Reopening of Assessment u/s 147 Invalid Due to Defective PCIT Approval: ITAT Quashes Entire Reassessment [Read Order]

The Ahmedabad Bench of the Income Tax Appellate Tribunal (ITAT) has held that reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961 are void ab initio when the mandatory approval of the Principal Commissioner of Income Tax is defective and based on erroneous facts, rendering the entire assessment unsustainable in law.

The appellant, Kanubhai Ramdas Patel, is a proprietor of Gujarat Agro Base Company. He appealed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for the assessment year 2012-13.

The assessee had filed his ITR declaring taxable income of ₹6.64 lakh along with exempt agricultural income of ₹4.12 lakh. He also claimed exemption under Section 10(38) on long-term capital gains arising from sale of shares. The case was reopened by the Assessing Officer based on information allegedly received, wherein the assessee was stated to be a beneficiary in the scrip of Dhwanil Chemicals Ltd.

During the reassessment, the Assessing Officer treated the long-term capital gains claimed by the assessee as bogus and made an addition of ₹26.80 lakh. There were further additions made towards alleged commission paid for accommodation entries and unexplained agricultural income. These additions were upheld by the CIT(A), leading to the appeal before the Tribunal.

Before the Tribunal, the assessee challenged the jurisdiction under Section 147, contending that the approval granted under Section 151 of the Act was erroneous. It was pointed out that while the reasons recorded referred to transactions in the shares of Dhwanil Chemicals Ltd., the approval granted by the Principal Commissioner referred to commodity trading transactions, revealing a clear non-application of mind.

The Tribunal, comprising Suchitra R. Kamble (Judicial Member), noted that the statutory requirement of proper approval by the Principal Commissioner was not fulfilled. As per her, there was an inconsistency in the annexure forming part of the approval, which posed a question mark on the jurisdiction assumed under Section 147.

In view of the defective approval and procedural lapses, the Tribunal held that the initiation of reassessment itself was bad in law. Consequently, the entire reassessment order, including additions made on account of alleged bogus long-term capital gains, commission expenses and agricultural income, was quashed.

The appeal filed by the assessee was accordingly allowed.

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