Reopening of assessment invalid where third party records fail prima facie threshold and sanctioning authority acts mechanically.

Reopening beyond three years was held unsustainable where the material relied on consisted of electronic records and summaries seized from a third person and did not prima facie identify book-entries, identifiable assets or specified expenditures meeting the statutory monetary threshold for escaped income; the assessing officer adopted group-wide quantifications without allocating receipts to the assessee. Further, the sanctioning authority endorsed the proposal mechanically without independent application of mind. Consequently the notice issued beyond three years and the reassessment proceedings are vitiated and void ab initio.

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Issues: (i) Whether the notice issued under section 148 and reassessment initiated under section 147 for the assessment year 2014-15 is valid where the material relied upon was seized from a third person and the pre-conditions of section 149(1)(b) are not shown to be satisfied; (ii) Whether the sanction/approval under section 151 for issuance of notice under section 148 was valid when the approving authority recorded satisfaction in a mechanical manner without application of mind.

Issue (i): Whether the reopening of assessment by issuance of notice under section 148 is sustainable when the seized material was from a third person and the conditions of section 149(1)(b) are not objectively shown to be satisfied.

Analysis: The material relied upon consisted of electronic data and workbooks seized from the residential premises of a third person and related statements. The seized records were summaries of cash receipts/payments maintained for the entire group and were not shown to be entries in the assessee's books of account nor to represent identifiable assets or specified expenditures as defined in Explanation 1 to section 149(1). The reasons recorded for reopening did not identify particular assets or book-entries for the relevant assessment year or demonstrate that escaped income represented an asset/expenditure or entries likely amounting to Rs. 50 lakhs or more. The assessing authority adopted quantifications produced by investigation without allocating receipts/payments to the assessee with necessary prima facie verification.

Conclusion: The conditions of section 149(1)(b) were not satisfied on the record and the notice under section 148 issued beyond three years was invalid; reopening under section 147 is void ab initio for the assessment year in question.

Issue (ii): Whether the sanction recorded under section 151 for issuance of notice under section 148 was valid where the specified authority's approval reflected no independent application of mind.

Analysis: The approval form submitted to the specified authority repeated the assessing officer's narrative and the sanctioning authority endorsed the proposal without independent reasoning, thereby reflecting a purely formal or mechanical endorsement. The approval did not set out reasons or any objective satisfaction linking the seized material to the statutory threshold or to entries/assets as required to justify reopening beyond the three-year period. Authorities and precedents require that the sanctioning authority record satisfaction demonstrably arrived at after application of mind.

Conclusion: The sanction under section 151 was recorded in a mechanical manner without application of mind and is therefore invalid; the consequent notice under section 148 and reassessment are vitiated.

Final Conclusion: The combined defects of failure to satisfy the requirements of section 149(1)(b) and the mechanical sanction under section 151 render the notice under section 148 and the consequent assessment void ab initio; the reassessment proceedings for the stated assessment year are quashed and the appeal is allowed.

Ratio Decidendi: Where a notice under section 148 is issued beyond three years, the assessing authority must possess material that prima facie shows escaped income represented by an asset, specified expenditure or book-entries likely amounting to Rs. 50 lakhs or more, and the specified authority under section 151 must record a demonstrable application of mind in granting sanction; absence of these requirements renders the notice and reassessment invalid.

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