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ITO-10 (1) (2) , Mumbai Versus IDM Agro Bio Tech Ltd. And Vice-Versa

2017 (12) TMI 611 - ITAT MUMBAI

Reopening of assessment - non compliance with section 151 - reasons to believe - Held that:- The reopening in this case lacks jurisdiction on twin counts. Firstly, the assessee has not been properly intimated about any such satisfaction/approval despite request in the objection to reopening filed before the Assessing Officer repeatedly. Secondly, in the remand proceedings before the ld. Commissioner of Income Tax (Appeals), a sanction/approval letter dated 30.03.2015 which is of the same date as .....

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been duly obtained as envisaged in the Act and as mandated in the case laws referred by the ld. Counsel of the assessee. In such situation, when the reopening proceedings vis-a-viz compliance with section 151 has not been duly met with, the reopening proceedings deserve to be declared as void-ab-initio and the same is declared void-ab-initio as such. - Decided in favour of assessee. - I.T.A. No. 5805/Mum/2017, C.O. No. 260/Mum/2017 And ITA No. 5805/Mum/2017 - Dated:- 4-12-2017 - SHRI SHAMIM YAHY .....

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e Act by solely relying on the retracted statement of Shri Pravin Kumar Jain, ignoring the fact that the same has been rebutted by DDIT Investigation)-II(2), Mumbai and also ignoring the statement of Shri Nilesh Parmar, a dummy director, having responsibility over accounts recorded u/s.131 wherein he has accepted that the lender companies were nothing but paper companies. 2 On the facts and circumstances of the case and in Law, the Ld.CITA) has erred in not considering the several case laws wher .....

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f ₹ 67,500/- computed by the Assessing Officer ignoring the fact that the same needs to be paid for obtaining the accommodation entries. 3. The grounds of appeal raised in the cross objection read as under: 1. The learned CIT(A) erred in dismissing the Ground of appeal regarding reopening of the assessment u/s. 147 by issue of notice u/s. 148 without any valid reason. 2. The learned A.O. passed an order u/s. 147 r.w.s. 143(3) which is illegal and bad in law. 4. Brief facts of the case are .....

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nami concerns operated by Shri Pravin Kumar Jain. As per the information, Shri Pravin Kumar Jain used to provide accommodation entries of different nature like unsecured loans, bogus share application money, etc. As per the assessment order, the details of unsecured loans availed from benami concerns by the assessee are as under:- Sr. No Name of the Concern Amount (Rs.) 1. M/s. Kush Hindustan Entertainment Ltd 30,00,000 2, Olive Overseas P Ltd (Realgold Trading Co P Ltd) 15,00,000 Total 45,00,00 .....

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count and acknowledgement of the said parties were produced. Various other documents were produced to establish the identity and creditworthiness of the said parties and genuineness of the transactions. However, Assessing Officer has not accepted the assessee's company contention, discussed all the issues at Para 3 of the assessment order and added the sum of ₹ 45,00,000/- as Unexplained Cash Credit under the head Income from Other Sources . He had further disallowed the interest and c .....

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red loans, bogus share application money and bogus sales (purchases for the beneficiaries) etc. Based on the findings of the search action and the statements of various persons covered under the search action, a report was forwarded by the DDIT(lnv.), which inter alia included a list of the entities controlled by Shri Praveen Kumar Jain and involved in providing bogus entries for loans, share application money and purchases, various statements stating the modus operand], list of beneficiaries wh .....

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viding accommodation entries. * During the search at various premises, which were shown by the assessee group, to be the place of operation and registered office addresses as per the Income Tax records, the official website of the Ministry of Corporate Affairs and bank documents, it was found that the entities were non5 existing at these addresses and no genuine business was being carried out at any of these premises. * Pre-search enquiries had revealed various persons shown to be the directors/ .....

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inesses being carried out by the concerns where they were directors/proprietors. 7. Thereafter, the Assessing Officer referred to the statement of directors of the so called dummy companies and the search conducted in their cases. Thereafter, the Assessing Officer referred to several case laws and concluded as under: After carefully going through the submissions of the assessee as well as the data / details / documents available on record, it becomes crystal clear that; (a) The primary onus is o .....

