PCIT’s Approval of Reassessment Notice by Merely Writing ‘Yes, I am Satisfied’ Is Not Valid | HC

Case Details: Capital Broadways (P.) Ltd. vs. Income Tax Officer Ward 5(3) Delhi - [2024] 167 taxmann.com 533 (Delhi)[03-10-2024]

Judiciary and Counsel Details

• Yashwant Varma & Ravinder Dudeja, JJ.
• P. Roychaudhuri & Gagan Gupta, Advs. for the Petitioner.
• Gaurav Gupta, SSC, Shivendra Singh, Yojit Pareek & Namit Gupta, Advs. for the Respondent.

Facts of the Case

The assessee filed its return of income, which was processed under section 143(1), but no assessment order was passed. Subsequently, information was received from the Department’s Investigation Wing about money laundering operations. The information contained in the report through their paper companies had provided accommodation entries to various beneficiaries. The assessee was also one of the beneficiaries of the accommodation entries received through three paper companies. Consequently, the impugned notice under section 148 was issued upon the assessee.

The assessee observed that the Principal Commissioner, who was the competent authority, had granted sanction without applying mind by merely endorsing his signatures on the file in a routine and mechanical manner by simply writing, ”I am satisfied.”

The aggrieved-assessee filed an instant writ petition before the Delhi High Court.

High Court Held

The High Court held that Section 151(1) categorically provides that no notice shall be issued under Section 148 by the Assessing Officer (AO) after the expiry of the period of four years from the end of the relevant assessment year unless the Principal Chief Commissioner or Commissioner or Principal Commissioner or Commissioner is satisfied on the reasons recorded by the AO that it is a fit case for the issue of such notice.

In the present case, since reopening was beyond four years, it was for the Principal Commissioner to record satisfaction for reopening the assessment. The prescribed authority referred to in section 151 must be ”satisfied” on the reasons recorded by the AO that it is a fit case for the issuance of such notice. Therefore, the satisfaction of the prescribed authority was a sine qua non for a valid approval. The competent authority must apply its mind independently based on the material placed before it before granting the sanction.

It was noted that the request for approval under section 151 in a printed format was placed before the Assistant Commissioner, who, according to his satisfaction, put the same before the Principal Commissioner. The Principal Commissioner approved it on the very same day. The satisfaction arrived at by the concerned Officer should be discernible from the sanction order passed under section 151. However, in the instant case, the approval order was bereft of any reason. There was no whisper of any material that may have weighed for the grant of approval.

Even the bare minimum requirement of the approving authority having to indicate what the thought process was, was missing in the approval order. While elaborate reasons were not given, at least there had to be some indication that the approving authority has examined the material prior to granting approval.

Mere appending the expression ‘Yes, I am satisfied’ says nothing. The entire exercise appeared to have been ritualistic and formal rather than meaningful, which should be the rationale for safeguarding an approval by a high ranking official. 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 concerned authority reaches the conclusion.

Mere repetition of the statute’s words, mere rubber stamping of the letter seeking sanction, or using similar words like ‘Yes, I am satisfied’ will not satisfy the law’s requirement. Hence, the approval granted by the Principal Commissioner for issuance of notice under section 148 is not valid, and therefore, the impugned notice under section 148 cannot be sustained.

List of Cases Reviewed

• Yum! Restaurants Asia Pte. Ltd. v. Deputy Director of Income Tax [2017] 397 ITR 665 (Delhi) (para 10)
• Pioneer Town Planners Pvt. Ltd. [2024] SCC Online Del 1685 (para 15)
• CIT Jabalpur v. S. Goyanka Lime & Chemicals Ltd. [2012] 20 taxmann.com 233/208 Taxman 1 (Mag.)/346 ITR 1 (MP) (para 18) [2015] 64 taxman.com 313 (SC) (para 19) followed.
• Commissioner of Income Tax-6 v. Meenakshi Overseas Pvt. Ltd. [2015] 231 Taxman 1/55 taxmann.com 1 (Delhi) (para 16) distinguished.

List of Cases Referred to

• Yum! Restaurants Asia Pte Ltd. v. Deputy DIT (No. 2) [2018] 99 taxmann.com 457/[2017] 397 ITR 665 (Delhi) (para 11).