CIT’s Sanction u/s 148/151 if mechanical and without reasons is invalid. Assessee cannot be expected to disclose what he does not know
The assessee’s property was compulsorily acquired in AY 1965-66 and the resultant compensation was offered to tax. The assessee initiated proceedings for enhanced compensation and this was duly disclosed. The enhanced compensation was finally determined in AY 1979-80 and the assessee invested the same & claimed exemption u/s 54E. The AO reopened the assessment u/s 147 beyond 8 years (now 4 years) on the ground that the enhanced compensation ought to have been assessed in AY 1965-66. The proposal for sanction was granted by the CBDT (now CIT) in the proforma with the rubber stamp “Yes. The Board is satisfied“. The reassessment was upheld by the CIT (A) & the Tribunal. On appeal to the High Court, HELD allowing the appeal:
(i) U/s 151, a notice u/s 148 cannot be issued after the expiry of 8 years (now 4 years) from the end of the assessment year “unless the Board is satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice“. In the present case, approval had been accorded by affixing a mere rubber stamp. Rubber stamping of underlying material is hardly a process which can get the imprimatur of the Court as it suggests that the decision has been taken in a mechanical manner. Even if the reasoning set out by the ITO was to be agreed upon, the least, which is expected, is that an appropriate endorsement is made in this behalf setting out brief reasons. Reasons are the link between the material placed on record and the conclusion reached by an authority in respect of an issue, since they help in discerning the manner in which conclusion is reached by the concerned authority. There is no proper application of mind by the Board (Chuggamal Rajpal 79 ITR 603 (SC) followed);
(ii) The assessee is required to disclose material facts which existed at the material time between the filing of the return and the assessment order. A material fact which is not in existence right up to the time of assessment cannot possibly be disclosed. Therefore, a fact which comes into existence subsequent to the making of the assessment cannot be a material fact within the purview of s. 147. The duty to disclose material facts necessarily postulates existence of a thing or material. If a material is not in existence or if a material is such of which the assessee had no knowledge there would be no duty to disclose such material (Tirath Ram Ahuja (HUF) 306 ITR 173 (Del) followed);
(iii) The duty of the assessee does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends and it is for the ITO to draw correct inference from the primary facts. It is not the responsibility of the assessee to advise ITO with regard to the inference, which should be drawn from the primary facts and if an ITO draws an inference, which appears subsequently to be erroneous, mere change of opinion with regard to that inference does not justify initiation of action for re-opening of assessment (Lakhmani Mewal Das 103 ITR 437 (SC) followed);
(iv) On facts, as the assessee had disclosed the fact that there was an application for enhancement but could not possibly have disclosed what would be the extent of enhancement there was no failure to disclose material facts.