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ss of the transaction; and (d) Payment by account payee cheque is not sacrosanct. In view of the above discussion, it is evident that the identity and creditworthiness of M/s. Kush Hindustan Entertainment Ltd & Olive Overseas Private Limited, which is one of the benami concerns of Shri Praveen Kumar Jain, are not proved nor the genuineness of the transaction in the form of unsecured loan raised by the assessee company. The entire gamut of transactions shows that the funds of ₹ 45,00,00 .....

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isaged in Section 68 of the Income Tax Act, 1961 and accordingly the same is added to income of the assessee company under the head Income from other sources and the same is hereby held to be not eligible for any deduction there against. Penalty proceedings u/s.271(1)(c) of the Act are hereby initiated for furnishing inaccurate particulars of income / concealment of income, separately. 8. Further, the Assessing Officer disallowed the interest expenditure and commission expenses in this regard by .....

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the said bogus entity is also hereby held to be a sham transaction. The modus operand! of the business of Shri Praveen Kumar Jain, through his various entities, is that of providing accommodation entries under different forms viz. unsecured loans, share application money, purchases, sales etc. and to charge commission by Shri Praveen Kumar Jain ® 1.5% to 2% on the value of transactions. Here, in the instant case, the assessee has claimed to have obtained a sum of ₹ 45,00,000/- as ' .....

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o the parties against the payment & receipts made through banking channel. Thus, in the instant case, the purported expenditure claimed under the garb of interest & commission must have been received back by the assessee from the bogus entity of Shri Praveen Kumar Jain & as such the said expenditure cannot be allowed to the assessee. Accordingly, interest expenditure of ₹ 90.617/- and commission expenditure of ₹ 67,500/- are hereby disallowed and added back to income of t .....

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ls) confirmed the reopening by observing as under: The issues raised in the above ground challenges the re-opening of assessment proceedings. In this case, information is received from Investigation Wing of the Income Tax Department that a search and survey action was carried out in the case of Shri Praveen kumar Jain and his group on 01.10.13. The Search action resulted into collection of evidence and other findings which conclusively proved that the Pravin Jain through a web of concerns run an .....

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61 is not the only statement wheie he has divulged the details of the true nature of providing accommodation entries. Rather, at least three more statement u/s 131 of the IT Act, 1961 have been recorded by different officers, on different dates and different cases, where they have admitted that he through the various concerns run and operated by him is indulged in providing accommodation entries. From all these facts and information collected in this regard, it can be seen that the AO had a reas .....

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04.1989 financial year 1989-90 only condition before issue of notice u/s 148 is that AO should have reason to believe that income chargeable to tax has escaped assessment, irrespective of any failure of the part of assessee. It does not require that the very outset there should be an established factum of escapement. At the stage of issue of notice only question is whether the material prima facie shows escapement. Whether the material would conclusively prove the escapement, is not the concern .....

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ch letter is valid. AGR Investment Ltd vsAddl. CIT (Del) 333 ITR 146 Shafcnar Buucon P LW Vs ITO (ITAT. Jaipur) 136 TTJ 701 It is important to point out that there was no assessment or reassessment prior to issuance of notice u/s. 148. It is a settled legal proposition that in a case where, no assessment or reassessment prior to re-opening of the assessment, even if all the material facts are disclosed in the return of income already, reopening can be initiated if the AO has 'reason to belie .....

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nt, it can be said to have reason to believe that the income had escaped assessment, It is further observed by the Honorable Court that the word 'expression1 cannot be read to mean that the AO should have finally ascertained the facts by legal evidence or conclusion. At this stage, what is required is reason to believe, but not the established facts of escapement of income. At the stage of issuance of notice, the only question is where there was a relevant material on which a reasonable pers .....

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assessment within the meaning of section 147 of the Act. Thus, there was a cause or justification for the AO to invoke provisions of section 147 and issued notice u/s.148. As already mentioned, at the initiation stage, what is required to be seen is whether there are prima facie reasons to believe not the established fact of escapement of income. The AO also recorded proper reasons of formation of belief that income had escaped assessment. It is also important to note that the statement of vari .....

