Appending phrase 'Yes' by PCIT is not valid approval u/s 151 of Income Tax Act: Delhi HC [Read Order]

In a significant ruling the Delhi High Court observed that appending phrase 'Yes' by the Principal Commissioner of Income Tax ( PCIT ) is not valid approval under Section 151 of the Income Tax Act, 1961.

The respondent-assessee filed its income tax return [“ITR”] which was processed in accordance with Section 143(1) of the Income Tax Act. Subsequently, a search operation was carried out and the AO held that the respondent-assessee has taken accommodation entry amounting to Rs.4,79,00,000/- which had escaped assessment. Upon recording of „reasons to believe‟ by the concerned authority, a notice under Section 148 of the Income Tax Act was duly issued to the respondent-assessee.

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 CIT (A) rejected the appeal filed by the assessee and before the Income Tax Appellate Tribunal (ITAT), the appeal was allowed and it has been held that the AO initiated the reassessment proceedings on the basis of borrowed satisfaction and without any application of mind.

The counsel appearing on behalf of the Revenue submits that the mandate of Section 151 of the Income Tax Act 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. According to him, Section 151 of the Income Tax Act stipulates that the concurrence of the prescribed authority is a matter of subjective satisfaction of the concerned authority and the rigour of law is duly followed as soon as the approving authority provides its consent for issuance of notice under Section 148 of the Income Tax Act.

The counsel for the assessee submitted that unlike a mere mechanical approval, Section 151 of the Income Tax Act requires sanction of the prescribed authority with a greater magnitude of consideration and analysis. According to him, 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 of the Income Tax Act.

Section 151 of the Income Tax Act 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 the issuance of such notice. Thus, the satisfaction of the prescribed authority is a sine qua non for a valid approval as per the said Section.

A Division Bench of Justices Yashwant Varma and Purushaindra Kumar Kaurav observed that “The said approval cannot be granted in a mechanical manner as it acts as a linkage between the facts considered and conclusion reached. In the instant case, merely appending the phrase “Yes” does not appropriately align with the mandate of Section 151 of the Income Tax Act as it fails to set out any degree of satisfaction, much less an unassailable satisfaction, for the said purpose.”

“Therefore, it is seen 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” the Bench noted.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates