Income Tax | Principal Commissioner Who Granted Sanction Should Have Applied His Mind: Bombay HC Criticizes Mechanical Approval

The petitioner had challenged various notices and orders issued under the Income Tax Act. The petitioner argued that there were errors in the orders issued, particularly regarding the application of Section 50C of the Act, which applies to sellers, not buyers.

A Division Bench of Justice K.R. Shriram and Justice Neela Gokhale held, “Even the Principal Commissioner, who granted sanction should have also applied his mind and satisfied himself that the order passed under Section 148A(d) of the Act was being issued correctly by applying mind. It cannot be a mechanical sanction. On these grounds alone, the petition should be allowed.”

Advocates Ranit Basu, Maitri Malde & Dua Shaikh appeared for the Petitioner and Advocate Siddharth Chandrashekhar appeared for the Respondents-Revenue.

The Court agreed with the petitioner's argument, finding that there was a lack of proper application of mind in issuing the orders. The Court said, “Therefore, it is Mr. Basu’s case that there has been total non-application of mind while issuing this order under Section 148A(d) of the Act. Mr. Basu states that in the order also it is mentioned that the assessee is buyer of the property and if only the sanctioning authority had read the order, he would not have granted the sanction because Section 50C of the Act does not apply to buyers. We would agree with Mr. Basu.”

The Court also rejected explanations provided by the respondents, including claims of human error, and emphasized that the assessing officer and the sanctioning authority should have ensured the correctness of the orders issued. The Court added, “The questions of fact and law are left open to be investigated and decided by the Assessing Authority and therefore, reopening is valid. We do not accept this stand of Respondents in as much as the Assessing Officer before issuing a notice must have satisfied himself that what he writes makes sense.”

Furthermore, the Court noted that the notices did not adequately explain how there could be income escapement in the hands of a buyer when the transaction amount is less than the stamp duty value. The Court said, “We also should note that there is nothing in the notice to explain as to how, if the transaction amount is less than the stamp duty value, there can be escapement of any income particularly in the hands of a buyer.”

Ultimately, the Court allowed the petition and issued a writ to quash all the challenged notices and orders mentioned in the prayer clause of the petition.

Therefore, the petition was disposed of accordingly.

Cause Title: Aruna Surulkar v. Income Tax Officer & Ors., [2024:BHC-OS:1324-DB]

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