Quashing of Reassessment Proceedings: Legal Grounds and Impact on Penalty
In a recent case, the appeals in ITA No. 1413 & 435/Del/2023 for the assessment year (AY) 2016-17 were filed against the order of the Commissioner of Income Tax (Appeals)-29, New Delhi (CIT(A)), concerning the reassessment order passed under sections 147/148 of the Income-tax Act, 1961. The original order of assessment was issued by the Assessing Officer (AO) on 8th December 2019, after reopening the case based on a search and seizure action.
Facts of the Case
The assessee had filed its return of income on 30th September 2016 for AY 2016-17, declaring a total income of Rs. 81,12,900, which was processed under section 143(1) of the Act, accepting the return as filed. However, following a search operation under section 132(1) of the Act on the group associated with Shri Anand Jain and Shri Naresh Jain on 17th December 2015, the AO decided to reopen the assessment. A notice under section 148 of the Act was issued on 13th March 2019 to reassess the income.
Issue with Reopening
The main issue in this case revolves around the validity of the reopening under section 147 of the Income Tax Act. The assessee raised several grounds challenging the assumption of jurisdiction for reopening the assessment. After reviewing the case, the tribunal focused on the manner in which approval under section 151 of the Act was granted. The approval provided by the Additional CIT, Central Circle-7, New Delhi, merely stated he is satisfied that this is fit case for reopening. This sort of approval granted u/s 151 of the Act was held to be approval granted without application of mind and construed as mechanical.
Judicial Precedents
The tribunal referred to the ruling by the Hon’ble Madhya Pradesh High Court in CIT Vs. S. Goyenka Lime and Chemicals Ltd (56 taxmann.com 390), where a similar issue was raised. The court held that such mechanical approval, without proper application of mind, rendered the reassessment invalid. The Supreme Court had dismissed the Special Leave Petition (SLP) filed by the revenue, thereby upholding the high court’s decision. Similarly, the Delhi High Court in PCIT Vs. NC Cables Ltd (391 ITR 11) also held that approval granted in such a manner is insufficient and considered a mechanical process.
Conclusion: Reassessment Quashed
In light of these judicial precedents, the tribunal concluded that the reopening in the present case was done without proper approval from the competent authority, as required under section 151 of the Act. Consequently, the entire reassessment proceedings were quashed. Since the reassessment was invalidated, the tribunal did not need to address the other grounds raised by the assessee on merits.
Impact on Penalty Appeal
Additionally, the appeal in ITA No. 1413/Del/2021, which challenged the levy of penalty under section 271(1)(c) of the Act, was also rendered moot. Since the original assessment had been quashed due to the invalid reopening, there was no basis for the penalty to stand.
Final Outcome
As a result, the legal grounds raised by the assessee regarding the validity of the jurisdiction under section 147 of the Act were allowed, and the reassessment proceedings were quashed. The appeal on the merits, along with the penalty proceedings, were left unresolved. This case highlights the importance of a valid and reasoned approval process in reassessment cases and the implications of mechanical approvals.
