In ITA No.1942/Del/2020 – ITAT- Section 151 of the Income Tax Act requires competent authority to apply mind for reassessment notice,  mere appending of the expression 'approved' not sufficient: ITAT (Delhi)
Member Chandra Mohan Garg (Judicial) [26-05-2023]

Read Order: Strategic Manufactures India LLP v. ITO

Chahat Varma

New Delhi, May 27, 2023: The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that the exercise of approving powers under section 151 of the Income Tax Act in the present case was merely a formal and ritualistic process. The Tribunal held that the approving authority failed to apply their mind to the material presented by the Assessing Officer (AO), rendering the notice issued under section 148 of the Income Tax Act without valid approval, as well as all subsequent reassessment and first appellate orders, not legally sustainable.

In the present case, the Strategic Manufactures India LLP (assessee) argued that the initiation of reassessment proceedings in the case was bad in law and should be quashed. They pointed out that the prescribed conditions and procedures under the law have not been met. They further contended that the AO relied solely on information from the Investigation Wing Kolkata without independent application of mind, rendering the reassessment order invalid. The asessees emphasized that the reasons for reopening the assessment were vague and inconsistent with the facts on record. They also highlighted that the AO failed to ascertain the true nature of the transaction, whether it was unsecured loans, advance, or share application money, indicating a lack of due diligence. Additionally, they argued that the notice issued under section 148 of the Income Tax Act was invalid as it was not accompanied by proper approval from the competent authority as required by section 151 of the Act.

The Tribunal observed that the AO had obtained the approval of JCIT Range-38, New Delhi before issuing the notice under section 148 of the Income Tax Act. Therefore, the contention that the approval was not obtained was unfounded. However, after further review, the Tribunal noted that the approving authority, had granted approval by simply writing the word ‘approved’.

The bench referred to the case of Pr. Commissioner of Income Tax v. M/s. N.C. Cables Ltd. [LQ/DelHC/2017/80], wherein the High Court of Delhi had held that section 151 of the Income Tax Act requires the Competent Authority, i.e., the CIT(A), to apply his mind and form an opinion when authorizing a reassessment notice. The mere appending of the expression 'approved' says nothing. The High Court held that it was not as if the CIT(A) had to record elaborate reasons for agreeing with the noting put up, but, at the same time, satisfaction had to be recorded of the given case which can be reflected in the briefest possible manner.