Facts of the Case

The petitioner, Capital Broadways Pvt. Ltd., filed its return of income for Assessment Year 2010-11 on 05.08.2010, declaring an income of ₹1,95,711. The return was processed under Section 143(1) of the Income Tax Act, 1961, and no assessment order was passed.

Subsequently, information was received from the Investigation Wing regarding alleged money-laundering activities conducted by the Jain Brothers, who were stated to have provided accommodation entries through paper companies. The petitioner’s name appeared as a beneficiary alleged to have received accommodation entries aggregating to ₹55 lakhs during AY 2010-11.

Based on this information, a notice dated 24.03.2017 was issued under Section 148 of the Act, reopening the assessment beyond four years. Upon request, the reasons for reopening and the proforma seeking approval under Section 151 from the Principal Commissioner of Income Tax (PCIT) were furnished to the petitioner.

Aggrieved, the petitioner filed the present writ petition challenging the validity of the reassessment notice.

Issues Involved

Whether the approval granted under Section 151 of the Income Tax Act for issuance of notice under Section 148 was valid when the PCIT merely recorded the expression “Yes, I am satisfied” without disclosing any application of mind.

Petitioner’s Arguments

The petitioner contended that the sanction accorded by the PCIT was mechanical and without independent application of mind. It was argued that the approval was granted by simply appending the words “Yes, I am satisfied” without indicating consideration of the reasons recorded by the Assessing Officer.

It was further submitted that the reasons recorded did not establish any independent belief of escapement of income and merely relied upon third-party information from the Investigation Wing. The petitioner argued that such mechanical approval vitiates the entire reassessment proceedings.

Respondent’s Arguments

The Revenue submitted that the statutory requirement under Section 151 is limited to grant of approval by the competent authority on the reasons recorded by the Assessing Officer. It was contended that the PCIT had examined the reasons and that the law does not mandate recording elaborate reasons while granting sanction.

The Revenue argued that the approval was valid and satisfied the requirements of Section 151.

Court Order / Findings

The Delhi High Court analysed Section 151 and reiterated that the satisfaction of the prescribed authority is a sine qua non for valid reopening beyond four years. The Court held that:

  • The approval must reflect independent application of mind by the sanctioning authority.
  • Mere repetition of statutory language or rubber-stamping expressions such as “Yes” or “Yes, I am satisfied” does not meet the legal requirement.
  • The approval granted by the PCIT in the present case was bereft of any reasoning or indication that the material was examined.
  • The entire exercise appeared ritualistic and formal rather than meaningful, defeating the safeguard envisaged under Section 151.

The Court relied upon and reaffirmed principles laid down in Yum! Restaurants Asia Pte. Ltd., N.C. Cables Ltd., Central India Electric Supply Co. Ltd., Pioneer Town Planners Pvt. Ltd., and Chhugamal Rajpal, holding that mechanical approval renders reassessment proceedings invalid.

Important Clarification

The Court clarified that while elaborate reasons are not required at the stage of granting approval under Section 151, there must be some indication of the thought process of the sanctioning authority. Approval must disclose a rational nexus between the material on record and the satisfaction arrived at.

 Final Outcome

The writ petition was allowed. The Delhi High Court set aside the notice dated 24.03.2017 issued under Section 148, holding that the approval granted by the PCIT under Section 151 was mechanical and invalid in law. The reassessment proceedings were accordingly quashed.

link to download the order- https://www.mytaxexpert.co.in/uploads/1770113051_CAPITALBROADWAYSPVT.LTD.VsINCOMETAXOFFICERWARD53DELHIANR..pdf 

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