Common Order Without Satisfactorily Recording Concurrence With AO, Can't Be Considered As Valid Sanction U/s 151: Delhi High Court

Since the sanction order does not refer to the substantial material of any of the 111 cases, the High Court clarified that approval u/s 151 is a safeguard and must be meaningful and not merely ritualistic or formal.

As per Section 151 of the Income tax Act, no notice shall be issued u/s 148 after the expiry of eight years from the end of the relevant assessment year, unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice.

The Division Bench comprising of Justice Yashwant Varma and Justice Ravinder Dudeja observed that “the PCIT has failed to satisfactorily record its concurrence and by no stretch of imagination, the approval granted by common order, could be considered to be a valid approval”. (Para 20)

Facts of the case:

The petitioner/ assessee, an individual, had filed original return declaring income of Rs. 23,14,930/- which was later on revised to Rs. 26,64,930/-, and the same was processed u/s 143(1). Later the AO issued reopening notice and in response, the petitioner filed his return declaring income of Rs.26,64,930/-. However, again, a notice u/s 143(2) was issued based on information received from Insight portal and the petitioner was identified as one of the parties/entities who made financial transactions with BKR Capitals of Rs. 31,07,963/- to bring his unaccounted money/cash into his books of accounts to avoid tax during the relevant AY 2015-16.

The assessee objected to the reopening stating that it was based on incorrect facts. He pointed out that AO has overlooked the fact that assessee had obtained a loan of Rs. 45 lakhs from BKR Capitals for which interest amounting to Rs.1,19,959/- was also paid and the assessment for the said AY 2014-15 was completed u/s 143(3) after scrutiny. He also submitted that the said loan to the tune of Rs. 31,07,963/- was repaid in the year under consideration along with interest on which TDS was also deducted and therefore the reasons given were completely illegal, bad in law and baseless. Since the objections were disposed of, the assessee challenged the notice u/s 148 as wholly without jurisdiction, illegal, and barred by limitation, since it was issued without a valid sanction in terms of Section 151.

Observations of the High Court:

Referring to the provision of Section 151, the Bench observed that the prescribed authority must be “satisfied”, on the reasons recorded by the AO, that it is a fit case for the issuance of reopening notice u/s 148.

Thus, the Bench pointed that satisfaction of the prescribed authority is a sine qua non for a valid approval u/s 151.

The Bench therefore stated that grant of approval/sanction is neither an empty formality nor a mechanical exercise, and the Competent Authority must apply its mind independently based on the material placed before it, before granting sanction.

From perusal of the record, the Bench found that the proforma for seeking approval was placed before the Principal Commissioner, Income Tax along with a note of reasons for re-opening of assessment u/s 147 of the Act.

Therefore, while observing that the approval granted by PCIT for action u/s 147/148 is invalid, the High Court allowed Assessee's petition and quashed reopening proceedings.

Counsel for Petitioner/ Assessee: Advocates Salil Kapoor, Ananya Kapoor, Sumit Lalchandani and Utkarsh Gupta

Counsel for Respondent/ Revenue: Advocates Sanjay Kumar and Easha

Case Title: Vinod Kumar Solanki vs. ACIT

Citation: 2024 LiveLaw (Del) 910

Case Number: W.P.(C) 4196/2022

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