Approval u/s 151 merely stating ‘yes’ bad in law – ITAT follows recent judgment of HC

ITAT followed recent decision of High Court to held that approval u/s 151 by JCIT by merely recording as ‘yes’ was bad in law. 

In a recent order, ITAT Delhi following a recent decision of the High Court held that approval u/s 151 by JCIT by merely recording as ‘yes’ was a mechanical approval thus making initiation of proceeding itself is bad in law. 

ABCAUS Case Law Citation:
4300 (2024) (10) abcaus.in ITAT

In the instant case, both the assessee and Revenue had filed cross appeals challenging the order passed by the CIT(A) in a case involving re-assessment.

The assessment was reopened based on the information received from ITO that assessee had sale transactions with one party who was indulged in providing accommodation entry in the garb of bullion business.

Based on the above information, Assessing Officer after obtaining proper approval, reopened the assessment and found that assessee has made sale to said party. He observed that the sales were totally bogus because the said entry provider during his assessment proceedings failed to substantiate that he had actually purchased gold bar and sold them.

Based on the findings in the case of the entry provider and his statement, the assessee was asked to explain why the same should not be treated as bogus accommodation entry. However, AO was of the view that the assessee failed to justify with proper evidences, and had has converted his own cash by getting accommodation entries.

Accordingly, the AO mad addition u/s 69A of the Act towards bogus purchases and further made addition towards extra profit @ 2% on the sales.

The CIT(A) deleted the addition holding that the purchases and sales invoices were figured in VAT and Assessing Officer had not doubted the purchases made by the assessee nor the VAT paid on purchases/sales made. The Assessing Officer had not doubted the opening stock and closing stock and audited books of account submitted by the assessee. If the Assessing Officer was of the view that sales were bogus then he should have rejected the books of account by invoking the provisions of section 145(3) of the Income-tax Act, 1961. However, CIT(A) sustained the extra presumed profit @ 2% on the sales.

Before the Tribunal the assessee raised jurisdictional issue on approval granted u/s 151 of the Act. It was submitted that the JCIT had approved the same merely recording ‘Yes’ in the allotted column making the approval granted u/s 151 mechanical and without applying the mind.

The assessee relied upon a recent decision of Hon’ble Delhi High Court. It was specifically mentioned that the Hon’ble High Court had considered similar issue and quashed the reassessment.

On The other hand the Revenue contended that it was not the case that ‘Yes’ alone was recorded whereas records were maintained by the office of the JCIT and were reviewed continuously.

The Revenue also relied upon a decision of the Hon’ble Delhi High Court wherein it was held that the use of phrase ‘Yes, I am satisfied’ is sufficient enough mandate for section 151 (2) of the Income tax Act.

The Tribunal observed that both the Revenue and the assessee had relied upon the judgment of the Hon’ble Delhi High Court in support of their contentions with respect to validity of the approval u/s 151 of the Act by the JCIT by recording “Yes” only.

The Tribunal observed that the decision relied by the assessee was very recent pronounced in which the similar issue of approval was considered and decided in favour of the assessee by considering the earlier decision which were also relied by the Revenue. The decisions relied by the Revenue were decided prior and also considered the similar views by the Hon’ble High Court on the issue raised by the assessee.

The Tribunal stated that it was bound to follow the recent decision of the Hon’ble Court and accordingly, it was held that approval granted u/s 151 by merely recording as ‘yes’ was mechanical making initiation of proceeding itself bad in law.

Accordingly, the re-assessment made was set aside and the appeal of the assessee was allowed.

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