The Delhi High Court has held that mere use of the expression ‘yes, i am satisfied’ by the Principal Commissioner of Income Tax (PCIT) cannot be considered to be valid approval under Section 151 Of Income Tax Act for reopening income tax assessment.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that mere repeating of the words of the statute, mere rubber stamping of the letter seeking sanction or using similar words like “Yes, I am satisfied” will not satisfy the requirement of law. Hence, PCIT has failed to satisfactorily record his concurrence.
Table of Contents
Background
The petitioner/assessee has filed return of income for the AY 2010- 11, declaring the income. The case of the petitioner was processed under Section 143(1) of the Income Tax Act but no assessment order was passed.
Information was received from the Investigation Wing of the Department about a money laundering operation conducted by Jain Brothers. The information contained the report as to how Jain Brothers through their paper companies had provided accommodation entries to various beneficiaries in the guise of share capital/share premium etc. through the help of various mediators.
Upon examination of the report, it was found that in the list of beneficiaries, the name of the assessee M/s. Capital Broadways Pvt. Ltd. was also appearing who had taken accommodation entries aggregating to Rs. 55 lakhs during the AY 2010-11 through three papers companies managed and operated by Jain Brothers.
The notice under Section 148 of the Act was issued directing the petitioner to file its return of income for the subject AY 2010-11 on the allegation that there has been an escapement of income.
In response to the impugned notice, petitioner made a request to the respondents to treat the original ITR filed for the AY 2010-11 as the ITR in response to the notice under Section 148 and also requested the respondent to provide the reasons on the basis of which the assessment proceedings were initiated.
The reasons for reopening the assessment along with proforma for seeking necessary approval under Section 151 of the Income Tax Act of the Principal Commissioner Income Tax (PCIT) were provided to the petitioner.
The petitioner challenged the notice issued under Section 148 of the Income Tax Act.
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Arguments
The petitioner contended that PCIT, who is the competent authority, has granted sanction without application of mind. It is submitted that PCIT has approved issuance of notice by merely endorsing his signatures on the file in a routine and mechanical manner by simply writing “I am satisfied”.
If PCIT had delved into the issue, he would have discovered that there is no specific allegation in the “reasons” recorded qua the petitioner with the information given by Investigation Wing and therefore there was no independent conclusion of the AO to believe that income has escaped assessment. It is also submitted that the sanction is vitiated as PCIT was influenced by the sanction of the ACIT and for the reason, the notice under Section 148 consequent to the grant of approval under Section 151 of the Income Tax Act is liable to be quashed.
The department contended that the statutory requirement is only to the extent of grant of approval under Section 151 of the Income Tax Act by the PCIT on the reasons recorded by the AO. It is submitted that PCIT had examined the elaborate reasons accorded by the AO to form the belief that income has escaped assessment. It has been further submitted that the order granting approval need not contain the reasons as the same is based on prima facie finding arrived at from the record. It is thus submitted that the approval has been granted based upon the material and therefore the conditions envisaged in Section 151 stand satisfied.
Statutory Provision – Approval under Section 151 Of Income Tax Act
Section 151(1) of the Income Tax Act categorically provides that no notice shall be issued under Section 148 by the Assessing Officer, after expiry of period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Commissioner or Principal Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice.
Conclusion
The court while allowing the petition held that the approval granted by the PCIT for issuance of notice under Section 148 of the Income Tax Act is not valid and therefore notice under Section 148 dated 24.03.2017 cannot be sustained.
FAQs
What is Approval under section 151 Of Income Tax Act?
Section 151(1) of the Income Tax Act categorically provides that no notice shall be issued under Section 148 by the Assessing Officer, after expiry of period of four years from the end of the relevant assessment year, unless the Principal Chief Commissioner or Commissioner or Principal Commissioner or Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice.
What is case law on approval under section 151 Of Income Tax Act?
The Delhi High Court in the case of Capital Broadways Pvt. Ltd. Versus Income Tax Officer held that mere use of the expression ‘yes, i am satisfied’ by the Principal Commissioner of Income Tax (PCIT) cannot be considered to be valid approval under Section 151 Of Income Tax Act for reopening income tax assessment.
Case Details
Case Title: Capital Broadways Pvt. Ltd. Versus Income Tax Officer Ward 5(3) Delhi
Case No.: W.P.(C) 4303/2017
Date: 03/10/2024
Counsel For Petitioner: P. Roychaudhuri
Counsel For Respondent: Gaurav Gupta
