Reassessment under ss.147,148 invalid for wrong PAN, mechanical approval under s.151(2) and ignored s.143(3) records

ITAT Delhi quashed the reassessment initiated under s.147/148 on the ground that the notice was issued with an incorrect PAN and in a mechanical manner without proper application of mind. The AO relied on third-party information alleging accommodation entries of INR 3.50 crores but failed to conduct any enquiry or verify existing assessment records, which already contained confirmations for loans received and an earlier s.143(3) assessment. Further, approval under s.151(2) by the Pr. CIT was granted mechanically. The notice under s.148 and all consequential reassessment proceedings were held invalid and the assessee's appeal was allowed.

---

---

1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the reassessment proceedings under section 147, initiated by notice under section 148 issued on an incorrect PAN and not reflected on the assessee's e-filing portal within the statutory time, were valid.

1.2 Whether the reasons recorded for reopening under section 147 were vitiated for lack of application of mind, including reliance on incorrect factual premises regarding the nature and source of the alleged accommodation entries.

1.3 Whether the approval accorded under section 151 for issue of notice under section 148, in a mechanical manner and without independent application of mind, satisfied the statutory requirement of "satisfaction" of the sanctioning authority.

1.4 Consequentially, whether the reassessment order could be sustained and whether the grounds on merits under section 68 required adjudication.

2. ISSUE-WISE DETAILED ANALYSIS

2.1 Validity of reassessment where notice under section 148 was issued on incorrect PAN and not effectively served within limitation

Interpretation and reasoning

2.1.1 The Tribunal noted that the notice under section 148 dated 31.03.2019 bore an incorrect PAN ("AAJCS2757B" instead of the correct "AAICS2757B").

2.1.2 The screenshot of the assessee's e-filing portal dated 04.04.2019 showed that no notice under section 148 for the relevant assessment year was appearing, and the portal stated "no valid notice found for selected AY and section selected", thereby preventing filing of return in response to section 148 as on that date.

2.1.3 On these facts, the Tribunal held that up to 04.04.2019 (i.e. after expiry of six years from the end of the relevant assessment year), there was no notice under section 148 available on the portal and it could not be said that valid service of notice under section 148 had been effected on the assessee within the statutory time limit.

2.1.4 The Tribunal rejected the Revenue's reliance on mere correction of PAN and the plea of "typographical error" being curable, in light of the finding that the notice was not properly available/served on the assessee within limitation.

Conclusion

2.1.5 The Tribunal held that initiation of reassessment by a notice under section 148 issued with an incorrect PAN, which was not effectively available/served within the permissible period, rendered the reassessment proceedings bad in law.

2.2 Validity of reasons recorded for reopening under section 147 in light of incorrect factual premise and absence of due enquiry

Legal framework (as discussed)

2.2.1 The Tribunal proceeded on the settled principle that for valid reopening under section 147, the Assessing Officer must record reasons based on correct facts and after some application of mind to material, particularly where the original assessment had been completed under section 143(3).

Interpretation and reasoning

2.2.2 The recorded reasons, as reproduced from the paper book, proceeded on the basis that the assessee had received accommodation entries of Rs. 3.50 crores from M/s Anamika Steel Trading Pvt. Ltd., routed through M/s Lavender Vincom Pvt. Ltd., allegedly controlled by an entry operator.

2.2.3 The assessee demonstrated that only Rs. 1.75 crores had been received from M/s Anamika Steel Trading Pvt. Ltd. and that complete confirmations and related documents regarding such loan were already filed and examined in the original assessment under section 143(3).

2.2.4 During reassessment, the Assessing Officer changed the factual stand and alleged that Rs. 1.75 crores were received from M/s Anamika Steel Trading Pvt. Ltd. and another Rs. 1.75 crores from M/s Gajraj Steel Merchants Pvt. Ltd., both allegedly controlled by the same entry operator, thereby departing from the original reasons recorded.

2.2.5 The Tribunal found that this inconsistency showed that, at the time of recording reasons, the Assessing Officer had not verified the correctness of the information received with the assessment records, despite the earlier scrutiny assessment and availability of confirmations from the lenders.

2.2.6 The Tribunal held that such recording of reasons, based on incorrect factual assumptions and without basic verification or enquiry, constituted lack of application of mind and a casual, mechanical exercise.

Conclusion

2.2.7 The Tribunal concluded that reopening of a completed assessment under section 147, on the basis of incorrect and unverified facts and without due application of mind to the existing record, was invalid and the reassessment proceedings were unsustainable on this ground as well.

2.3 Legality of sanction under section 151 granted in a mechanical manner

Legal framework (as discussed)

2.3.1 Section 151 requires that the prescribed authority (Principal Commissioner/Commissioner, etc.) must be "satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice".

2.3.2 The Tribunal relied on binding precedents, including:

(a) The Supreme Court decision holding that mechanical sanction, by merely stating "Yes, I am satisfied", renders reopening invalid.

(b) Delhi High Court decisions (including those excerpted) emphasising that mere use of expressions such as "approved" or similar formulaic notations, without any indication of independent application of mind, is ritualistic and falls short of the statutory requirement of meaningful satisfaction.

Interpretation and reasoning

2.3.3 The approval form under section 151(2), as reproduced from the paper book, recorded the Principal Commissioner's remark only as "perused reasons satisfied fit case for 148 proceedings".

2.3.4 The Tribunal held that this language, in the given context, reflected merely a mechanical endorsement of the Assessing Officer's reasons, without any independent reasoning or indication that the sanctioning authority had applied its mind to the underlying material, particularly when the recorded reasons themselves contained serious factual errors (as to receipt of Rs. 3.50 crores solely from M/s Anamika Steel Trading Pvt. Ltd.).

2.3.5 Applying the cited Supreme Court and Delhi High Court rulings, the Tribunal treated such perfunctory approval as not satisfying the requirement of section 151 that the superior authority be independently "satisfied".

Conclusion

2.3.6 The Tribunal held that the sanction under section 151 was accorded in a purely mechanical manner, without independent application of mind, and therefore could not support the validity of the notice under section 148; this defect further vitiated the reassessment proceedings.

2.4 Overall validity of reassessment and necessity to decide additions on merits under section 68

Interpretation and reasoning

2.4.1 The Tribunal cumulatively considered: (i) invalid initiation of reassessment by notice under section 148 issued on the wrong PAN and not effectively served within limitation; (ii) reasons for reopening recorded without proper enquiry and based on incorrect facts; and (iii) mechanical, non-speaking approval under section 151.

2.4.2 On this combined analysis, the Tribunal held that the reassessment proceedings initiated under section 147/148 were bad in law and not sustainable.

Conclusions

2.4.3 The notice issued under section 148 was held invalid, and the entire reassessment proceedings were quashed.

2.4.4 In view of the quashing of reassessment on jurisdictional and procedural grounds, the Tribunal treated the grounds on merits concerning the addition of Rs. 3.50 crores under section 68 as academic and declined to adjudicate them.

2.4.5 The appeal was allowed on the jurisdictional grounds related to reopening and sanction.

---