Delhi HC Sets Aside ITAT Order, Holds "Fit Case" Statement Sufficient for Valid Approval u/s 151 of Income Tax Act [Read Order]

In a recent ruling, the Delhi High Court set aside an Income Tax Appellate Tribunal (ITAT) order, holding that a statement recording "it is a fit case" is sufficient for a valid approval under Section 151 of the Income Tax Act.

The Principal Commissioner of Income Tax-1 filed the appeal against the ITAT's order which had quashed reassessment proceedings against M/S Agroha FinCap Ltd. for the Assessment Year 2009-10. The reassessment was initiated based on information from a search operation, suggesting the assessee had received accommodation entries of Rs. 25,00,000/- from the S.K. Jain group.

The Assessing Officer had added the amount as unexplained credit under Section 68 of the Act. The assessee's appeals were dismissed up to the National Faceless Appeal Centre. However, the ITAT allowed the appeal, primarily on the ground that the approval granted by the Principal Commissioner under Section 151 was invalid.

The ITAT held that the approval, which stated "Yes, I am convinced it is a fit case for re-opening of assessment", was mechanical and ritualistic, following the Delhi High Court's decision in N.C. Cables Ltd. The Revenue argued that the ITAT erred, contending that the language used in the approval was sufficient and distinguishable from the N.C. Cables case, which dealt with a mere 'approved' endorsement.

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The Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar distinguished its own precedent in N.C. Cables Ltd., explaining that case dealt with the insufficiency of the single word 'approved'. The Court observed that the present approval, which explicitly stated "Yes, I am convinced it is a fit case for re-opening of the assessment u/s 147 by issuing notice u/s 148", satisfied the mandate of Section 151.

The Court reiterated its position from PCIT v. Meenakshi Overseas Pvt. Ltd., holding that such a statement reflects the required satisfaction "in the briefest possible manner". Consequently, the Court found that the ITAT had erred in not appreciating the specific language used by the competent authority.

Accordingly, the Delhi High Court set aside the impugned ITAT order and allowed the appeal. The substantial question of law was decided in favor of the Revenue and against the assessee.

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