ITAT, AGRA
SHRI GHANSHYAM VS ITO,
3(2), MATHURA
19-06-2018
I.T.A No. 129/Agra/2018
“1. BECAUSE, upon due
consideration of facts and in the overall circumstances of the case 'appellant'
denies its liability to be assessed in terms of Notice dated 26.03.2015 said to
be issued under section 148 of the 'Act'.
2. BECAUSE, the Ld
CIT(A) has not appreciated the fact that the purported 'Reasons' are No
'Reasons' in the eyes of Law. The so called 'Reasons' do not show any
application of mind on part of the 'AO' to show that any Income liable for Tax
has escaped Assessment warranting recourse to Notice under section 148 of the
Act.
WITHOUT PRETUDICE TO
THE ABOVE
3. BECAUSE, while making
the addition of Rs. 22,65,000/- the authorities below failed to consider that
'appellant' being an Agriculturist having no other source of Income liable for
Tax and therefore, no addition was called for in peculiar facts of the case.
4. BECAUSE, while
making the addition of Rs. 22,65,000/- the authorities below failed to consider
that 'appellant' has entered into an agreement with Ghasi Ram another
Agriculturist who has provided funds to the 'appellant' from which Agriculture
Land was purchased.
5. Because, in any case
and in any view of the matter impugned additions/disallowances and impugned
assessment order is bad in law, illegal, unjustified barred by limitation,
contrary to facts and law based upon incorrect assumption of facts and further
without allowing adequate opportunity of hearing in violation of principals of
natural justice and therefore, the additions made deserves to be quashed.”
2. An additional ground
has also been taken, as follows:
“Because the mechanical
approval, without application of mind granted by the Additional Commissioner of
Income Tax, Range-3, Mathura under section 151 for issuing notice dated
27.03.2015 under section 148 of the ‘Act’ has vitiated the assessment order
dated 30.03.2016 and the said assessment is liable to be declared illegal and
void ab-initio.”
3. The additional
ground is a legal issue going to the root of the matter, not requiring any
further material to be gone into. Accordingly, it is admitted.
4. Apropos the merits
of the additional ground, the following is the approval granted by the Addl.
CIT for initiation of proceedings u/s 147 of the IT Act.
5. The ld. Counsel for
the assessee has contended that the approval is no approval in the eye of the
law, having been granted without application of mind. The following decisions
have been relied on:
1. ‘Sunil Agrawal vs.
ITO’, in ITA No. 988/Del/2018.
2. Virat Credit &
Holdings (P) Ltd. Vs. ITO’, in CO No. 57/Del/2012 in ITA No.89/Del/2012.
3. ‘Hari Ram Gupta vs.
ITO’, ITA No.5111/Del/2013.
4. ‘Tara Alloys Ltd. Vs.
ITO’, in ITA No.2421/Del/2017.
6. On the other hand,
the ld. DR has placed strong reliance on the approval granted by the Additional
CIT. The following decisions have been relied on:
i. ‘S. Narayanappa vs.
CIT’, 63 ITR 219 (SC).
ii. ‘Chhugamal Rajpal vs.
S.P. Chaliha’, 79 ITR 603 (SC).
iii. CIT vs. M/s G.S.
Tiwari and Co.’, 38 taxman.com 259 (All).
iv. ‘M/s Ginni
Filaments vs. CIT’, Writ Tax No. 1402 of 2004 (All. H.C.)
v. ‘Sushrut Institute
of Plastic Surgery vs. Dy. CIT’, Misc. Bench No 219 of 2014 (All. H.C.)
vi. ‘Sanjay Kumar Agarwal,
HUF vs. DCIT’, ITA No.290/Agra/2010 (ITAT-Agra).
vii. ‘ITO vs.
Purushottam Das Bangur’, 224 ITR 362 (SC).
viii. ‘Anil Kumar
Singhal vs. ITO’, 33 taxman. Com 434 (Agra Trib.) (SMC Bench).
ix. ‘Abdul Majid vs.
