obtaining the approval of the competent authority has failed to take cognizance of the same - as argued approval by the PCIT was given in a mechanical manner without proper satisfaction HELD THAT:- AO noted in the reasons that the total payments made by the assessee were 34,82,179/-, however, the same was incorrect and as per Form 26AS (TDS) it was ₹ 34,95,369/-. Similarly, the figure noted from the profit and loss account was stated at ₹ 26,66,799/-, which was also factually incorrect. As in the column 13 of reasons recorded, PCIT stated ‘fit case, approved’ and no satisfaction was recorded by the ld. PCIT before granting the approval. The case of the assessee is squarely covered by the decision of Capital Broadways Pvt. Ltd. [2024 (10) TMI 311 - DELHI HIGH COURT] wherein as decided the similar issue by holding that mere mechanical manner of approval is not valid and the reopening made based upon that said approval is bad in law. Besides, this assessment was framed by ignoring the revised return filed by the assessee. Even the revised return was duly processed by the CPC. Therefore, the re-assessment proceedings initiated on the basis of such incorrect and vague facts and invalid approval cannot be sustained. As decided in Mangalore Chemicals & Fertilizers Ltd. [1991 (1) TMI 70 - KARNATAKA HIGH COURT] and Babubhai Ramanbhai Patel [2017 (7) TMI 744 - GUJARAT HIGH COURT] wherein the order of the Hon'ble court held that once a revised return is filed, the original return must be taken to have been withdrawn and substituted by a fresh return for the purpose of assessment. Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe primary issue considered in this judgment is the legality of the reopening of the assessment under sections 147 and 148 of the Income Tax Act. Specifically, the question is whether the reopening was valid given the procedural and factual errors alleged by the assessee, including the failure to consider the revised return and the alleged mechanical approval by the Principal Commissioner of Income Tax (PCIT).ISSUE-WISE DETAILED ANALYSIS1. Validity of the Reopening of Assessment under Sections 147 and 148Relevant Legal Framework and Precedents: The reopening of an assessment under section 147 requires the Assessing Officer (AO) to have a reason to believe that income has escaped assessment. Section 148 mandates that a notice must be issued to the assessee before proceeding with such reopening. The approval of the competent authority is also required, which should not be granted in a mechanical manner. The precedents considered include the decision in Capital Broadways Pvt. Ltd. Vs. ITO, where the court held that mechanical approval invalidates the reopening.Court's Interpretation and Reasoning: The Tribunal found that the AO failed to consider the revised return filed by the assessee, which was a critical procedural error. Furthermore, the Tribunal noted that the approval by the PCIT was given in a mechanical manner without proper satisfaction, as indicated by the mere statement 'fit case, approved' without detailed reasoning.Key Evidence and Findings: The Tribunal observed discrepancies in the figures recorded by the AO, such as the incorrect total payments and profit and loss account figures. These factual inaccuracies contributed to the Tribunal's conclusion that the reopening was based on incorrect premises.Application of Law to Facts: Applying the legal principles from the cited precedents, the Tribunal concluded that the reopening was invalid due to the procedural lapses and the mechanical nature of the approval. The Tribunal emphasized that the revised return should have been considered, and the original return is deemed withdrawn once a revised return is filed.Treatment of Competing Arguments: The Tribunal acknowledged the arguments presented by the revenue but found them insufficient to counter the procedural deficiencies highlighted by the assessee. The Tribunal relied on established legal principles that require a non-mechanical approach to approval and the necessity of considering revised returns.Conclusions: The Tribunal concluded that the reopening of the assessment was invalid and void ab initio due to the procedural errors and mechanical approval, thereby allowing the appeal on the legal issue.SIGNIFICANT HOLDINGSThe Tribunal held that the reopening of the assessment was invalid due to the failure to consider the revised return and the mechanical approval by the PCIT. It emphasized the principle that once a revised return is filed, it supersedes the original return for assessment purposes. The Tribunal's decision was guided by precedents that require detailed satisfaction for approval and prohibit mechanical processes in reopening assessments.Core Principles Established: The judgment reinforces the principle that procedural accuracy and non-mechanical approval are essential in reopening assessments. It also establishes that a revised return replaces the original return, impacting the validity of subsequent assessment actions.Final Determinations on Each Issue: The Tribunal quashed the reopening of the assessment and allowed the appeal, concluding that the procedural and factual errors rendered the reopening invalid.