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t, it is clear that the Income tax Officer had applied his mind to the facts and, after prima facie satisfying himself of the existence of those two conditions precedent, reached the conclusion for reopening the assessment. It is settled law that, in an administrative action, though the order does not ex facie disclose the satisfaction by the officer of the necessary facts if the record discloses the same, the notice or the order does not per se become illegal. (emphasis supplied) A similar issu .....

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of the appellant in this case was rejected and it was held that when the AO merely seeks to verify the claim of the assessee, it is not akin to taking evidence behind the back of the assessee. The assessee also raised an objection that the sanction for the issuance of the notice was notice under section 149/151 of the IT Act 1961 was not obtained. I have called a remand report from the AO and the report so received prove that an approval has been obtained from the CIT for reopening of the asses .....

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ve the escapement is not the concern at the stage of issuance of the notice. I therefore hold that the AO was justified in reopening of the assessment u/s 147 of the Act. Therefore this ground of appeal is dismissed. 11. As regards the merits of the case, the ld. Commissioner of Income Tax (Appeals) deleted the addition by observing as under: The assessee had taken loan of ₹ 45,00,000 in AY 2008-09 from the following two parties - Kush Hindustan Entertainment Ltd. ₹ 30,00,000 and Rea .....

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opy of bank statements of the said parties (v) ITR copies and audited books of account for AY 2008-09 of the said parties (vi) Affidavits of one of the Directors of the Companies from whom loans have been taken during the year wherein the parties have affirmed the registered office address of the company, nature of business, registration number of the company with Registrar of Companies, CIN and PAN. They also have affirmed about the filing of Return of Income and loans granted to the assessee. .....

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ravin Kumar Jain and his associate companies was subsequent. The conclusion of the AO that the assessee company has not proved the genuineness of the transaction appears to be factually incorrect as all the evidencing documents were placed on record by the assessee company. The AO discharged his onus of establishing that the loans were not genuine by heavily relying on the statement given by Shri. Pravin Kumar Jain and his associates to the Department u/s. 132 which was retracted subsequently th .....

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es with the lender companies to establish the genuineness of the transaction. It is settled law that when there are two contradictory statement of a person, the retracting statement is to be accepted unless it is provided otherwise by bringing in corroborative evidences. The assessee has also contended that an opportunity of cross examination was not granted to the assessee. In case of CIT v. Ashish International, High Court of Bombay (ITA NO. 4299 of 2009), the Jurisdictional the Hon'ble Bo .....

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ssessee and without furnishing the copy thereof to the assessee or without giving an opportunity of cross-examination, if the addition is made, the same is required to be deleted on the ground of violation of the principles of natural justice. This is clearly stated by the Hon'ble Supreme Court in the case of Kishinchand Chellaram vs. CIT (supra) wherein it is stated that before the IT authorities could rely upon it, they were bound to produce it before the assessee so that the assessee coul .....

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ny opportunity for cross examination of Mukesh Choksi was provided. Various courts have held and reiterated the principle that where the assessee is not granted an opportunity of cross examination of the person whose statement has been relied upon during the course of assessment, which could have held the assessee to rebut the statements, the addition made basis the statement is not correct as there is a violation of the principle of natural justice. This principle has been settled time and agai .....

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as well as genuineness of the transaction, the onus now shifts on the AO. It is noted that the AO has not taken any steps to identify the creditworthiness of the lender companies as well as genuineness of the loan given. The AO has merely relied on the statements of Shri Praveen Kumar Jain ignoring the fact that the statement was later retracted by him. There is no investigation whatsoever made by the AO. No effort was made to obtain the evidence collected by the DGIT (Inv) and the conclusions .....

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CIT v. Orissa Corporation P. Ltd. [1986] 159 ITR 78 (SC), the Hon'ble Supreme Court held that once the primary onus of establishing the genuineness of the transaction is done by the assessee by furnishing the details like name, address, PAN. confirmation, copy of tax return, etc, it was the duty of the AO to verify the genuineness of these transactions by strictly enforcing the provisions of section 131 of the Act if at all those creditors were required to be produced before him. The entire .....

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ng the loans and no cash was deposited by the lender companies while granting the loans. I have also perused the decisions cited by the assessee in its submissions. The AO has not discharged his onus of rebutting the documents submitted by the assessee by recoursing to the means of initiating inquires with the lender parties or issuing summons and producing the party for cross examination or proving that the transaction was an adjustment entry and that the cash had exchanged hands. The assessee .....

