Delhi High Court: The present appeal challenged the order dated 6-8-2018 passed by the Income Tax Appellate Tribunal (‘ITAT’) for Assessment Year (‘AY’) 2009-2010, whereby, the ITAT, while ruling in favour of respondent, had held that the prescribed authority had granted approval under Section 151 of the Income Tax Act, 1961 (‘the Act’) in a mechanical manner. The Division Bench of Yashwant Varma and Purushaindra Kumar Kaurav, JJ., opined that merely appending the phrase “Yes” did not appropriately align with the mandate of Section 151 of the Act as it failed to set out any degree of satisfaction. The Court held that the Principal Commissioner of Income-Tax (‘PCIT’) failed to satisfactorily record its concurrence and by no prudent stretch of imagination, the expression “Yes” could be a valid approval.
Background
On 30-9-2010, respondent filed its Income Tax Return (‘ITR’) which was processed in accordance with Section 143(1) of the Act. Subsequently, a search operation was carried out in the premises of Shriji Group entities and pursuant to the said search operation, reassessment proceedings were initiated against respondent, whereby, the Assessing Officer (‘AO’) held that respondent had taken accommodation entry amounting to Rs 4,79,00,000, which had escaped assessment. Upon recording of ‘reasons to believe’ by the authority concerned, a notice under Section 148 of the Act was duly issued to respondent. Consequently, respondent replied to the said notice with a request to consider the ITR it originally filed as the one filed in response to the notice under Section 148 of the Act.
Thereafter, in accordance with Section 143(3) read with Section 147 of the Act, a reassessment order was framed by the AO by making additions on account of unexplained (a) share premium, and (b) expenditure of commission for accommodation entries. The total taxable value determined by the AO amounted to Rs 10,80,47,000. Being aggrieved by the said order, respondent preferred an appeal before the Commissioner of Income Tax (Appeals) (‘CIT(A)’). However, the same was rejected vide order dated 18-9-2017. Respondent challenged the order passed by the CIT(A) before the ITAT, whereby, the appeal of respondent was allowed, and it was held that the AO initiated the reassessment proceedings based on borrowed satisfaction and without any application of mind.
Analysis, Law, and Decision
The Court noted that Section 151 of the Act stipulated that the Principal Chief Commissioner/Chief Commissioner/Principal Commissioner/Commissioner must be “satisfied”, on the reasons recorded by the AO, that it was a fit case for the issuance of such notice. Thus, the satisfaction of the prescribed authority was a sine qua non for valid approval as per the said Section.
The Court observed that though the ACIT had appended his signatures by writing in his hand “Yes, I am satisfied”, however, the PCIT had merely written “Yes” without specifically noting his approval, while recording the satisfaction that it was a fit case for issuance of notice under Section 148 of the Act.
The issue for consideration before this Court was “whether simply penning down ‘Yes’ would suffice requisite satisfaction as per Section 151 of the Act?”.
The Court relied on Principal CIT v. N. C. Cables Ltd., (2017) 391 ITR 11, wherein the usage of the expression “approved” was considered to be merely ritualistic and formal rather than meaningful. The Court also relied on Central India Electric Supply Co. Ltd. v. ITO, (2011) 333 ITR 237 (‘Central India Electric Supply Co. Ltd. Case’), wherein it was opined that merely rubber stamping of “Yes” would suggest that the decision was taken in a mechanical manner. The Court further relied on Chhugamal Rajpal v. S.P. Chaliha, (1971) 1 SCC 453, wherein the Supreme Court refused to consider the affixing of signature along with the noting “Yes” as valid approval.
The Court thus opined that “the satisfaction arrived at by the prescribed authority under Section 151 of the Act must be clearly discernible from the expression used at the time of affixing its signature while according approval for reassessment under Section 148 of the Act. The said approval could not be granted in a mechanical manner as it acted as a linkage between the facts considered and conclusion reached”.
The Court opined that in the present case, merely appending the phrase “Yes” did not appropriately align with the mandate of Section 151 of the Act as it failed to set out any degree of satisfaction, much less an unassailable satisfaction, for the said purpose. The Court held that the PCIT failed to satisfactorily record its concurrence and by no prudent stretch of imagination, the expression “Yes” could be a valid approval. In fact, the approval in the present case was akin to the rubber stamping of “Yes” in Central India Electric Supply Case (supra). Thus, the Court did not find any reason to interfere with ITAT’s decision.
[Principal CIT-7 v. Pioneer Town Planners (P) Ltd., 2024 SCC OnLine Del 1685, Order dated 20-2-2024]
Advocates who appeared in this case :
For the Appellant: Sanjay Kumar, Senior SC
For the Respondent: Sumit Lalchandani, Salil Kapoor, Advocates