CIT’, 281 ITR 366 (All).
7. Heard. In the above
quoted approval granted by the Additional CIT, the approval has been granted by
observing thus:
“Ji Haan Main Santusht
Hoon.”
8. Translated, this
approval states: ‘Yes, I am satisfied’. Question is whether this approval is in
accordance with law.
9. In the case of
‘Sunil Agrawal vs. ITO’, the ITAT, Delhi vide order dated 24.05.2018 in ITA No.
988/Del/2018 (APB-19-49) held that:-
“6.3 It is further
noted that the proceedings have been initiated on the basis of no material much
less any tangible and, relevant material and as such reasons record do not
constitute valid reason to believe for initiating proceedings u/s. 147 of the
Act. It is further noted that the approval granted by the competent authority
is a mechanical approval and action has been taken mechanically because on perusing
the reasons recorded, it demonstrates that Joint CIT has written “Yes, in view of
reasons recorded by the AO, I am satisfied that this is fit case for issue of
notice u/s. 148 and similarly, the Ld. CIT, Dehradun has mentioned “Yes, I am
satisfied” which establishes that both the authorities have not recorded proper
satisfaction / approval, before issue of notice u/s. 148 of the Act.
Thereafter, the AO has mechanically issued notice u/s. 148 of the Act, on the
basis of information allegedly received by him from the DCIT, Central Circle,
Dehradun. Keeping in view of the facts and circumstances of the present case
and the case law applicable in the case of the assessee, we are of the
considered view that the reopening in the case of the assessee for the asstt.
Year in dispute is bad in law and deserves to be quashed. Our aforesaid view is
fortified by the following decisions:-
(A) Hon’ble Delhi High
Court in the case of Pr. CIT vs. M/s NC Cables Ltd. in ITA No. 335/2015 has
held as under:-
11. Section 151 of the
Act clearly stipulates that the CIT(A), who is the competent authority to
authorize the reassessment notice, has to apply his mind and form an opinion.
The mere appending of the expression ‘approved’ says nothing. It is not as if
the CIT(A) has to record elaborate reasons for agreeing with the noting put up.
At the same time, satisfaction has to be recorded of the given case which can
be reflected in the briefest possible manner. In the present case, the exercise
appears to have been ritualistic and formal rather than meaningful, which is
the rationale for the safeguard of an approval by a higher ranking officer, For
these reasons, the Court is satisfied that the findings by the ITAT cannot be
disturbed.”
(B). Hon’ble High Court
of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd.
reported in (2015) 56 taxmann.com 390 (MP) has held as under:-
“7. We have considered
the rival contentions and we find that while according sanction, the Joint
Commissioner, Income Tax has only recorded so “Yes, I am Satisfied”. In the
case of Arjun Singh vs. Asstt. DIT (2000) 246 ITR 363 (MP), the same question
has been considered by a Coordinate Bench of this Court and the following
principles are laid down:-
“The Commissioner
acted, of course, mechanically in order to discharge his statutory obligation
properly in the matter of recording sanction as he merely wrote on the format
“Yes, I am satisfied” which indicates as if he was to sign only on the dotted
line. Even otherwise also, the exercise is shown to have been performed in less
than 24 hours of time which also goes to indicate that the Commissioner did not
apply his mind at all while granting sanction. The satisfaction has to be with
objectivity on objective material.
8. If the case in hand
is analyzed on the basis of the aforesaid principle, the mechanical way of
recording satisfaction by the Joint Commissioner, which accords sanction for issuing
notice under section 148, is clearly unsustainable and we find that on such
consideration both the appellate authorities have interfered into the matter.
In doing so, no error has been committed warranting reconsideration.”