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any facts of the matter. The facts in the case of M/s. KomalAgrotech Pvt. Ltd. Vs ITO Ward 2(1), ITA No. 37/HYD/2016, (Hyd) were as under - As per the Assessing Officer the entire sum was received from certain companies managed by one Mr. Praveen Kumar Jain who has admitted that this money was routed through bogus share applications. According to the Assessing Officer, the said sum of ₹ 75,00,000 represented the amounts received from shell Companies.' Therefore, the Assessing Officer h .....

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Mr. Praveen Kumar was not supplied. Nothing is on record about the result of investigations done by DGIT (Inv.), Mumbai. The papers filed by the assessee do demonstrate the identity, credit worthiness and genuineness of the transaction. The addition is made merely on surmises end conjectures. In view of the above discussion, The Tribunal held that the addition made under section 68 of the Act is in bad in law. Recently the Hon'ble Bombay High Court in the case of Gagandeep Infrastructure (P .....

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Parliament did not introduced to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or that it is 'declaratory'. Therefore, it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to section 68 is immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso. The Hon'ble Mumbai ITAT in cas .....

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ot refer the name of the appellant company as beneficiary and the loan was borrowed during financial year 2007-08 and repaid during 2008-09 and 2009-10 when Shri Praveen Jain was not associated with the investor company and also much before the search and seizure in case of Praveen Jain has taken place. The AO also failed to make any further inquiries with the lender companies to establish the genuineness of the transaction and also failed to consider the various evidences filed by the assessee .....

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nst the above order, the Revenue is in appeal before us regarding the addition on merits deleted by the ld. Commissioner of Income Tax (Appeals). 13. The assessee is aggrieved regarding the ld. Commissioner of Income Tax (Appeals) s upholding the reopening u/s. 147 of the Act. The ld. Counsel of the assessee submitted that the reopening in this case is bad in law. He submitted that there is no application of mind by the Assessing Officer. He submitted that no enquiry whatsoever has been done by .....

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ppellate proceedings before the ld. Commissioner of Income Tax (Appeals). The ld. Counsel of the assessee further submitted that all the necessary documentary evidences were furnished by the assessee. The ld. Counsel of the assessee referred to the several case laws including one from ITAT Hyderabad Bench in the case of M/s. Komal Agrotech Pvt. Ltd. vs. ITO (in ITA No. 437/Hyd/2016 dated 25.11.2016), wherein case of loan from the same lender companies as in the present assessee s case and in whi .....

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as not been provided with opportunity to cross examine the person whose statement is the basis of addition, the addition is not sustainable. For this proposition, he placed reliance upon the Hon ble Apex Court decision in the case of Andaman Timber Industries v. CCE [2015] 281 CTR 241 (SC). 14. Per contra, the ld. Departmental Representative relied upon the orders of the respective authority for supporting Revenue s stand. 15. She further submitted that if there is some lacunae Assessing Officer .....

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d u/s. 151(2) of the I. T. Act, 1961 in the Notice. Even though a specific objection was raised about the satisfaction of the higher authority the disposal of objection only states that sanction of issue of notice u/s. 149/151 of the I. T. Act, 1961. Whose satisfaction is obtained is not given and when obtained is nowhere mentioned, (see p. 179-182) However, when the matter reached to the CIT(A), the Learned CIT(A) called for a Remand Report. In the Remand Report, the Learned A.O. attached the l .....

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p. 182 para (v) wherein he states that the notice u/s. 148 was issued after considering the time limit and sanction of issue of notice u/s. 149/151 of the I. T. Act, 1961 . The Letter now produced does not show any satisfaction by the Jt. CIT. Particularly when the reasons are recorded on 30.03.2015 and the same day notice is issued and served on 31.03.2015. The sanction/ approval is also dt. 30.03.2015. Hence it is presumed that no required sanction/ satisfaction is obtained from the Higher aut .....

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the objection of the assessee, the Assessing Officer did not properly address this aspect. Further, the assessee has contended that when the ld. Commissioner of Income Tax (Appeals) called for remand report, a letter dated 30.12.2015 has been produced. From the contents of the said letter, it has been contended that the required sanction as per the law is not obtained. 18. Before proceeding further I may gainfully refer to the provision of section 151 which reads as under: Sanction for issue of .....

