Word 'Approved' By PCCIT For Reopening Of Assessment Not Enough, Reasons Necessary, Delhi High Court

The Delhi High Court has held that mere appending of the word “approved” by the PCCIT while granting approval under Section 151 of the Income Tax Act to the reopening under Section 148 is not enough.

The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that while the Principal Chief Commissioner of Income Tax (PCCIT) is not required to record elaborate reasons, he has to record satisfaction after application of mind. The approval is a safeguard and has to be meaningful and not merely ritualistic or formal. The reasons are the link between material placed on record and the conclusion reached by the authority in respect of an issue, since they help in discerning the manner in which the conclusion is reached by the concerned authority.

The petitioner/assessee filed a return of income, declaring Rs. 7,69,73,060 as total income. A notice under Section 142(1) of the Income Tax Act, 1961, was issued during the scrutiny assessment, seeking details and inputs on loan transactions. The petitioner submitted its response duly, furnishing all the details, including confirmation of unsecured loans.

The Show Cause Notice was issued under Section 148A(b), proposing the reopening of the case of the petitioner under Section 148 for the Assessment Year 2016–17.

The order was passed under Section 148A(d), treating the case as fit for reopening under Section 148 and quantifying the income escaping assessment at Rs. 3,15,09,010/- for the subject year 2016–17.

The reassessment order passed under Section 148A(d) of the Act and the notice under Section 148 were issued on March 20, 2023.

The petitioner has filed the petition challenging the notice under 148A as well as the order passed under Section 148A(d). The petitioner has also laid a challenge to the grant of sanction under Section 151.

The petitioner has challenged the grant of sanction under Section 151, stating that it has been granted mechanically and without due application of mind. Therefore, the grant of sanction is liable to be declared nullity and invalid, and the order passed under Section 148A(d) and the notice under Section 148 issued consequent to the grant of sanction are liable to be quashed.

The department contended that the approval has been granted based upon the material placed before PCCIT. The order granting approval need not mention the reasons as the same is based on a prima facie finding arrived at from the record.

The court noted that the grant of approval is neither an empty formality nor a mechanical exercise. The Competent Authority must apply its mind independently on the basis of material placed before it before grant of sanction.

The court, while disposing of the petition, held that the PCCIT has failed to satisfactorily record its concurrence. By no stretch of imagination, the mere use of the expression “approval” could be considered to be a valid approval, as the same does not reflect any independent application of mind. A grant of approval in such a manner is flawed by law.

Counsel For Petitioner: Kapil Goel

Counsel For Respondent: Aseem Chawla

Case Title: SBC Minerals Pvt. Ltd. Versus Assistant Commissioner Of Income Tax

Citation: 2024 LiveLaw (Del) 920

Case No.: W.P.(C) 7885/2023 & CM APPL. 30359/2023 (Stay)

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