“Yes” Doesn’t Alin with Mandate of Section 151 of IT Act for Granting approval for Reassessment – Delhi HC

The Principal Commissioner of Income Tax – 7 vs M/S Pioneer Town Planners Pvt Ltd  

Instant appeal at the instance of the Revenue impugns the order dated 06.08.2018 passed by the Income Tax Appellate Tribunal [“ITAT”] for Assessment Year [“AY”] 2009-10, whereby, the ITAT, while ruling in favour of the respondent-assessee, has held that the prescribed authority has granted approval under Section 151 of the Income Tax Act, 1961 [“Act”] in a mechanical manner.

The facts of the present case manifest that on 30.09.2010, the respondent-assessee filed its income tax return [“ITR”] which was processed in accordance with Section 143(1) of the Act. Subsequently, a search operation was carried out in the premises of Shriji Group entities, of which the respondent-assessee was one of the concerns. Pursuant to the said search operation, reassessment proceedings were initiated against the respondent-assessee, whereby, the AO held that the respondent-assessee has taken accommodation entry amounting to Rs.4,79,00,000/- which had escaped assessment and a notice under Section
148 of the Act was duly issued to the respondent-assessee.

In response, the assessee requested the Assessing Officer (AO) to consider the original return of income as return filed in response to the notice under section 148. The AO completed the assessment by adding to the assessee’s income on account of unexplained share premiums and commission for accommodation entries.

Thereafter, in accordance with the provisions encapsulated under Section 143(3) read with Section 147 of the Act, a reassessment order was framed by the AO by making additions on account of unexplained (i) share premium and (ii) expenditure of commission for accommodation entries. The total taxable value determined by the AO amounted to Rs.10,80,47,000/-.

Said responded – assessee’s appeal got rejected by Commissioner of Income Tax – (Appeals). Respondent – assessee challenged said order passed by CIT (A) before the ITAT which was in favour of assessee stating that  that prescribed authority had granted approval under Section 151 in a mechanical manner and Revenue challenged said order with Delhi High Court. 

The Delhi High Court held that the satisfaction of the AO is a sine qua non for a valid approval by the higher authorities under Section 151. The section stipulates that the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner must be “satisfied” on the reasons recorded by the AO that it is a fit case for issuing such notice.

In the instant case, the Principal Commissioner of Income Tax (PCIT) merely wrote “Yes” without specifically noting his approval while recording the satisfaction that it is a fit case for issuing notice under Section 148. The satisfaction arrived at by the PCIT must be clearly discernible from the expression used when affixing its signature, according to approval for reassessment under Section 148.

The approval cannot be granted mechanically as it links the facts considered to the conclusion reached. Merely appending the phrase “Yes” does not appropriately align with the mandate of Section 151 as it fails to set out any degree of satisfaction, much less an unassailable satisfaction, for the said purpose. The approval in the instant case is akin to the rubber stamping of “Yes”.