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Income Tax Appellate Tribunal - Ahmedabad

Kisan Discretionary Family Trust, ... vs Assessee on 8 May, 2012

      IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD
                       "C" BENCH
     Before: Shri D.K. Tyagi, Judicial Member and
            Shri A. Mohan Alankamony, Accountant Member


                          I.T.A. No.608/Ahd/2005
                                A. Y. 1996-97


       Kisan Discretionary               Vs.     Asstt. Commissioner of
       Family Trust                              Income Tax
       Nirma House,                              Central Circle-1(1)
       Ashram Road                               Ahmed ab ad
       Ahmedabad

       Appellant                                 Respondent

       Department by           :     Shri Vinod Tanwani, Sr. D.R.
       Assessee by             :     Shri S.N. Saporkar, A.R.

       Date of hearing               :     08.05.2012
       Date of pronouncement               06.07.2012

                                     आदे श/ORDER


PER : D.K. TYAGI, JUDICIAL MEMBER

This is assessee's appeal against the order of ld. CIT(A)-XI, Ahmedabad dated 10.12.2004.

2. Ground No.1 is general in nature and does not require any adjudication. Ground No.2 reads as under:-

"In law and in facts and circumstances of the appellant's case, the ld. CIT(A) has erred in holding the reopening of the assessment as legal and justified."

A. Y. 1996-97

3. Brief facts of the case are that a return of income was filed by the assessee showing income of Rs.73,97,050/- which was processed u/s 143(1) of the Act on 27.02.1999. Thereafter order u/s 154 was passed on 03.03.2000 and the revised income of the assessee was determined at Rs.64,51,555/-. Subsequently, assessment was reopened u/s 147 by issuing notice u/s 148 of the Act requiring the assessee to file return of income for the year under consideration. For reopening the A.O. took the statutory approval from the CIT. The assessee vide its letter dated 06.01.2004 submitted that the return of income filed for the year under consideration on 30.10.1996 may be considered as return filed in response to notice u/s 148 of the Act. The assessment u/s 143(3) read with Section 147 of the Act was finalized by the A.O. on 27.02.2004 determining the assessee's total income at Rs.2,86,05,160/-. While finalizing the assessment the A.O. made certain additions to the income previously assessed by him.

4. Aggrieved by this order of the A.O. assessee went in appeal before ld. CIT(A). Besides challenging the addition made by the A.O. the assessee also challenged the reopening of the assessment u/s 147 of the Act. However, ld. CIT(A) confirmed the action of the A.O. in reopening of the assessment u/s 147 of the Act by the A.O. Further aggrieved, now the assessee is in appeal before us.

5. At the time of hearing ld. counsel of the assessee placing reliance on the decisions of Hon'ble Delhi High Court in the case of CIT Vs. SPL's Siddhartha Ltd. and decision of Hon'ble Bombay High Court in the case of Shri Ghanshyam K. Khabrani Vs. ACIT submitted that while reopening the assessment of the assessee u/s 147 of the Act the A.O. has taken approval of the CIT instead of Addl. CIT, as mandated in the Act. Since the procedure, as laid down under the Act, has not I.T.A. No.608/Ahd/2005 3 A. Y. 1996-97 been followed in this case, the reopening of assessment u/s 147 was bad in law and the order passed by the A.O. may kindly be quashed.

6. Ld. D.R. vehemently supported the order of the lower authorities and filed a summary of his arguments which read as under:-

"A) First argument:

Even if the ratio of the decision of Hon'ble Delhi High Court (DHC) in the case of CIT vs. SPL Sidharath Ltd. is taken to be correct as the facts of the case before Hon'ble DHC were different it would not apply in the facts and circum stances of the present case.

In the case before the Hon'ble DHC the Addl. CIT had only made the terse observation 'CIT may kindly accord sanction' in the Performa. As against this in the present case the forwarding letter of the Addl.CIT dated 13.2.2003 demonstrates due application of mind by him.

This is so as in it direct reference is made to 'detailed reasons recorded in the Annexure to the proposal'. Thus it is prima facie clear that he has perused not only the Performa but also the detailed reasons mentioned in the Annexure.

B) Second argument:

a. Hon'ble DHC has substituted word 'satisfied' used in section 151(2) with the words 'approval' and 'sanction'. This is against the Golden Rule of Statutory Interpretation of Literal Construction. These three words are not substitutable as wherever the legislature intended that the higher authority grant approval it has used the word 'approval' for e.g. in section 131(3) ,132(8), 133A etc. Similarly wherever the legislature intended that the higher authority accord 'sanction' it has used the word 'sanction' for e.g. in section 279.

Reliance placed on Maulvi Hussein Haji Abraham vs the Sate of Gujarat AIR 2004 SC 3946 b. The legal meaning of the three words 'satisfied', 'approval' and 'sanction' is well settled. As per the Wharton's Concise Law Dictionary the word 'satisfied' means being free of anxiety, doubt, perplexity, suspense or uncertainty.

Whereas 'approval' means 'to have or express a favorable opinion or to accept as satisfactory'.

As against this 'sanction' requires an independent perusal facts and record and also the recital of the reasons for granting approval.

