2015 (8) TMI 1250 - AT - Income Tax

Assessment order annulled for lack of approval under Section 153D, appeal allowed.

The Tribunal annulled the assessment order due to lack of proper approval under Section 153D, allowing the appeal filed by the assessee. Other issues ... Prior approval requirement under section 153D - application of mind by supervisory authority when granting approval - mechanical or routine approval vitiates assessment under section 153A - legislative intent of supervisory scrutiny in search-triggered assessments - revival of assessment under section 153A(2) upon annulmentPrior approval requirement under section 153D - application of mind by supervisory authority when granting approval - mechanical or routine approval vitiates assessment under section 153A - Validity of the approval accorded by the Addl. Commissioner under section 153D and consequent validity of the assessment passed under section 143(3) read with section 153A. - HELD THAT: - The Tribunal examined the approval letter of the Addl. Commissioner dated 31.12.2010 which recorded that the draft order was submitted on the same day and that 'there is no much time left to analyse the issues of draft order on merit' and therefore the draft was 'approved as it is'. Having regard to the legislative purpose behind insertion of the prior-approval requirement (as reflected in the CBDT circular) the supervisory authority must apply its mind to the materials and reasons on which the Assessing Officer relies before granting approval. Jurisprudence requires that such approval not be a mere formal or mechanical endorsement but must reflect consideration of the facts and materials. The approval in the present case expressly records non-application of mind and a routine endorsement; accordingly the mandatory condition precedent for valid exercise of power under section 153D was not complied with. In consequence, the assessment order passed under section 143(3) read with section 153A is vitiated and liable to be annulled. The Tribunal adverted to analogous authorities and provisions to reinforce the requirement that prior approval be meaningful and not perfunctory. The Tribunal therefore allowed the additional ground and annulled the assessment; it did not decide the remaining substantive grounds on merits. The Tribunal also noted that, on annulment, statutory provisions (section 153A(2)) govern revival and further action by the Assessing Officer. [Paras 10, 11, 12, 15]Approval granted by the Addl. Commissioner is devoid of application of mind and is mechanical; the assessment under section 143(3) read with section 153A is bad in law and is annulled.Final Conclusion: The Tribunal allowed the additional ground, held that the Addl. Commissioner's approval under section 153D was mechanical and without application of mind, annulled the assessment order passed under section 143(3) read with section 153A for AY 2007-08, and observed that statutory provisions permit appropriate further action by the Assessing Officer. Issues Involved:1. Disallowance of rent paid to Tobaccowala.2. Disallowance of brokerage paid to HDFC Realty.3. Adoption of fair market value of leasehold land as on 01.04.1981.4. Validity of the assessment order under Section 143(3) read with Section 153A due to alleged non-compliance with Section 153D.Issue-wise Detailed Analysis:1. Disallowance of Rent Paid to Tobaccowala:The assessee challenged the disallowance of Rs. 60,23,270/- rent paid to Tobaccowala, which was upheld by the Commissioner of Income Tax (Appeals) on the ground that it was personal in nature. The Tribunal did not specifically address this issue in the final judgment as the assessment order itself was annulled.2. Disallowance of Brokerage Paid to HDFC Realty:The assessee contested the disallowance of Rs. 2,20,500/- brokerage paid to HDFC Realty for arranging new premises. The Commissioner of Income Tax (Appeals) upheld the disallowance on the grounds that the expenditure was for non-business purposes. Like the first issue, this disallowance was not specifically addressed due to the annulment of the assessment order.3. Adoption of Fair Market Value of Leasehold Land as on 01.04.1981:The assessee disputed the adoption of Rs. 700/- per square foot as the fair market value instead of Rs. 1000/- per square foot for the property at 11, Damani House, Cuffe Parade, Mumbai. The Tribunal did not delve into this issue separately due to the annulment of the assessment order.4. Validity of the Assessment Order under Section 143(3) read with Section 153A due to Alleged Non-Compliance with Section 153D:The core issue revolved around the validity of the assessment order under Section 143(3) read with Section 153A, due to alleged non-compliance with Section 153D. The assessee argued that the approval granted by the Additional Commissioner of Income Tax was devoid of application of mind, thus rendering the assessment order invalid.The Tribunal examined the approval letter dated 31.12.2010, which stated that the draft order was submitted on the same day and was approved without much time to analyze the issues on merit. The Tribunal noted that the approval must reflect the application of mind to the facts of the case, as mandated by Section 153D and supported by various judicial precedents, including the Supreme Court's decision in Sahara India vs. CIT and the Calcutta High Court's decision in Peerless General Finance & Investment Co. Ltd. vs. DCIT.The Tribunal concluded that the approval granted by the Additional Commissioner was mechanical and lacked proper application of mind. Consequently, the assessment order under Section 143(3) read with Section 153A was deemed bad in law and annulled.Conclusion:The Tribunal annulled the assessment order due to the lack of proper approval under Section 153D, thereby allowing the appeal filed by the assessee. The other issues regarding disallowances and fair market value were not specifically addressed due to the annulment of the assessment order. The Tribunal also noted that the Assessing Officer is at liberty to take any course of action as per the provisions of the law, as per Section 153A(2).