Hon’ble Supreme Court
of India in the case of CIT vs. S. Goyanka Lime & Chemical Ltd. reported in
(2015) 64 taxmann.com 313 (SC) in the Head Notes has held that “Section 151,
read with section 148 of Income Tax Act, 1961 – Income escaping assessment –
Sanction for issue of notice (Recording of satisfaction) – High Court by
impugned order held that where Joint Commissioner recorded satisfaction in
mechanical manner and without application of mind to accord sanction for issuing
notice under section 148, reopening of assessment was invalid – Whether Special
Leave Petition filed against impugned order was to be dismissed – Held, Yes (in
favour of the Assessee).”
6.4 In the background
of the aforesaid discussions and respectfully following the precedents, as
aforesaid, we are of the considered view that proceedings initiated by invoking
the provisions of section 147 of the Act by the AO and upheld by the Ld. CIT(A)
are non est in law and without jurisdiction, hence, the re- assessment is
quashed. Since we have already quashed the re- assessment, the other grounds
have become academic and are therefore not adjudicated and accordingly, the
assessee’s appeal is allowed.”
10. In the case of
‘Virat Credit & Holdings (P) Ltd. vs. ITO’, (CO No. 57/Del/2012 in ITA No.
89/Del/2012), the ITAT, Delhi, vide its order dated 09.02.2018 (PBP - 50-62)
has held that:-
“11. In response to
aforesaid question no.13 in the prescribed proforma, Addl. CIT has written
“Yes. I am satisfied.” No doubt, columns of reasons recorded was there and it
is also mentioned in column no.12 that reasons for belief that income has
escaped assessment are as per annexure enclosed but such annexure has not been
produced before the Bench for perusal.
12. Apparently, from the
approval recorded and words used that “Yes. I am satisfied.”, it has proved on
record that the sanction is merely mechanical and Addl. CIT has not applied
independent mind while according sanction as there is not an iota of material
on record as to what documents he had perused and what were the reasons for his
being satisfied to accord the sanction to initiate the reopening of assessment
u/s 148 of the Act.”
11. In the case of
‘Hari Ram Gupta Vs ITO’, in ITA No. 5111/Del/2013 in ITAT, Delhi vide its order
dated 07.07.2016 (ABP-63-67) has quashed the assessment based on approval
mentioning , as in the present case, "Yes I am satisfied" (Para 6).
12. Again, the ITAT,
Delhi Bench in the case of ‘M/s Tara Alloys Ltd. Vs. ITO’, in ITA No.
2421/Del/2017 (APB- 68-108) likewise quashed the assessment based on approval
mentioning “Yes I am satisfied that it is a fit case for reopening u/s 147”.
(Paras 8 to 10)
13. Apropos the
decisions cited by the ld. DR, they are dealt with as follows.
14. In the Hon’ble
Supreme Court’s Judgment in the case of ‘Parashuram Pottery Works Co. Ltd. Vs.
ITO’, 106 ITR 1 (SC) (relied on by both the sides, copy at APB- 109-118), the
Hon’ble Apex Court held that “It has been said that the taxes are the price
that we pay for civilization. If so, it is essential that those who are
entrusted with the task of calculating and realizing that price should
familiarize themselves with the relevant provisions and become well- versed
with the law on the subject. Any remission on their part can only be at the
cost of the national exchequer and must necessarily result in loss of revenue”.
(Para-15).
15. In ‘Chhugamal
Rajpal vs. S.P. Chaliha’, 79 ITR 603 (SC), the Hon’ble Supreme Court held that
the ITO had no material before him which could satisfy the requirements of
either clause (a) or clause (b) of section 147 and that therefore, he could not
have issued a notice under section 148. The Hon’ble Supreme Court further held
that “Further, the report submitted by him under section 151(2) does not mention
any reason for coming to the conclusion that it is a fit case for the issue of
a notice under section 148.”
16. The Hon’ble Court
concluded that “We are also of the opinion that the Commissioner has
mechanically accorded permission. He did not himself record that he was
satisfied that this was a fit case for the issue of a notice under section 148.
