In a significant ruling, the Income Tax Appellate Tribunal (ITAT) has struck down a reassessment order after finding that the Assessing Officer (AO) cited an invalid legal provision while reopening the case for Assessment Year (AY) 2006-07.
Background of the Case
The AO initiated reassessment proceedings against the taxpayer after securing mandatory approval from the sanctioning authority under Section 151 of the Income Tax Act, 1961. However, in the official documentation, the AO erroneously mentioned Section 147(C), a provision that was not even applicable for the relevant assessment year.
The taxpayer challenged the reassessment, arguing that the approval process was flawed and mechanical, as it was based on a non-existent legal provision. The case eventually reached the ITAT, where the taxpayer also filed a cross-objection opposing the reassessment proceedings.
Key Legal Issue
The central question before the Tribunal was whether the reassessment, initiated by citing an incorrect section and backed by a sanctioning authority who failed to apply their mind, could be considered valid under the law.
Tribunal’s Findings
The ITAT firmly held that referring to a non-existent legal provision while reopening the assessment cannot be dismissed as a trivial or typographical error. The Tribunal highlighted that the AO had explicitly filled the approval form under Section 147(C), which had no relevance or existence in the statute for AY 2006-07. Shockingly, the Additional Commissioner of Income Tax (Addl. CIT), who granted the approval under Section 151, did so without noticing or correcting this fundamental mistake.
The Tribunal stressed that approvals granted under Section 151 must be mindful and legally sound, not mechanical or routine. The ITAT relied on well-established judicial precedents, including:
- The landmark Supreme Court judgment in Chhugamal Rajpal v. S.P. Chaliha, where the apex court invalidated reassessment proceedings based on vague, mechanical approvals.
- The Madhya Pradesh High Court’s ruling in S. Goyanka Lime & Chemicals, which was later upheld by the Supreme Court, reiterating that non-speaking, casual approvals under Section 151 render reassessment bad in law.
Other Observations: Section 14A Disallowance
While addressing a related issue, the ITAT also discussed the AO’s direct invocation of Rule 8D for computing disallowance under Section 14A, without recording valid reasons for rejecting the taxpayer’s own computation. The Tribunal reiterated that such an approach, lacking proper justification and reasoning, cannot sustain disallowance under Section 14A.
Conclusion
The ITAT quashed the reassessment order, holding that the entire process was vitiated due to the AO’s reliance on a non-existent statutory provision and the mechanical, uninformed approval granted by the sanctioning authority.
This ruling reinforces the legal principle that reassessment proceedings must strictly comply with statutory provisions and that sanctioning authorities must apply their minds before granting approvals.