The Delhi High Court has ruled that simply appending the word “approved” by the PCCIT when granting approval under Section 151 of the Income Tax Act is insufficient for reopening under Section 148 of the Income Tax Act.
In the case at hand, the petitioner declared an income of Rs. 7,69,73,060. During scrutiny assessment, a notice was issued under Section 142(1) of the Income Tax Act, 1961, requesting details on loan transactions. The petitioner responded, providing all necessary details, including confirmations of unsecured loans.
Subsequently, a Show Cause Notice was issued under Section 148A(b), proposing to reopen the petitioner’s case for the Assessment Year 2016–17 under Section 148.
Get a Copy of Income Tax Rules with FREE e-book access, Click here
The reassessment order was passed under Section 148A(d), deeming the case fit for reopening under Section 148, and estimated the income escaping assessment at Rs. 3,15,09,010 for the year 2016–17.
On March 20, 2023, the reassessment order and the notice under Section 148 were issued.
The petitioner challenged both the notice under Section 148A and the order under Section 148A(d), arguing that the sanction granted under Section 151 was done mechanically and without proper application of mind. Therefore, the petitioner sought to have the sanction declared null and void, and the order under Section 148A(d) and the subsequent notice under Section 148 quashed.
Get a Copy of Income Tax Rules with FREE e-book access, Click here
The department argued that the approval was based on the material presented to the PCCIT and that the order granting approval did not need to include detailed reasons since it was based on a preliminary finding from the record.
The Delhi High Court observed that granting approval is not a mere formality or a mechanical process. The Competent Authority must independently apply its mind to the material before it when granting sanction.
Get a Copy of Income Tax Rules with FREE e-book access, Click here
The Division Bench comprising Justice Yashwant Varma and Justice Ravinder Dudeja emphasised that while the Principal Chief Commissioner of Income Tax (PCCIT) is not required to provide detailed reasons, there must be a satisfaction recorded after due consideration. The approval process is intended as a safeguard and should be substantive, not merely a formal or ritualistic gesture. The reasons given serve as a crucial link between the evidence presented and the conclusions drawn by the authority, ensuring transparency in how the decision was reached.
In disposing of the petition, the court held that the PCCIT failed to satisfactorily document its approval. The mere use of the term “approved” does not indicate independent consideration, making such approval legally flawed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
