2025 (11) TMI 1893 - AT - Income Tax

Reassessment under sections 147/148 quashed for lack of section 151 sanction and vague, borrowed satisfaction reasons

ITAT Kolkata allowed the assessee's appeal and quashed the reassessment proceedings and consequent order. It held that the reopening under section 147/148 ... Reopening of assessment - relevant authority from whom the requisite sanction under section 151 of the Act was obtained - reason to believe or reason to suspect - HELD THAT:- The provisions of the Act requires that where any action to be taken with the approval/ action/ action of the higher authority, the same needs to be mentioned in the notice and relevant documents/ order. However, the reasons recorded u/s 148 of the Act does not mention of any such order being obtained prior to the issue of notice u/s 148 of the Act. The case of the assessee also find support from the decision of DSJ Communication Ltd [2012 (9) TMI 522 - BOMBAY HIGH COURT] and in case of Maruti Clean Coal & Power Ltd. [2018 (1) TMI 675 - CHHATTISGARH HIGH COURT] wherein similar ratio has been laid down. Consequently, we held that the reopening of assessment has been made in a mechanical manner without application of mind as the reasons recorded by the ld. AO does not mention about the mandatory sanction/ approval having been obtained u/s 151 of the Act. Accordingly, we quash the reassessment proceedings as well as the consequent order passed. Whether reasons recorded by the ld. AO are not reason to belief but reason to suspect and are very vague, sanctity and ambiguous and does not show any live link with the escapement of income? - The reasons recorded by the ld. AO were only reason to suspect as such reasons recorded by him specifically showed that the ld. AO had doubted suspicion about creditworthiness of the loan creditors M/s Cresent Dealer Pvt Ltd., and therefore it is clear that the reopening was made by the ld. AO on the basis of suspicion and in order to make robbing and fishing inquiry which is not permissible under the Act. We also note that the reasons are vague, sanctity and ambiguous and therefore, reopening of assessment based thereupon is invalid and cannot be sustained. The case of the assessee find support from the decisions of CIT Vs. Insecticides (India) Ltd. [2013 (5) TMI 691 - DELHI HIGH COURT], Girishbhai Dahyabhai Patel [2024 (3) TMI 1456 - GUJARAT HIGH COURT], CIT Vs. Atul Jain [2007 (5) TMI 184 - DELHI HIGH COURT] and Hindustan Lever Ltd. Vs. R.B. Wadekar [2004 (2) TMI 42 - BOMBAY HIGH COURT]. We also note that there is no independent application of mind by the ld. AO to the information received and therefore, this is at best a case of borrowed satisfaction by the ld. Assessing Officer. Considering these facts and circumstances and in the light of aforesaid decisions, the reopening is bad in law and so is the consequent assessment framed. Therefore the re-opening as well as the assessment framed are quashed. Appeal of the assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether delay of 337 days in filing the appeal before the Tribunal was liable to be condoned on showing 'reasonable cause'. 1.2 Whether the reassessment proceedings initiated under sections 147/148 were invalid on account of absence of proper sanction/approval under section 151 and non-mention of such sanction in the notice and reasons. 1.3 Whether the reasons recorded for reopening constituted 'reasons to believe' escapement of income, or were merely vague, ambiguous, and based on suspicion or borrowed satisfaction, thereby vitiating the reassessment. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Condonation of delay of 337 days in filing appeal Interpretation and reasoning 2.1 The Tribunal examined the condonation petition and supporting affidavit explaining that the company's tax affairs were handled by a senior accountant whose father suffered from prostate cancer, causing mental disturbance and failure to intimate or act on the appellate order; the delay was discovered only upon a call from the Department regarding outstanding tax dues, after which the appeal was filed without further delay. 2.2 The Tribunal considered the explanation as showing 'reasonable cause' for the entire period of delay and noted that the assessee acted promptly once the lapse was discovered. Conclusions 2.3 The delay of 337 days in filing the appeal was condoned and the appeal was admitted for adjudication. Issue 2: Validity of reassessment for want of proper sanction/approval under section 151 Legal framework (as discussed) 2.4 The Tribunal proceeded on the basis that where the Act requires action to be taken with approval/sanction of a higher authority under section 151, such approval must not only be obtained but its existence must be reflected in the reasons and/or notice under section 148; failure to do so renders the initiation mechanical and without application of mind. 2.5 Reliance was placed on decisions holding that approval of the competent authority (e.g., Commissioner of Income Tax) is mandatory and that absence of mention of such approval in the reasons/notice vitiates the reassessment. Interpretation and reasoning 2.6 The Tribunal examined the notice issued under section 148 and the reasons recorded by the Assessing Officer. It observed that neither the reasons recorded nor the notice made any specific mention that sanction/approval under section 151 had been obtained from the competent authority prior to issue of the notice. 2.7 The Tribunal held that when the statute contemplates prior approval or sanction of a higher authority for initiation of reassessment, the fact of such approval is required to be evident from the reasons/notice; non-mention indicates mechanical initiation without due application of mind to the statutory precondition. 2.8 Following the judicial precedents cited, the Tribunal treated the absence of indication of sanction as a fatal defect, rendering the notice under section 148 invalid. Conclusions 2.9 The notice issued under section 148 was held to be invalid for want of demonstrated sanction/approval under section 151, and the consequent reassessment order was quashed. Issue 3: Whether the recorded reasons constituted 'reasons to believe' or mere suspicion/borrowed satisfaction Legal framework (as discussed) 2.10 The Tribunal proceeded on the settled proposition that reassessment under section 147 requires the Assessing Officer to have 'reasons to believe' that income chargeable to tax has escaped assessment; mere suspicion, vague or ambiguous reasons, or initiation to carry out 'fishing and roving enquiries' do not satisfy this statutory requirement. 2.11 It noted jurisprudence that the Assessing Officer cannot first issue a notice under section 148 to make enquiries in order to discover whether income has escaped assessment; such enquiries must be based on an existing, specific belief of escapement formed on material and independent application of mind, not on borrowed satisfaction. Interpretation and reasoning 2.12 The Tribunal scrutinised the reasons recorded, which were founded on information that the assessee had received a loan of Rs. 2,18,00,000 from a sister concern having low income and losses, and that both companies had a common director. The reasons essentially questioned the creditworthiness of the lender. 2.13 On this basis, the Tribunal found that the reasons reflected only doubt and suspicion about the creditworthiness of the loan creditor and did not show a clear, live link between specific material and an actual belief of escapement of income. 2.14 The Tribunal characterised the reasons as 'vague, scanty and ambiguous,' leading to the conclusion that the reopening was undertaken to conduct fishing and roving enquiries into the loan transaction rather than on a formed belief of escapement. 2.15 It further noted absence of independent application of mind by the Assessing Officer to the information received, treating the case as one of 'borrowed satisfaction,' which is not permissible for valid assumption of jurisdiction under section 147. Conclusions 2.16 The reasons recorded were held not to constitute 'reasons to believe' but only 'reasons to suspect,' rendering the assumption of jurisdiction under section 147 bad in law. 2.17 On this independent ground also, the reassessment proceedings and the consequential assessment were quashed. Overall result 2.18 The delay in filing the appeal having been condoned, and the reassessment proceedings and consequent assessment order having been quashed as invalid on jurisdictional grounds (absence of demonstrated sanction under section 151 and insufficiency of 'reasons to believe'), all other grounds on merits became academic; the appeal was allowed.