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relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Joint .....

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or reopening in this case which reads as under: Notice under Section 148 of the Income - Tax Act, 1961 Office of the WARD 10(1) (2), MUMBAI PAN: AA5CI7012C Dated : 30/03/2015 To M/s IDM Agro Bio Tech Ltd, A/45, Nandjyot Industrial Estate, Andheri Kurla road, Sakinaka, Speed Pool, Andheri (East), Mumbai - 400 072. Sir/Madam, 1. Whereas I have reasons to believe that your income chargeable to ax for the assessment year 2008-09 has escaped assessment within the waning of section 147 of the Income T .....

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you feel any difficulty in the matter of filing in the return, form or desire clarification on any other matter pertaining to your Income Tax liability, you may contact the : Public Relation Officer Income-Tax Officer, Ward - 10(1)(2) 2. The prescribed form in the case of companies is Form No. 1. In the case of assessee other than companies the prescribed form is ordinarily form No. 2. However, if the assessee has no income to declare other than what is chargeable under one or more of the heads; .....

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5, the assessee has while making the objection to the notice inter alia submitted as under: We further have to submit that it appears from the notice necessary sanction for the issue of notice as provided u/s. 151(2) of the Income Tax Act, 1961 has not been complied with. Section 151(2) provides In a case other than a case falling under sub section (1), no notice shall be issued u/s. 148 by the Assessing Officer, who is below the rank of Joint Commissioner after the expiry of 4 years from the en .....

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From the notice it appears that necessary sanction as required u/s 151(2) has not been obtained and therefore the notice issued by your good self is not valid and bad in law and is therefore to be cancelled and withdrawn. We may mention that para 3 of the notice states This notice is being issued after obtaining the necessary satisfaction of the Commissioner of Income Tax - the Central Board of Direct Taxes but this does not reveal that you have obtained any sanction as provided u/s. 151(2) and .....

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itting the objections to reopening, the assessee has inter alia mentioned as under: In this respect we humbly have to submit that as submitted by us vide our letters dated 09.04.2015 and 27.04.2015 (copies enclosed) we have requested your good self to give us the copy of the sanction obtained by you as provided u/s. 151(2) of the Act. however, we have not received the copy of such sanction obtained by you for the issuance of the notice u/s. 148 and hence it appears that necessary provisions of t .....

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reof. He has only addressed the issue by observing as under: The notice u/s. 148 was issue after considering the time limit and sanction of issue of notice u/s. 149/151 of the I. T. Act, 1961. The reason for reopening had already been provided vide this office letter dtd. 1.7.2005. 23. Thereafter, when the assessee raised this issue before the ld. Commissioner of Income Tax (Appeals), the ld. Commissioner of Income Tax (Appeals) asked for a report in this regard. The Assessing Officer gave a len .....

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roval letter dated 30.03.2015 has been produced which reads as under: No. JCIT Rg. 10(1)/approval for issue of notice/2014-15 Date:30.03.2015 To, The Income Tax Officer-10(1)(2), Mumbai. Sub: Administrative approval for issue of Notice u/s. 148 in the case of M/s. IDM Agro Bio Tech Ltd., A.Y. 2008-09 Ref: No. ITO-10(1)92)/148 Prop/2014-15 dated 30.03.2015 With reference to the above, sanction is herbey accorded u/s. 151(2) for issue of notice u/s. 148 of the Act in the above mentioned case for A .....

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ric Company P. Ltd. (supra), which read as under: 12. Hon'ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. Vs CIT 258 ITR 317 has held that the proviso to sub-section (1) of section!51of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, t .....

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e granted his approval, which was mandatory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer. The sa .....

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issioner is paramount for which it is expected from the Commissioner to apply his mind and exercise due diligence before according sanction to the reasons recorded by the Assessing Officer. 27. In the present case, I note that despite assessee s specific objection, the copy of the said approval and satisfaction or the details thereof was not submitted to the assessee by the Assessing Officer. The Assessing Officer blandly responded to the assessee s objection by stating that the notice u/s. 148 .....

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