2015 (5) TMI 217 - HC - Income Tax

Reopening of assessment - Commissioner quashed the notice under section 148 also upheld by ITAT AS action for sanction by JCIT was without application of mind and as this was done in a mechanical manner - Held that - While according sanction the Joint Commissioner Income Tax has only recorded so Yes I am satisfied . If the case in hand is analysed on the basis of the principle laid down in case of Arjun Singh 1998 (11) TMI 26 - MADHYA PRADESH High Court 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. As far as explanation to Section 151 brought into force by Finance Act 2008 is concerned the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so the said amended provision does not help the revenue - Decided against revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the notice issued under section 148 of the Income Tax Act, 1961, for reopening assessment after a search and block assessment, was validly sanctioned by the Joint Commissioner of Income Tax?

- Whether the Joint Commissioner's satisfaction recorded for sanctioning the issuance of notice under section 148 was a mere mechanical act without application of mind, thereby rendering the notice invalid?

- Whether the Explanation to section 151 of the Income Tax Act, inserted retrospectively by the Finance Act, 2008, affects the requirement of the manner in which the Joint Commissioner records satisfaction for sanctioning issuance of notice under section 148?

- Whether the procedure of issuing notice under section 148 to reopen block assessment is sustainable in law?

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of sanction for issuing notice under section 148

The legal framework mandates that reopening of assessment under section 148 requires prior sanction from the prescribed authority, here the Joint Commissioner of Income Tax. The sanction must be based on objective satisfaction recorded on relevant material. The Court referred to the precedent laid down in Arjun Singh Vs. Assistant Director of Income Tax, where it was held that mere mechanical recording of satisfaction without application of mind is impermissible.

The Court examined the facts and found that the Joint Commissioner's recorded satisfaction was a mere statement, "Yes, I am satisfied," without any elaboration or indication of objective application of mind. The sanction was accorded within 24 hours, indicating a mechanical act rather than a reasoned decision.

Accordingly, the Court concurred with the lower appellate authorities that the sanction was invalid due to lack of proper application of mind, rendering the notice under section 148 unsustainable.

Issue 2: Effect of Explanation to section 151 (Finance Act, 2008) on the sanction requirement

The Explanation to section 151, inserted retrospectively from 1.10.1998, clarifies procedural aspects relating to issuance of notice under the Act. The appellants contended that this amendment and the related departmental Circular dated 7.3.2009 limit the Joint Commissioner's role to being satisfied with the reasons recorded by the Assessing Officer, without requiring independent issuance of notice or detailed satisfaction.

The Court analyzed the scope of this Explanation and held that it pertains only to the issuance of notice and does not alter the fundamental requirement that the sanctioning authority must apply mind and record satisfaction objectively. Therefore, the Explanation does not validate a mechanical or non-application of mind sanction.

Issue 3: Jurisdiction to reopen block assessment by issuing notice under section 148

The respondents relied on a Gujarat High Court decision holding that reopening of block assessment by notice under section 148 is not permissible. However, this issue was not the primary focus of the Court's reasoning in this judgment, which centered on the validity of sanction.

The Court did not expressly overrule or accept this contention but emphasized that the procedural requirement of valid sanction remains paramount irrespective of the nature of assessment proceedings.

3. SIGNIFICANT HOLDINGS

"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."

This principle was applied to hold that a mechanical recording of satisfaction without application of mind is legally impermissible and vitiates the sanction required for reopening assessments under section 148.

The Court further held that the Explanation to section 151 (Finance Act, 2008) does not affect the requirement of objective satisfaction by the sanctioning authority.

Consequently, the Court upheld the concurrent findings of the Commissioner (Appeals) and the Income Tax Appellate Tribunal that the notice under section 148 was invalidly issued due to defective sanction and dismissed the appeals.