Reopening under section 148 on basis of mechanical approval without applying the mind by PCIT not valid

Brief Facts:

• The appellant Sh. Tek Chand aged 70 years old is a farmer and he and his brother Sh. Ram Diya sold their agricultural land of Rs. 60,22,000 by Tek Chand and Rs. 49,65,000 by Ram Diya. Being family matters it was further agreed that they will further purchase agricultural land in the name of any of the family members and Sh. Ram Diya kept funds at home at a secure place till the new deal of agricultural land which matured on 07-11-2008.
• The assessee Sh. Tek Chand deposited Rs. 1.25 crores in his saving bank account during the relevant assessment year out of the above proceeds. The A.O. on the basis of information of cash deposits invoked the assessment proceedings u/s 148 with the approval of PCIT. The learned AO made additions of the entire amount of cash deposit of Rs. 1.25 crores.
• Statement of Sh. Ram Diya was recorded by AO during the original assessment proceedings where he stated to have given the said amount of Rs. 50 lacs out of sale proceeds of agricultural land stated above with documentary proof of funds and sale proceeds. Also, there was no bank branch existing near by the village.
• However, the AO and the Ld. CIT (A) rejected the plea of Sh. Ram Diya that why he kept this money with him at home for 2 years. Hence, the assessee preferred further appeal with Tribunal

Submission of AR:

• The Ld. Counsel for the assessee reiterated the submissions made before the AO & CIT(A) and further submitted that the Ld. PCIT had given a mechanical approval for reopening the assessment. He simply stated that he was satisfied, however no reasons were recorded for his satisfaction. Therefore, on the basis of mechanical approval of the Ld. PCIT, the proceeding initiated by the AO u/s 148 were not justified.
• The reliance was placed on the judgement of Hon’ble Apex Court in the case of CIT Vs. S. Goyanka Lime & Chemical Limited [2015] 64 taxmann.com 313 (SC).

Observation of Tribunal:

• The AO obtained the approval of the PCIT before issuing notice u/s 148 of the Act. While giving the approval, the Ld. PCIT recorded as under: -

“yes satisfied, it is a fit case for issue of notice under section 148” Sd/- PCIT Karnal

• From the aforesaid approval, it is clear that the Ld. PCIT recorded satisfaction in the mechanical manner, without application of mind to accord for issuing notice u/s 148 of the Act.
• On an identical issue the Hon’ble M.P. High Court in the case of CIT Jabalpur Vs. S.Goyanka Lime & Chemical Ltd. Reported at (2015) 56 Taxmann.com 390 by following its own decision in the case of Arjun Singh Vs. ADIT (2000) 246 ITR 363 (MP) held as under:

“While according sanction, the joint commissioner, Income Tax has only recorded so “yes, I am satisfied”. In the case of Arjun Singh (supra), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down: -

The Commissioner acted, of course, mechanically, in order to discharge his statutory obligation properly in the matter of recording sanction as he merely wrote on the format “Yes, I am satisfied” which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material.”

• As far as explanation to Section 151, brought into force by Finance act, 2008 is concerned, the same only pertains to issuance of notice and not with regard to the manner of recording satisfaction. That being so, the said amended provision does not help the revenue.
• Against the said order, the Hon’ble Apex Court dismissed the SLP filed by the Department and affirmed the order of the Hon’ble M.P. High Court in the case of CIT Vs. S.Goyanka Lime & Chemicals Ltd. (supra).

Tribunal’s Verdict:

We by following the ratio laid down by the Hon’ble Apex Court in the aforesaid referred to case, are of the view that the reopening under section 148 of the Act on the basis of mechanical approval without applying the mind by the Ld. PCIT was nor valid. Therefore, in the present case, the reopening of the assessment on the basis of notice u/s 148 of the Income Tax Act is quashed.

Read the Complete Order: Tek Chand Vs. ITO- ITAT Chandigarh