Re-Assessment is Invalid If Satisfaction recorded in Mechanical Manner without Application of Mind: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Chennai recorded re opening assessment as invalid on the ground that satisfaction was recorded in a mechanical manner without application of mind for issuing notice under Section 148 of the Income Tax Act, 1961.

The assessee, M/s. Rasi Seeds Pvt Ltd is engaged in the business of Research and Development of hybrid cotton seeds filed its return of income for the assessment year 2006- 07 on 27.11.2006 declaring a total income of Rs.11,88,99,130/- under normal computation and Rs.17,64,49,883/- u/s.115JB of the Income Tax Act, 1961.

The assessment has been completed under Section 143(3) of the Income Tax Act, 1961 on 23.12.2008 and determined a total income of Rs.11,92,02,577/-. A search and seizure operation u/s.132 of the Income Tax Act, 1961, was conducted on the premises of the assessee on 10.01.2013. The case has been subsequently reopened u/s.147 of the Income Tax Act, 1961, for the reasons recorded as per which income chargeable to tax had escaped assessment on account of inflation of expenses on the basis of incriminating materials found during the course of the search.

Therefore, notice u/s.148 was issued. In response to the notice, the assessee submitted that a return of income originally filed may be treated as a return filed in response to notice u/s.148 of the Income Tax Act, 1961.

The Counsel for the assessee, B Ramakrishnan challenged the validity of reassessment proceedings in light of provisions of section 151 of the Act in the context of approval required to be accorded from the CIT for initiating proceedings u/s.147 of the Income Tax Act, 1961.

According to the Counsel for the assessee, sanction accorded by the competent authority is mechanical and without any application of mind, because both the authorities have simply stated that ‘yes, we are satisfied, without clearly specifying how the reasonable belief of escapement of income formed by the Assessing Officer is having nexus with fresh tangible material and failure of the assessee to disclose fully and truly all material facts necessary for assessment.

The Bench consisting of V Durga Rao, Judicial Member, and G Manjunatha, Accountant Member observed that “Mere mentioning ‘Yes, I am satisfied’ is considered to be mechanical action, if learned CIT did not apply his mind on the issue of reopening of assessment without referring to reasons recorded by the Assessing Officer for reopening of assessment, contrary to provisions of section 151 of the Income Tax Act, 1961.”

“Recording satisfaction in a mechanical manner and without application of mind to accord sanction for issuing notice u/s.148 of the Act, reopening assessment was invalid,” The Tribunal said.

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