To question No. 8 in the report which reads "Whether the Commissioner is
satisfied that it is a fit case for the issue of notice under section
148", he just noted the word "Yes" and affixed his signature
there-under. We are of the opinion that if only he had read the report
carefully, he could never have come to the conclusion on the material before
him that this is a fit case to issue notice under section 148. The important
safeguards provided in sections 147 and 151 were lightly treated by the
Income-tax Officer as well as by the Commissioner. Both of them appear to have
taken the duty imposed on them under these provisions as of little importance.
They have substituted the form for the substance”.
17. In ‘CIT vs. M/s
G.S. Tiwari and Co.’, 38 taxman.com 259 (All), it was held by the Hon’ble
jurisdictional High Court that under the garb of review, a completed assessment
cannot be reopened. No re-hearing is permissible on merit. Scope of review is
very limited.
18. In ‘M/s Ginni
Filaments vs. CIT’, Writ Tax No. 1402 of 2004 (All), the assessee had not
valued its closing stock as per the provisions of Section 145A of the IT Act.
Notice under section 148 was issued, which was challenged before the Hon’ble
High Court. The Hon’ble High Court, while sustaining the notice under section
148, held that at this stage, it can be said that there is relevant material on
the record to form a reasonable belief that the taxable income of the assessee
has escaped assessment, in view of section 145-A of the Act. The present
controversy was not involved therein.
19. In ‘Sushrut
Institute of Plastic Surgery vs. Dy. CIT’, Misc. Bench No. 219 of 2014 (All),
the Hon’ble High Court, upholding the validity of the notice u/s 148, found
that the only requirement of section 147 is that the Assessing Officer must have
good reason to believe that some income had escaped assessment. It was observed
that ‘A bare perusal of letter dated 14.05.2013 (Annexure No.4) written by the
Deputy Commissioner of Income Tax Range-VI- Lucknow, shows that in the return
for assessment year 2006-07 the petitioner declared its total income
"Nil". However, during the said year share capital increases from Rs.
47,82,000/- to Rs.58,82,000/- and secured loan increases from Rs.1,23,54,001/-
to Rs. 2,78,21,882/- which shows the increase of Rs. 1,54,67,871/- Investment
in building increased from Rs.7,09,770/- to Rs.1,50,99,423/- but the petitioner
did not explain the source of increment, similarly other current assets also
increased. Therefore, apart from the District Valuer Report we find that there
are sufficient reasons for the Assessing Officer to believe that the income
chargeable to tax has escaped assessment. Thus we find that ingredient of
section 147 is available to reopen the proceeding of assessment for the
assessment year 2006-07. T ese are nowhere the facts of the present case’.
20. In ‘Sanjay Kumar
Agarwal, HUF vs. DCIT’, ITA No. 290/Agra/2010-ITAT- Agra, the Agra Bench of the
Tribunal upheld the notice issued under section 148 of the Act based on the
report of the Investigation Wing. The issue of validity or otherwise of the
approval granted, which is the issue at hand, was not present therein.
21. In ‘ITO vs.
Purushottam Das Bangur’, 224 ITR 362 (SC), re-assessment proceedings were
upheld where the Assessee claimed that he had incurred capital loss on sale of
shares held in a company, which was based on official quotation at Calcutta
Stock Exchange and the same was allowed in original assessment. Subsequently,
the ITO received a letter from the Directorate of Investigation, giving
detailed particulars collected from the Bombay Stock Exchange, which revealed
that the quotation appearing at the Calcutta Stock Exchange was a result of
manipulated transaction. On the very next day of receipt of the letter, the ITO
issued notice under section 147(b). The Hon’ble Supreme Court found that the
letter from the Directorate contained definite information derived from the Bombay
Stock Exchange Directory about the financial condition of Maharaja Shree Umaid
Mills Ltd. during the period 1965-70, which indicated that during this period,
the company had prospered and that the book value per equity share had risen
from Rs. 318.55 for the year ending 31-12-1965 to Rs. 401 for the year ending
31-12-1970, that the earning per share rose from Rs. 8.37 per share to Rs. 44
per share and that the dividend percentage had also risen from 2 per cent to 10
per cent for the same period, which falsified the claim of the assessee and
accordingly notice under section 148 was upheld. These facts are absent herein.
22. In ‘Anil Kumar
Singhal vs. ITO’, 33 taxman.com434 (Agra Trib) (SMC Bench), ITAT upheld the
initiation of proceedings under section 148 of the Act after having found that
after receipt of report from the Investigation Wing, the AO had applied his
mind to such information and had then issued the notice to the assessee. No issue
of non-application of mind by the AO, however, stands raised in the present
case.
23. In ‘Abdul Majid Vs.
CIT’, 281 ITR 366 (All), the assessee moved an application for addition of
grounds in grounds of appeal before Tribunal on the ground that since the
reasons were not recorded before issuing the notice, the requirement of section
148(2) was not complied with and, therefore, the proceedings were invalid and
void ab initio. However, the ITAT did not permit the assessee to raise this
plea. On appeal before the Hon’ble High Court, it was held that even if a plea,
relating to lack of jurisdiction of officer on ground that no reason was
recorded before issue of notice under section 148(2), is not raised at the
first instance before the assessing authority, it can be raised before the
appellate authority at a later stage and that therefore, the Tribunal had erred
in not allowing the assessee to raise the additional grounds challenging the
validity of the assessment order on the basis of illegal initiation of proceedings
under section 148.
24. Coming back to the
facts of the present case, the ld. Additional CIT granted the approval by
observing merely that he was satisfied.
25. Sections 147 and
148 of the IT Act, it is trite, are charter to the Revenue to reopen completed
assessments. Section 151 of the Act provides a safe-guard that the sword of
section 147 of the Act may not be used unless the competent statutory officer
is satisfied that the AO has good and adequate reasons to invoke the reopening
provisions. As per the mandate of section 151 (2) of the Act, the Competent
Authority has to examine the reasons, material or grounds on which the
reopening is sought to be based and to judge as to whether they are sufficient
and adequate to the formation of the necessary belief of escapement of income
from taxation on the part of the AO. It is if and only if the Competent
Authority, after applying his mind, is of the opinion that the AO’s belief is
well reasoned and bonfide, that he will accord his sanction thereon.
26. In ‘Narayanappa’
(supra), it has been held that the stage for obtaining the sanction of the
Competent Authority is administrative in character and not quasi- judicial .
However, in ‘Chhugamal Rajpal vs. S.P. Chaliha’, 79 ITR 603 (SC) (supra), it
has been held that where the Commissioner, while granting the sanction just
noted the word “Yes” and affixed his signature thereunder, he had only mechanically
accorded permission, and that the important safe-guards provided in section 151
were lightly treated.
27. ‘Narayanappa’
(supra) is dated 27.09.1966, whereas ‘Chhugamal’ (supra) was handed down on
21.01.1971. Both these judgments have been rendered by co- equal Benches of the
Hon’ble Apex Court. Now, it is well settled that in such a situation, the
judgment of the Hon’ble Supreme Court, which is later in point of time has to
be followed.
28. Thus, in keeping
with the position of law on the issue, as discussed hereinabove, the approval
in the case at hand is clearly an approval granted without application of mind,
and therefore, it is not at all a legally tenable approval.
29. Accordingly, the
said approval and all proceedings pursuant thereto, culminating in the impugned
order are quashed. Nothing further survives for adjudication, nor was anything
else argued.
30. Hence, the appeal
is allowed.
31. In this appeal, the
assessee has challenged the levy of penalty of Rs.7,12,090/- imposed by the AO
on the assessee u/s 271(1)(c) of the Act and confirmed by the ld. CIT(A).
32. The genesis of the
penalty in question lies in the subject matter of ITA No. 238/Agra/2018, which
I have allowed, as above. Since the very basis of the levy of penalty, as such,
is no longer is existence, this penalty is deleted.
33. Thus, this appeal
is also allowed.
34. In the result, both
the appeals are allowed.
Order pronounced in the
open court on 19/06/2018.
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