2019 (11) TMI 920 - AT - Income Tax

Tribunal Invalidates Tax Assessment, Emphasizes Need for Concrete Evidence and Thorough Approval Processes

The tribunal ruled in favor of the assessee, quashing the assessment orders and consequential penalty order. The approval under Section 153D of the Income ... Approval under section 153D - mechanical approval / non-application of mind - quasi-judicial v. administrative act - judicial review of supervisory approval - quashing of assessment passed under section 153A - consequential deletion of penaltyApproval under section 153D - mechanical approval / non-application of mind - judicial review of supervisory approval - quasi-judicial v. administrative act - Validity of the approval dated 27.03.2015 accorded by the Additional Commissioner under section 153D and its sufficiency to sustain assessments completed under section 153A. - HELD THAT: - The Tribunal examined the text and circumstances of the approval dated 27.03.2015 and found that the Additional Commissioner recorded that draft assessment orders were placed before him for the first time at 3.50 PM the same day and that he granted approval relying solely on an undertaking from the Assessing Officer and for lack of time. The CBDT circular and legislative intent show that approval under section 153D is intended to ensure that a senior officer applies his mind to the appraisal, seized material and draft assessment; it is not a mere formality. Where the approving authority expressly or effectively admits non-application of mind and delegates consideration back to the subordinate officer, the approval is rendered mechanical and cannot be treated as valid. The Tribunal rejected the Revenue's contention that all pre-notice approvals are administrative and immune from challenge, relying on higher authority that civil consequences can obliterate the administrative/quasi judicial distinction and precedents holding that want of application of mind vitiates approval. Given the self-evident nature of the approval document showing non-application of mind, there was no requirement for further evidence; the approval was declared invalid as it defeated the statutory purpose of section 153D. [Paras 15, 16, 17, 21, 24]The approval dated 27.03.2015 granted by the Additional Commissioner under section 153D was mechanical and granted without application of mind and is therefore no approval in the eyes of law.Quashing of assessment passed under section 153A - consequential deletion of penalty - Consequences of invalid approval: validity of the assessments completed under section 153A on the basis of that approval and the fate of consequential penalty. - HELD THAT: - Since the requirement of valid prior approval under section 153D was held to be a condition precedent and the approval was declared void for non-application of mind, the assessments completed under section 153A which rested on that approval could not stand. The Tribunal therefore quashed the assessment orders dated 31.03.2015 for the assessment years in issue. As the penalty order was founded on the now-void assessment, the Tribunal, following the principle that a penalty cannot survive when its foundational assessment is cancelled, directed deletion of the consequential penalty. [Paras 24, 25, 26]The assessment orders under section 153A dated 31.03.2015 for AY 2009-10 and AY 2011-12 are quashed and the consequential penalty is deleted.Final Conclusion: The approval under section 153D dated 27.03.2015 was held to be mechanical and devoid of application of mind; assessments completed under section 153A based on that approval for AY 2009-10 and AY 2011-12 are quashed and the consequential penalty is deleted; other merits issues arising from the impugned assessments were rendered academic and not adjudicated. Issues Involved:1. Validity of Approval under Section 153D of the Income Tax Act.2. Legality of Additions Sustained by CIT(A) based on Presumptions and Evidence.3. Onus of Proof on Assessing Officer (AO) regarding Unexplained Investment.4. Legality of Assessment Orders and Consequential Penalty Orders.Issue-wise Detailed Analysis:1. Validity of Approval under Section 153D of the Income Tax Act:The primary issue in this case is whether the approval granted by the Additional Commissioner of Income Tax under Section 153D for passing the assessment order is valid. The assessee argued that the approval was granted without due application of mind, rendering it illegal and void ab initio. The tribunal noted that the approval was granted on the same day the draft assessment orders were submitted, without prior discussion or detailed examination by the Additional CIT. The approval was based solely on the undertaking of the AO, indicating a lack of independent application of mind by the Additional CIT. The tribunal emphasized that such a mechanically granted approval is no approval in the eyes of law, citing various case laws that support the necessity of a thorough and mindful approval process.2. Legality of Additions Sustained by CIT(A) based on Presumptions and Evidence:The CIT(A) sustained the addition of Rs. 49,00,000 as unexplained investment based on entries in seized documents and the presumption under Sections 132(4) and 292C of the Act. The assessee contended that the findings were perverse and based on no evidence, as the cash consideration was not reflected in the books of accounts. The tribunal observed that the CIT(A) relied on presumptions without considering the affidavit and cross-examination of the appellant, which rebutted the presumption of law. The tribunal found the CIT(A)'s approach arbitrary and motivated by presumptions, conjectures, and surmises, leading to an unjust addition.3. Onus of Proof on Assessing Officer (AO) regarding Unexplained Investment:The assessee argued that the onus was on the AO to prove the investment of Rs. 49,00,000, which was not recorded in the books of account. The tribunal noted that no evidence was brought on record by the AO to substantiate the alleged investment. The addition was made purely based on the appraisal report without independent application of mind by the AO. The tribunal emphasized that the AO failed to convert the jottings/discussions/planning into admissible evidence, rendering the addition unsustainable.4. Legality of Assessment Orders and Consequential Penalty Orders:Given the invalidity of the approval under Section 153D, the tribunal quashed the assessment orders for the relevant assessment years. Consequently, the penalty order based on the quashed assessment order was also rendered void. The tribunal directed the deletion of the consequential penalty of Rs. 9,80,000, citing the Supreme Court's judgment in K.C Builders Vs ACIT, which held that a penalty cannot stand if the underlying assessment order is cancelled.Conclusion:The tribunal allowed all three appeals of the assessee, quashing the assessment orders and the consequential penalty order. The tribunal's decision underscores the importance of due application of mind by the approving authority under Section 153D and the necessity of substantiating additions with concrete evidence rather than relying on presumptions and appraisal reports.