Expression “Yes” By PCIT Couldn't Be Considered A Valid Approval U/s 151 Of Income Tax Act: Delhi High Court

The Delhi High Court has held that the expression “yes” could not be considered to be a valid approval under Section 151 of the Income Tax Act.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that the satisfaction arrived at by the prescribed authority under Section 151 of the Income Tax Act must be clearly discernible from the expression used at the time of affixing its signature while according approval for reassessment under Section 148. The approval cannot be granted in a mechanical manner, as it acts as a linkage between the facts considered and 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.

The appellant/department has challenged the order passed by the Income Tax Appellate Tribunal (ITAT) for AY 2009-10, by which the ITAT, while ruling in favor of the respondent-assessee, The ITAT has held that the prescribed authority has granted approval under Section 151 of the Income Tax Act, 1961, in a mechanical manner.

The respondent-assessee filed its ITR, which was processed in accordance with Section 143(1). A search operation was carried out on the premises of Shriji Group entities, of which the respondent-assessee was one of the concerns. Pursuant to the search operation, reassessment proceedings were initiated against the respondent-assessee, and the AO held that the respondent-assessee had taken accommodation entry amounting to Rs. 4,79,00,000, which had escaped assessment. Upon recording “reasons to believe” by the concerned authority, a notice under Section 148 was duly issued to the respondent-assessee. Consequently, the respondent-assessee replied to the notice with a request to consider the ITR it originally filed as the one filed in response to the notice under Section 148.

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

The respondent-assessee preferred an appeal before the CIT (A), which was rejected.

The respondent-assessee challenged the order passed by the CIT (A) before the ITAT, by which the appeal of the respondent-assessee has been allowed. It was held that the AO initiated the reassessment proceedings on the basis of borrowed satisfaction and without any application of mind.

The department contended that the mandate of Section 151 requires the prescribed authority, while granting approval, to concur with the reasoning of the AO in the reasons recorded, or else the approval would be denied by the approving authority. Section 151 stipulates that the concurrence of the prescribed authority is a matter of subjective satisfaction of the concerned authority, and the rigor of the law is duly followed as soon as the approving authority provides its consent for the issuance of notice under Section 148 of the Act. The conditions envisaged in Section 151 remain satisfied until the wordings are unambiguous and cannot be mistaken for approval instead of rejection by the prescribed authority. It is only in cases where the prescribed authority differs from the reasoning assigned by the AO that it is required to record its reasons for disagreement.

The department contended that the ITAT has erroneously taken the view that the AO had acted upon borrowed satisfaction from the Investigation Wing without any independent application of mind. The “tangible information” for the purpose of reassessment contemplated under Section 147 of the Act would include “borrowed information,” and the same ought not to be mistaken with “borrowed satisfaction,” as there exists a striking distinction between the two concepts. The conclusion arrived at by the AO is based on its own satisfaction drawn from the information received from the Investigation Wing, and the same cannot be said to be borrowed satisfaction.

The assessee contended that, unlike mere mechanical approval, Section 151 of the Act requires sanction of the prescribed authority with a greater magnitude of consideration and analysis. While granting approval, merely appending the expression and recording “yes” cannot be said to fall within the domain of sanction as it does not indicate a due application of mind as contemplated under Section 151.

The court held that the PCIT has failed to satisfactorily record its concurrence. By no prudent stretch of imagination, the expression “yes” could be considered to be a valid approval.

Counsel For Petitioner: Sanjay Kumar

Counsel For Respondent: Sumit Lalchandani and Salil Kapoor

Case Title: The Pr. Commissioner Of Income Tax -7 Versus Pioneer Town Planners Pvt. Ltd.

Citation: 2024 LiveLaw (Del) 290

Case No.: ITA 91/2019

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