“Yes, I Am Convinced…” Is Sufficient Approval Under Section 151 Income Tax Act: Delhi High Court Sets Aside ITAT’s Quashing of Reassessment in ₹25 Lakh Accommodation Entry Case

“The language ‘Yes, I am convinced it is a fit case’ satisfies the mandate of Section 151 of the Act” — In a significant judgment Delhi High Court overturned a ruling of the Income Tax Appellate Tribunal (ITAT) which had quashed reassessment proceedings initiated under Sections 147/148 of the Income Tax Act, 1961, citing invalid approval under Section 151.

A Division Bench of Justice V. Kameswar Rao and Justice Vinod Kumar held that the wording of the sanction — “Yes, I am convinced it is a fit case for reopening the assessment under Section 147 by issuing notice under Section 148” — constituted a valid and sufficient approval under Section 151, clearly reflecting the satisfaction required by the statute.

The Court allowed the Revenue’s appeal, restored the reassessment proceedings, and rejected ITAT’s reliance on the judgment in N.C. Cables Ltd., distinguishing it on both facts and legal application.

ITAT Quashed Reassessment Solely on Ground of “Mechanical Approval” — High Court Finds Satisfaction Duly Recorded

The background of the case involved the alleged accommodation entries of ₹25 lakh received by M/s Agroha Fincap Ltd. from entities linked to the notorious S.K. Jain Group, known for running a complex web of shell companies that laundered cash into the formal financial system through bogus share capital and premium transactions.

While the Assessing Officer (AO) had relied on a detailed investigation wing report and initiated reassessment under Section 147, the ITAT had quashed the proceedings, holding that the approval granted under Section 151 was mechanical, relying heavily on the N.C. Cables Ltd. precedent. The ITAT refused to enter into the merits of the addition under Section 68 and instead allowed the appeal solely on this technical defect.

However, the High Court ruled otherwise. "The ITAT has clearly erred in not appreciating the language used by the Competent Authority while granting approval," the Court said [Para 20].

“‘Approved’ Is Not the Same as ‘I Am Convinced’” — Delhi HC Draws Clear Distinction with N.C. Cables Ltd.

The central question of law framed was whether the ITAT had erred in treating the sanction under Section 151 as invalid. The High Court answered it resoundingly in favour of the Revenue, finding that the approving authority’s expression of satisfaction was sufficiently articulated.

Referring to its own precedent in N.C. Cables Ltd. (2017) 391 ITR 11, where the word “approved” alone was held inadequate, the Court clarified that such a scenario did not apply in this case, as here the authority wrote “Yes, I am convinced it is a fit case” [Para 13–18].

The Court emphasised: "In N.C. Cables, the Court was concerned with the word ‘approved’ alone. It is not as if the CIT has to record elaborate reasons for agreeing with the noting... satisfaction can be reflected in the briefest possible manner" [Para 17].

The Court reinforced this conclusion by relying on its own earlier judgment in PCIT v. Meenakshi Overseas Pvt. Ltd., where similar wording — “Yes, I am satisfied” — was held to meet the statutory requirement under Section 151(1) [Para 19].

Reassessment Restored, ITAT’s Decision Held Untenable for Ignoring Merits

The Court noted that the ITAT failed to address the merits of the addition under Section 68, which concerned a ₹25 lakh unexplained credit allegedly routed via shell companies through accommodation entries from the S.K. Jain group. The AO’s order cited the Investigation Wing’s appraisal report, seized materials, and the modus operandi of shell transactions involving dummy directors, false addresses, and layered transactions, and found the assessee unable to prove the genuineness, creditworthiness, and identity of the investor entities.

The High Court observed: “The Tribunal has erred in quashing the proceedings without examining the merits... The language of approval in this case clearly reflected the necessary satisfaction under Section 151.” [Para 20]

By setting aside the ITAT order, the High Court restored the reassessment, paving the way for the matter to proceed on merits.

Earlier ITAT Order for AY 2010–11 Not Binding in Subsequent Year: Non-Appeal Due to Low Tax Effect Irrelevant

The ITAT had followed its own earlier order in the assessee’s case for AY 2010–11, where similar reasoning on approval was adopted. That order had not been appealed by the Revenue, and the ITAT used this as justification to quash the reassessment for AY 2009–10.

The High Court rejected this logic, clarifying: “The earlier ITAT decision was not appealed due to low tax effect... But that does not preclude adjudication on merits when substantial question of law is framed in the current appeal.” [Para 15]

Thus, the High Court ruled that precedential deference cannot override a statutory mandate, especially where no appeal was filed due to procedural thresholds, not on merits.

Assessee’s Objections on Non-Supply of Material and Denial of Cross-Examination Also Rejected

The assessee had also objected to the non-supply of documents relied upon by the Investigation Wing and the inability to cross-examine persons allegedly involved in the accommodation entries. The AO had detailed the investigative material, including the modus operandi, seized blank cheques, and digital evidence from the S.K. Jain group.

The High Court declined to interfere with the AO’s reliance on these materials at the stage of reassessment initiation, noting that such objections must be tested during assessment or appeal, not as grounds to vitiate reassessment ab initio.

High Court Upholds Legislative Intent Behind Section 151 — Satisfaction Must Be Real, But Not Verbose

This decision provides clarity on what constitutes “valid approval” under Section 151. The Court struck a middle path — requiring more than a rubber stamp but not expecting elaborate judicial reasoning from the sanctioning authority.

By holding that the wording “Yes, I am convinced it is a fit case for reopening” satisfied the threshold of satisfaction, the Court reined in the ITAT’s expansive interpretation of N.C. Cables Ltd., reaffirmed the Revenue’s right to reassess based on credible material, and restored the statutory scheme under Sections 147–151.

The ruling also serves as a caution to lower authorities against mechanically quashing reassessments without scrutinising both the substance of the approval and the merits of the case, especially when substantial questions of law arise.

Date of Decision: October 6, 2025