A. Y. 1996-97 A bare perusal of the forwarding letter of the Addl. CIT shows that while forwarding the Performa to the CIT he was definitely free of anxiety, doubt, perplexity, suspense or uncertainty and hence the statutory requirement of the Addl. CIT being 'satisfied' with the reasons recorded stood fulfilled at the very instance of forwarding of the Performa to the CIT. This being so the assumption of jurisdiction under section 147 cannot be held to be vitiated even if additional endorsement has also been obtained from the CIT.

C) Third argument:

a. The Hon'ble DHC in the case before it has held that the Addl CIT did not apply his mind. With regard to this finding the order of the Hon'ble DHC is 'per incuriam' is it has failed to take cognizance of the Full Bench decision of the DHC in the case of CIT vs. Kelvinator of India Ltd. 123 Taxmann 433 (FB) wherein on the basis of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872 the Hon'ble Court had drawn a presumption in Income Tax matter that all official acts have been performed regularly.

In view of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872 the onus is on the assessee to rebut that the Addl CIT while endorsing the matter to the CIT had acted without application of mind.

ITA NO 608/AHd/2005 Kisan Discretionary Family Trust AY 1996-1997 b. As seen from the meaning of the words 'satisfied', 'approval' and 'sanction' they constitute a hierarchy of endorsement of a proposed action. Even if it is taken that the Hon'ble DHC has correctly applied the benchmark of 'sanction' for the purpose of section 151(2) the inference it has drawn are contrary to catena of SC decisions.

As the Hon'ble SC has in the case of State of Bihar vs PP Sharma AIR 1991 SC 1260, State of MP vs Harishankar Bhagwan (2010) 8 SCC 655, CS Krishnamurthy vs State of Karnataka AIR 2005 SC 2790 and State of Maharashtra vs. Ishwar Piraji Kalpatri AIR 1996 SC 722 has held that even in cases where the sanction order does not for demonstrate independent perusal of material and does not carry recital of reasons in view of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872 if it is established that all relevant material was duly put up for perusal before the authority then the sanction is not vitiated.

A. Y. 1996-97 As both the decision of the DHC and the decision of the Hon'ble Mumbai HC in the case of Ghanshyam K. Khabrani vs. ACIT are both is 'per incuriam' as they have failed to take cognizance of the principles settled by the above mentioned decisions of the SC. These 'per incuriam' judgments are is not binding on the Hon'ble ITAT in view of the decision in the case of Kanel Oil & Exports Inds. Ltd. vs. JCIT (2009) 121ITD 596 (AHD.) (TM)."

7. In reply the ld. counsel of the assessee submitted that in the case decided by Hon'ble Bombay High Court also the Addl. CIT forwarded the proposal of the A.O. to the CIT after recording the gist of the communications received from the A.O. and thereby applying his mind on the proposal of the A.O. and even then it was held by the Hon'ble High Court that reopening was not proper. Ld. counsel further submitted that though Hon'ble Delhi High Court has substituted the word 'satisfied' used in Section 151(2) with the word "approval" and "sanction" but in the case of Ghanshyam K. Khabrani (supra) decided by Bombay High Court, there is no such substitution and therefore, the argument advanced by ld. D.R. in this respect are to be ignored while deciding the issue in hand which is squarely covered in favour of the assessee by the decision of Ghanshyam K. Khabrani (supra).

8. After hearing both the parties and perusing the record we find that in this case return of income declaring total income of Rs.73,97,050/- was filed on 30.10.1996. The same was processed u/s 143(1) of the Act on 22.02.1999. Thereafter order u/s 154 dated 30.03.2000 was passed and revised total income of the assessee, after this rectification order, was Rs.64,51,555/-. The reasons for reopening assessment were recorded on 10.02.2003. Since more than four years form the end of the assessment year had lapsed, as per proviso u/s 151(1), I.T.A. No.608/Ahd/2005 6 A. Y. 1996-97 statutory approval of Joint Commissioner was required. For the sake of convenience the provisions of Section 151 are reproduced below:-

"(1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 [by an Assessing Officer, who is below the rank of Assistant Commissioner [or Deputy Commissioner], unless the [Joint] Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice.] Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling undr sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of [Joint] Commissioner, after the expiry of our years from the end of the relevant assessment year, unless the [Joint] Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice.] [Explanation.-For the removal of doubts, it is hereby declared that the Joint Commissioner, the Commissioner or the Chief Commissioner, as the case may be, being satisfied on the reasons recorded by the Assessing Officer about fitness of a case for the issue of notice under section 148, need not issue such notice himself.]"

