While quashing re-assessment proceedings under section 148 of the Income Tax Act, 1961, Justices S Muralidhar and Prathiba M singh had held that when AO committed a mistake and under 151, ADIT and DIT approved it, it led to non-application of mind by 3 authorities.
In the instant case, the return originally filed by the Assessee was processed under Section 143 (1) of the Act instead of Section 143 (3) of the Act. According to the petitioners, the Department ought to have proceeded in terms of Section 151 (2) of the Act.
After the expiry of 4 years, the AO initiated re-assessment proceedings against the assessee with the approval of the additional DIT.
It was seen that while submitting Form of recording the reasons for initiating proceedings under Section 148, the assessing Officer stated that the assessment is not proposed to be made first time. This meant that according to the AO, the return filed by the Assessee for AY 2006-07 had in fact been picked up for scrutiny and an assessment order was passed under Section 143 (3) of the Act. However, the factual position was to the contrary.
Quashing the order, the bench said that “The only conclusion, therefore, to be drawn is that when the AO filled up Column 8 with a negative answer, he did not himself peruse the file as that would have clearly shown him whether the return was subject to scrutiny or not. This was definitely, therefore, an instance of non-application of mind by the AO.”
Analyzing the provisions of the Income Tax Act, the bench further observed that “the purpose of Section 151 of the Act is to introduce a supervisory check over the work of the AO, particularly, in the context of reopening of assessment. The law expects the AO to exercise the power under Section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the AO, then the law expects the superior officer to be able to correct that error. This explains why Section 151 (1) requires an officer of the rank of the Joint Commissioner to oversee the decision of the AO where the return originally filed was assessed under Section 143 (3) of the Act. Further, where the reopening of an assessment is sought to be made after the expiry of four years from the end of the relevant AY, a further check by the further superior officer is contemplated.”
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