2025 (10) TMI 478 - HC - Income Tax

Competent Authority's recorded satisfaction upheld as meeting Section 151A for reopening assessment; ITAT order set aside, appeal dismissed

Pr. Commissioner of Income Tax – 1 Versus M/s Agroha Fincap Ltd.

DELHI HC held that the Competent Authority's recorded language 'Yes, I am convinced it is a fit case for re-opening of the assessment u/s 147 by issuing ... Validity of reopening of assessment - validity of proper approval accorded u/s 151 - unexplained credit u/s 68 - case of the assessee that the Respondent/Assessee failed to pass the test of identity, creditworthiness and genuineness of transactions - whether the usage of the language “Yes, I am convinced it is a fit case for re-opening of the assessment u/s 147 by issuing notice u/s 148” shall meet the requirement of proper approval by the Competent Authority? HELD THAT:- It may be stated here that in the case of N.C. Cables Ltd [2017 (1) TMI 1036 - DELHI HIGH COURT] Court was concerned with the word “approved”. It was in that context, this Court has stated that merely appending the expression “approved” says nothing. This Court has said that the satisfaction has to be recorded, which can be reflected in the briefest possible manner. So the judgment of this Court in N.C. Cables Ltd (supra) is clearly distinguishable. We may at this stage refer to a judgment of this Court titled in Meenakshi Overseas Pvt. Ltd. [2015 (12) TMI 1905 - DELHI HIGH COURT] wherein this Court had considered “Yes, I am satisfied” to mean that it satisfies the mandate of Section 151(1) of the Act. We may at this stage refer to a judgment of this Court titled PCIT v. Meenakshi Overseas Pvt. Ltd. [2015 (12) TMI 1905 - DELHI HIGH COURT] wherein this Court had considered “Yes, I am satisfied” to mean that it satisfies the mandate of Section 151(1) of the Act. So it must be held, that the language “Yes, I am convinced it is a fit case for re-opening the assessment u/s 147 by issuing notice u/s 148” satisfies the mandate of Section 151A of the Act in this case. The Tribunal has clearly erred in not appreciating the above language used by the Competent Authority while granting approval. Hence, the impugned order dated 07.07.2023 passed by the ITAT allowing the appeal filed by the Respondent/Assessee is untenable and is liable to be set aside. Decided against the Respondent/Assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the approval recorded by the competent authority that 'Yes, I am convinced it is a fit case for re-opening of the assessment u/s 147 by issuing notice u/s 148' satisfies the statutory requirement of Section 151(1) (competent authority's approval) so as to validate reassessment proceedings. 2. Whether the Income Tax Appellate Tribunal correctly quashed reassessment proceedings on the ground that the approval was mechanical/ritualistic and therefore invalid under the controlling judicial standard for recording satisfaction by the competent authority. 3. Whether, having quashed reassessment proceedings solely on the ground of invalid approval, it was necessary for the Tribunal to adjudicate on substantive additions (unexplained credit under Section 68) in the absence of parties' submissions. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework for competent authority's approval under Section 151(1) Legal framework: Section 151(1) requires that a higher-ranking officer (competent authority) record satisfaction on the reasons recorded by the Assessing Officer that the case is fit for issuing a reassessment notice under Section 148/147; the approval must reflect application of mind though it need not be an elaborate order. Precedent treatment: Prior authorities hold that mere mechanical or ritualistic approvals (e.g., a bare 'approved' or a rubber-stamp 'Yes') do not satisfy Section 151(1); however, brief expressions recording satisfaction in the authority's own words have been held sufficient where they demonstrate application of mind (distinguishing purely perfunctory approvals). Specific precedent accepted that the satisfaction can be recorded in the briefest possible manner and that context and wording determine validity. Interpretation and reasoning: The Court examined whether the phrase 'Yes, I am convinced it is a fit case for re-opening of the assessment u/s 147 by issuing notice u/s 148' constitutes recording of satisfaction by the competent authority. Emphasizing that the statutory requirement does not demand elaborate reasons but an expression of satisfaction reflecting application of mind, the Court found that the