2023 (1) TMI 472 - AT - Income Tax

Validity of Reopening of assessment u/s 147 - appropriate sanction u/s 151 - unexplained receipt of loan - as argued approval granted by the Ld. Additional CIT u/s 151 of the Act is not proper and without application of mind - HELD THAT - AO has after recording reason to believe sent a letter in specified format before additional commissioner for sanction of reopening as per the provision of section 151 of the Actwhich was approved by the ACIT by noting yes . However on perusal of such approval request letter we find that such request was with regard to general scrutiny under section 143(3) of the Act and not under the income escapement proceeding under section 147/148. There was no approval u/s 151 for issuance of notice under section 148 of the Act for income escapement assessment. Therefore the notice issued under section 148 of the Act without having proper approval of higher authority is invalid notice and jurisdiction assumed by the AO for making assessment on the basis of such notice under section 147 of the Act is invalid. Thus the jurisdiction assumed by the AO is not tenable in the eyes of law. If authority was vested with power to approve the initiation of proceeding against the assessee in certain circumstances therefore he/she is expected to verify the detail after application of mind in order to reach to the conclusion that such detail and information is fit enough for initiating of reassessment proceeding - If discretion is exercised under the direction or in compliance with some higher authorities instruction then it will be a case of failure to exercise discretion altogether. In the given case what inferred is this that the learned Additional commissioner noted yes on approval letter without any verification and application of mind. Thus we hold that the initiation of proceedings under section 147/148 of the Act are not valid in the eyes of law and liable to be quashed. Accordingly we quash the same. Hence the technical grounds of appeal of the assessee are hereby allowed.

Summary

Issues:
1. Validity of reassessment under Section 147 r.w.s. 143(3) of the Income Tax Act, 1961.
2. Approval granted by the Additional CIT under Section 151 of the Act.
3. Jurisdiction of the Assessing Officer in initiating income escapement proceedings.

Issue 1: Validity of reassessment under Section 147 r.w.s. 143(3) of the Income Tax Act, 1961:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) confirming the action of the Assessing Officer in issuing a notice of reassessment under Section 148. The appellant contended that the reassessment was made disregarding facts and law, and requested its set aside. The Assessing Officer had issued a notice for reassessment based on unexplained credit of a loan, which the appellant argued was already examined during the original assessment under Section 143(3) and found genuine. The appellant objected to the reassessment, stating it amounted to a review of the original order. Despite the objection, the Assessing Officer proceeded with the reassessment, leading to the appeal.

Issue 2: Approval granted by the Additional CIT under Section 151 of the Act:
The Assessing Officer, before issuing the notice under Section 148, was required to obtain approval under Section 151 of the Act from the Principal Commissioner of Income Tax (PCIT) or Commissioner of Income Tax (CIT). The appellant argued that the approval granted for general scrutiny assessment did not align with the income escapement proceedings initiated. The approval request and the subsequent approval were specifically for general scrutiny under Section 143(3) and not for income escapement proceedings under Section 147/148. This lack of proper approval rendered the notice under Section 148 invalid, questioning the jurisdiction assumed by the Assessing Officer for the reassessment.

Issue 3: Jurisdiction of the Assessing Officer in initiating income escapement proceedings:
The Tribunal noted that the Assessing Officer, after forming a reason to believe income had escaped assessment, had obtained approval for general scrutiny assessment rather than for income escapement proceedings. This discrepancy in approval led to the conclusion that the jurisdiction assumed by the Assessing Officer for the reassessment was not valid in the eyes of the law. The Tribunal emphasized the importance of proper approval under Section 151 of the Act and highlighted the need for the authority granting approval to exercise discretion independently without external influence.

In conclusion, the Tribunal held that the initiation of proceedings under Section 147/148 of the Act was not valid due to the lack of proper approval for income escapement assessment. Consequently, the reassessment was deemed invalid, and the appeal of the assessee on technical grounds was allowed. As a result, the Tribunal refrained from giving a finding on the merits of the case, dismissing the grounds of appeal on merit as infructuous. The appeal filed by the assessee was partly allowed, and the assessment under Section 147 r.w.s. 143(3) of the Act was quashed.