9. In view of the above,, as in the present case assessment had not been made u/s 143(3) or Section 147 for the assessment year under appeal, as per the provisions of sub section 2 of section 151, no notice could be issued u/s 148 by an A.O. who is below the rank of Deputy Commissioner after the expiry of four years from the end of the relevant assessment year unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for I.T.A. No.608/Ahd/2005 7 A. Y. 1996-97 the issue of such notice. The expression Joint Commissioner is defined u/s 2(28C) to mean a person appointed to be a joint commissioner of income tax or an Additional Commissioner of income tax u/s 117(1). In the present case, the A.O. submitted a proposal on 18.02.2003 to the CIT, Central-1 through Addl. Commissioner of Income Tax, Central, Range-1. This proposal of the A.O. was forwarded by Addl. CIT to the CIT after recording a summary of communication of the A.O. stating "The Assessing Officer has proposed to reopen the assessment for assessment year 1996-97 of the above named assessee for the detailed reasons mentioned in the annexure attached with the proposal. Necessary approval for reopening the assessment may kindly be granted."

10. On 19th February, 2003 CIT Central-1, Ahmedabad approved the proposal of the A.O. dated 10.02.2003. Thus there is no dispute about the fact that the requirement of Section 2 of Section 151 has not been fulfilled in this case as the satisfaction of Joint Commissioner of Income Tax was required to the effect that it was a fit case for the issuance of a notice u/s 148. In the present case the Additional Commissioner of Income Tax forwarded the proposal submitted by the Assessing Officer to the Commissioner of Income Tax. Approval, which has been granted, is not by the Additional Commission of Income Tax but by the Commissioner of Income Tax. The Commissioner of Income Tax is not a Joint Commissioner or Addl. Commissioner within the meaning of Section 2 (28C). Since, the mandatory requirement of Section 147 and 151(2) of the Act has not been complied with before issuance of notice u/s 148 of the Act in this case, the notice so issued was not valid.

A. Y. 1996-97

11. On identical facts, Hon'ble Bombay High Court in the case of Shri Ghanshyam K. Khabrani (supra) has held as under:-

"The second ground upon which the reopening is sought to be challenged is that the mandatory requirement of Section 151(2) has not been fulfilled. Section 151 requires a sanction to be taken for the issuance of a notice under Section 148 in certain cases. In the present case, an assessment had not been made under Section 143(3) or Section 147 for A.Y. 2004-

05. Hence, under sub section 2 of Section 151, no notice can be issued under Section 148 by an Assessing officer who is below the rank of Joint Commissioner after the expiry of 4 years from the end of the relevant Assessment Year unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. The expression "Joint Commissioner" is defined in Section 2(28C) to mean a person appointed to be a Joint Commissioner of Income Tax or an Additional Commissioner of Income Tax under Section 117(1). In the present case, the record before the Court indicate that the Assessing Officer submitted a proposal on 28 March 2011 to the Range (I) Thane. CIT(l) Thane through the Additional Commissioner of Income Tax Range (1) Thane. On 28 March 2011, the Additional CIT forwarded the proposal to the CIT and after recording a gist of the communication of the Assessing Officer stated that:

"As requested by the A.O, Necessary approval for issue of notice u/s. 148 may kindly be granted in the case, if approved."

On this a communication was issued on 29 March 2011 from the office of the CIT (1) conveying approval to the proposal submitted by the Assessing officer. There is merit in the contention raised on behalf of the Assessee that the requirement of Section 151(2) could have only been fulfilled by the satisfaction of the Joint Commissioner that this is a fit case for the issuance of a notice under Section 148. Section 151(2) mandates that the satisfaction has to be of the Joint Commissioner. That expression has a distinct meaning by virtue of the definition in Section 2(28C). The Commissioner of Income Tax is not a Joint Commissioner within the meaning of Section 2(28C). In the present case, the Additional I.T.A. No.608/Ahd/2005 9 A. Y. 1996-97 Commissioner of Income Tax forwarded the proposal submitted by the Assessing Officer to the Commissioner of income Tax. The approval which has been granted is not by the Additional Commissioner of Income Tax but by the Commissioner of income Tax. There is no statutory provision here under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of a particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to be done in a particular manner, it has to be done in that manner. In a similar situation the Delhi High Court in Commissioner of Income Tax Vs. SPL'S Siddhartha Ltd. (ITA No.836 of 2011 decided on 14 September 2011) held that powers which are conferred upon a particular authority have to be exercised by that authority and the satisfaction which the statute mandates of a distinct authority cannot be substituted by the satisfaction of another. We are in respectful agreement with the judgment of the Delhi High Court."

12. In view of the above, the reopening of assessment by the A.O. u/s 147 is not sustainable in law and therefore the order passed by the A.O. u/s 143(3) read with Section 147 which was sustained by ld. CIT(A) is hereby quashed. In view of this, the other grounds, taken by the assessee in this appeal do not require any adjudication.

13. In the result, the assessee's appeal is allowed.

       Order pronounced in open Court on                 06.07.2012




              Sd/-                                                           Sd/-
 (A. Mohan Alankamony)                                                  (D.K. Tyagi)
   Accountant Member                                                  Judicial Member
                                                True copy
N.K. Chaudhary, Sr. P.S.

आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-

1. अपीलाथȸ / Appellant

2. ू×यथȸ / Respondent I.T.A. No.608/Ahd/2005 10 A. Y. 1996-97

3. संबंिधत आयकर आयुƠ / Concerned CIT

4. आयकर आयुƠ- अपील / CIT (A)

5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड[ फाइल / Guard file.

By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, अहमदाबाद ।