2019 (9) TMI 866 - AT - Income Tax

Tribunal nullifies assessment order citing invalid approval under section 153D. Importance of independent review stressed.

The Tribunal annulled the assessment order due to an invalid approval under section 153D. The assessee's appeals were allowed, and the Revenue's appeals ... Violation of section 153D - approval is granted by the superior authorities for extraneous reasons, without application of mind - HELD THAT:- Approval is lacking under section 153D granted by the superior authorities, then the assessment order is liable to be quashed being passed in violation of section 153D. If the approval is granted by the superior authority without looking into the material, without application of mind and merely relying upon the understanding of the assessing officer, then in that eventuality the said approval ceases to be approval in the eyes of law. Approval as envisaged under section 153D of the Act is not empty formality and there is a rational and reason for mandating the approval before passing the assessment order under the Act. If it was merely a formality and the superior authority is not required to apply its mind then there was no reason to incorporate even for approval of the superior authority and it would not have been worded in the mandatory manner. Because the language used in the provision is in the form of mandatory direction therefore it cannot be argued that even if the approval is granted without application of mind then also it is valid in the eyes of law Civil and penal consequences would flow from completion of assessment and therefore if the approval is denied then crystallize right will accrue in favour of the assessee and the assessee will have a right to assert that the assessment made is bad in law. Similarly if the approval is granted without application of mind which is discernible from the record then the said approval loses its character to be approval in the eyes of law. We had already mentioned that the assessee is not entitled to any personal hearing before passing of the approval order by the authority under section 153D of the Act. But, while holding this in favour of the revenue, we cannot close our eyes and close the right of the assessee to challenge the approval granted by the superior authority in violation of the basic fundamental principle enshrined in the income tax Act as well as in general law whereby, it has been held that the authority while granting the approval should not grant the approval mechanically without even looking into the document and without applying its mind. The right to challenge the approval, is also based on various principal including the non-application of mind by the superior authority or granting approval by an authority which is not vested with the power to grant the approval or the approval granted was after the passing of the assessment order in all these cases and any other cases the direction of the tribunal and also the other courts are not barred and the tribunal and the other courts can very well examine the approval granted by the superior authority in the context of our aforesaid observation and also the other preparation of law laid down by the high courts and the tribunal . If the approval is granted by the superior authorities for extraneous reasons, without application of mind or without looking into the record, then the approval loses its character of an approval in the eyes of law. Accordingly we have no hesitation in declaring that the approval granted by the higher authorities on 27 March 2014 is no approval in the eyes of law and accordingly the assessment made by the assessing officer based on such an approval is also declared to be null and void. There is a statutory duty on the additional Commissioner of income tax with a corresponding obligation on him to examine the record and thereafter accord the approval. The reason for granting the approval may not be subject matter of the proceedings but the manner and the material on the basis of which the approval was granted can always be examined by the tribunal and also by the other courts to come to the conclusion whether the approval was granted in a mechanical manner or after applying mind looking into the record. No evidences required to be appreciated as the approval is self-evident, i.e., that it was granted by the additional Commissioner of income tax without application of mind and without looking into the record. In view of the above the assessment order passed by the assessing officer is void and accordingly all the appeals of the assessee are allowed. Revenue is not entitled to 2nd inning, in the matter as the non grant of approval/grant of approval in a mechanical manner takes out the direction of the assessing officer to pass the assessment order and the same cannot be rectified or improved by the revenue in the 2nd round of litigation. Undoubtedly the assessee is contesting the matter from the date of search before various forms including before the Hon’ble High court and the assessee cannot be made to run again for many more years for contesting the litigation. In view of these peculiarity of the facts we are of the opinion that 2nd inning for rectifying or removing the defects cannot be granted to the revenue. - Decided in favour of assessee Issues Involved:1. Error in partly allowing the assessee's appeal.2. Non-adjudication of ground related to unexplained investment.3. Admission of additional grounds.4. Validity of approval under section 153D.5. Nature of approval under section 153D.6. Challenge to administrative approval before the Tribunal.Detailed Analysis:1. Error in Partly Allowing the Assessee's Appeal:The assessee contended that the CIT(A) erred in law and on facts by partly allowing the appeal without properly appreciating the facts, circumstances, and legal position of the case. This issue was raised as a ground of appeal.2. Non-Adjudication of Ground Related to Unexplained Investment:The assessee argued that the CIT(A) failed to adjudicate ground No. 17, which pertains to the addition of Rs. 11,86,075/- related to unexplained investment in the construction of Hotel Haveli. This non-adjudication was considered an error.3. Admission of Additional Grounds:The assessee submitted an application for additional grounds, arguing that the approval granted by the Additional Commissioner of Income Tax under section 153D was without application of mind and rendered the assessment order illegal and void ab-initio. The Tribunal noted that legal grounds can be raised at any stage if they arise from the order passed by the Assessing Officer.4. Validity of Approval Under Section 153D:The core issue revolved around whether the approval granted under section 153D was valid. The Tribunal examined the approval process and found that the Additional Commissioner granted approval without applying his mind, merely relying on the undertaking of the Assessing Officer. The Tribunal emphasized that the approval under section 153D is not merely an administrative formality but requires a thorough application of mind to safeguard the interests of the citizens.5. Nature of Approval Under Section 153D:The Tribunal considered whether the approval under section 153D is an administrative order or one with civil, criminal, or penal consequences. It was noted that similar provisions under section 158BG had been held to be administrative in nature by various High Courts. The Tribunal concluded that the approval under section 153D is administrative but must be granted with due application of mind.6. Challenge to Administrative Approval Before the Tribunal:The Tribunal held that the approval granted under section 153D could be challenged if it was granted without application of mind. The Tribunal relied on various judicial precedents to assert that the approval must reflect a thorough and independent consideration of the material on record. The Tribunal found that the Additional Commissioner granted approval without examining the draft assessment order or the relevant records, rendering the approval invalid.Conclusion:The Tribunal annulled the assessment order, holding it to be void due to the invalid approval under section 153D. The appeals of the assessee were allowed, and those of the Revenue were dismissed. The Tribunal emphasized the duty of the approving authority to apply its mind and not grant approval mechanically. The decision underscored the importance of safeguarding the procedural rights of the assessee and ensuring that approvals are granted following a thorough and independent review of the material on record.