Bombay High Court has asked Central Board of Direct Taxes (CBDT) to consider formulating a scheme to train its officers how to apply their minds while recording reasons. The court also passed severe stricture against tax officials.

“A copy of this order be also sent to the Chairman, CBDT, who may perhaps formulate a scheme whereby the officers are trained how to apply their mind and what all points should be kept in mind while recording the reasons,” a Division Bench of Justices Amit B Borkar and K R Shriram said while recently disposing a petition filed by Sharvah Multitrade Company Private Limited.

Further, the Bench said that the Chairman, CBDT, may also advise the Commissioners concerned “not to grant approval under Section 151 of the said Act mechanically but after considering the reasons carefully and scrutinising the same.” The petition was filed after a notice by issued by the Income Tax Department. The petitioned submitted that the reassessment proceedings for AY 2015-16 are wholly without jurisdiction, illegal, arbitrary, and liable to be quashed.

Bogus entry

The Bench noted that the petitioner for Fiscal Year 2014-15 had been a beneficiary through fund trail of ₹3.72 crore. Then again, it is mentioned that the above mentioned bogus entities managed, controlled and operated by Sharvah Multitrade Company Private Limited for providing bogus accommodation entries, hence, all the transactions entered into between the above mentioned entities and the assessee/beneficiary are bogus accommodation entries in nature. “What perplexes us as much as the assessee was perplexed is how a company can provide bogus entry to itself,” it observed while adding that it was total non application of mind of tax official.

The Bench found mention of ‘Annexure –2’ in the affidavit by the tax officer, but neither saw ‘Annexure – 1’ nor found ‘Annexure – 2’. Then it was surprised to find that approval for issuance of notice by two immediate officials (Joint Commissioner of Income Tax who recommended for approval and Principle Commissioner of Income Tax, who approved), senior to AO. “We wonder whether the officers of respondents ever bother to read the papers before writing the reasons or recommending for approval or while granting approval,” it said.

The Bench noted that petitioner filed objections and also alleged lack of application of mind. However, the AO rejected the objections but did not deal with the objection of the assessee of lack of application of mind.

The Bench directed placing of this order before the Principal Chief Commissioner of Income Tax, Mumbai for information and necessary action. It also asked order to be sent to AO, so that he would be careful in future.

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