quoted language, being the competent authority's own written recording of satisfaction, meets the statutory mandate. The Court distinguished decisions which concerned only a bare 'approved' or ritualistic approval and relied on authority holding that an explicit 'Yes, I am satisfied' suffices when recorded by the approving officer. Ratio vs. Obiter: Ratio - the approving authority's brief but explicit expression of satisfaction in its own handwriting ('Yes, I am convinced...') satisfies the requirement of Section 151(1); mechanical or ritualistic approvals (e.g., bare 'approved' without satisfaction) do not. This is a binding point of law as applied to the facts. Conclusion: The approval in the present case met statutory requirements; therefore the reassessment notice was validly authorized by the competent authority. Issue 2 - Validity of the Tribunal's quashing of reassessment proceedings as mechanical approval Legal framework: The Tribunal's role was to examine whether the competent authority applied independent mind and recorded satisfaction; if not, reassessment is vitiated. Courts must compare the actual recorded words with precedent standards rather than assume invalidity solely due to similarity with other matters. Precedent treatment: The Tribunal relied on an earlier coordinate bench decision and an authority invalidating ritualistic approvals. The Court noted that earlier precedents are distinguishable where the authority's recorded language was more than a bare 'approved'. Interpretation and reasoning: The Court held that the Tribunal erred in characterizing the approval as mechanical without addressing the actual wording used by the competent authority in the present case. Because the competent authority's notation explicitly recorded satisfaction ('Yes, I am convinced...'), the Tribunal's reliance on precedents invalidating bare approvals was misplaced. The Court observed that the decision relied upon by the Tribunal and not taken in higher appeal had attained finality but was distinguishable on facts and wording. Ratio vs. Obiter: Ratio - a finding that the Tribunal erred in quashing reassessment where the competent authority's written approval explicitly records satisfaction; Obiter - discussion of other authorities as illustrative distinctions. Conclusion: The Tribunal's quashing of reassessment proceedings on the ground that approval was mechanical is unsustainable; the approval was valid and the Tribunal's order setting aside the reassessment must be set aside. Issue 3 - Necessity of adjudicating substantive additions where reassessment was quashed Legal framework: If reassessment is quashed for procedural infirmity, tribunals may refrain from deciding substantive grounds if parties did not make submissions; appellate courts must decide legal questions framed or remit as appropriate. Precedent treatment: Tribunal declined to adjudicate other merits after quashing for jurisdictional defect; the appellate court considers whether to remit or decide substantial questions of law raised by the revenue. Interpretation and reasoning: The Tribunal had quashed proceedings on the approval issue and therefore did not decide the substantive addition under Section 68. The present Court confined itself to the sole substantial question of law framed: validity of the approval. Having held the approval valid, the Court reversed the Tribunal without deciding the merits of the unexplained credit addition since the parties before the Tribunal had not made submissions on other grounds. Ratio vs. Obiter: Ratio - where the Tribunal quashes for invalid approval and refrains from deciding merits, an appellate court can confine its decision to the legality of the approval; it need not decide substantive additions absent full contestation below. Conclusion: The appeal was allowed limited to setting aside the Tribunal's quashal; the Court decided the substantial question in favour of revenue and against the assessee on the validity of the approval, leaving substantive factual/additional issues for determination in proceedings validly initiated. Overall Conclusion The Court concluded that the competent authority's written recording-'Yes, I am convinced it is a fit case for re-opening of the assessment u/s 147 by issuing notice u/s 148'-constituted a valid and sufficient expression of satisfaction under Section 151(1); the Tribunal erred in quashing reassessment as based on a mechanical approval. The Tribunal's order was set aside and the substantial question of law decided in favour of the revenue. No costs were awarded.