Bombay High Court Criticizes Department For Casual Approval To Reopen Vodafone Assessment

Bombay High Court Criticizes Department For Casual Approval To Reopen Vodafone Assessment

The Bombay High Court has observed that approval has been granted in the most casual manner. The authority's power under Section 151 to approve or deny the AO's request to reopen the assessment comes with an inherent duty. It was incumbent upon the authorities to conscientiously consider the proposal presented for approval, taking into account the evidence relied upon by the Assessing Officer (AO).

Justices K. R. Shriram and Neela Gokhale's bench noted that it was incumbent upon all authorities involved, especially the Principal Chief Commissioner of Income Tax (PCCIT), to thoroughly assess whether the power to reopen the assessment was being invoked appropriately.

The bench observed that “we are of the opinion that if only the authorities had read the record carefully, they would never have come to the conclusion that this is a fit case for issuance of notice under Section 148 of the Act. They would have either told the AO to correct the figures in Column 7 or would have sent the papers back for reconsideration. These officers have substituted form for substance.”

The petitioner/assessee, Vodafone India, challenged a notice under Section 148A(b) of the Income Tax Act, 1961, as well as an order issued under Section 148A(d) of the Act. One of the arguments put forth was that the authorization for issuing the order under Section 148A(d) was granted without proper deliberation by all five officers involved.

In the approval, the PCCIT noted, “Based on the material available on record and careful consideration of the same, I am satisfied that it is a fit case to issue notice under Section 148 of the IT Act. Hence, the draft order submitted by the Assessing Officer under Section 148A(d) of the Act is hereby approved.”

The court determined that the statement made by the PCCIT regarding the careful consideration of the record before granting approval was inaccurate. The record would have undoubtedly included the notice issued under Section 148A(d) and the accompanying information indicating an alleged income escapement of Rs. 42,858,47,29,661/-. However, the amount stated in the order passed under Section 148A(d) amounted to Rs. 12,431,99,24,486/-. Notably, the order failed to provide any explanation for the discrepancy or the reduction in the amount.

The court held that approvals were being granted mechanically and without proper consideration, which was not an isolated issue. Numerous orders passed under Section 148A(d) of the Act were being invalidated due to approvals lacking thoughtful consideration. This practice not only delayed assessment and reassessment proceedings but also adversely affected the nation's revenue.

The court found that the approval had been granted in a casual manner, disregarding the duty to carefully assess the proposal in light of the material relied upon by the Assessing Officer. The court emphasized that the power vested in the authorities under Section 151 to grant or deny approval for reopening assessments carried the duty to apply their minds diligently rather than exercising it routinely or perfunctorily.

The officers involved failed to uphold the important safeguards provided in Sections 147 and 151, treating them lightly. The court noted that it was incumbent upon the authorities, including the PCCIT, to ensure that the power to reopen assessments was invoked properly.

The court observed that had the authorities examined the record carefully, they would not have concluded that issuing a notice under Section 148 of the Act was warranted. Instead, they would have directed the assessing officer to rectify discrepancies or reconsider the matter. Consequently, the court quashed and set aside the impugned order.