Approval by higher authority to reopen assessment is safeguard to prevent arbitrary exercise of power: ITAT

The assessee is a partnership firm engaged in the business of ginning and pressing cotton. The return of income for the year under consideration was filed declaring a total income of Rs. 5,14,300. The said return was selected for scrutiny and in the assessment originally completed under Section 143(3) of the Income-tax Act, 1961, the total income of the assessee was determined by the Assessing Officer at Rs. 3,84,53,522 after making an addition of Rs. 3,79,39,222.

Appeal before CIT(A): Against the said order an appeal was preferred by the assessee before the learned CIT(A) who allowed the said appeal and deleted the entire addition made by the Assessing Officer. hereafter, information was received by the Assessing Officer that the assessee has taken an accommodation entry of Rs.50 lakhs during the year under consideration. Based on information regarding accommodation entry of Rs, 50 Lakhs as well as the cash deposits found to be made by the assessee during the year under consideration amounting to Rs. 57,45,000 in its bank account, the AO reopened the assessment which was objected by the assessee. The AO overruled the objections and completed the assessment by making an addition of Rs.50 lakhs to the total income of the assessee by treating the accommodation entry as unexplained cash credit under Section 68 of the Act. The ld. CIT(A) did not find any merit in the said submissions and upheld the validity of the assessment, the assessee thus preferred this appeal before the Tribunal.

Appeal before ITAT: The Tribunal relied upon the case of United Electrical Co. Pvt. Ltd whereby the Hon’ble Delhi High Court held that the requirement of approval by the higher authority to reopen the assessment and issue notice under Section 148 of the Act by the AO is a safeguard to prevent arbitrary exercise of power by an AO to fiddle with the completed assessment. It was held that the Commissioner is required to apply his mind to the proposal put up to him for approval in the light of the material relied upon by the Assessing Officer and the said power cannot be exercised casually and in a routine manner. In the said case, the Commissioner had simply mentioned “approved” while according sanction to the AO to reopen the assessment, issue notice under Section 148 of the Act and the same was held to be without any application of mind by the Hon’ble Delhi High Court. Following the ratio laid down in the above case the Tribunal held that the assumption of jurisdiction to reopen the assessment was bad in law and the assessment completed by the Assessing Officer under Section 143(3) r.w.s. 148 of the Act in pursuance thereof is void ab initio and was liable to be cancelled.

The tribunal held it not necessary or expedient to adjudicate upon other legal and factual issues raised by the assessee as the same are academic in nature. Therefore, the appeal filed by the assessee was allowed.