Income Tax Tribunal voids assessment orders, upholds appeals, restricts disallowance to 4%.

The Tribunal invalidated the approval granted under Section 153D of the Income Tax Act, deeming subsequent assessment orders void. Additional grounds of appeal were allowed for adjudication despite objections from the Revenue. Search assessments under Section 153A/143(3) were deemed invalid due to mechanical approval processes. Disallowance of alleged non-genuine purchases for the Assessment Year 2011-12 was restricted to 4% following precedents. The assessee's appeals were upheld, leading to the quashing of assessment orders, while the Revenue's appeals were dismissed.

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Issues Involved:
1. Legitimacy of approval under Section 153D of the Income Tax Act.
2. Admissibility of additional grounds of appeal.
3. Validity of search assessments.
4. Disallowance of alleged non-genuine purchases.

Issue-wise Detailed Analysis:

1. Legitimacy of Approval under Section 153D:
- The primary legal issue in all the appeals and cross objections was the legitimacy of the approval granted under Section 153D of the Income Tax Act. The assessee contended that the approval was granted in a mechanical manner without proper application of mind by the designated authority.
- The Tribunal noted that the Assessing Officer (AO) forwarded the draft assessment orders for multiple years to the Additional Commissioner of Income Tax (Addl. CIT) at the last moment, and the approval was granted promptly without any detailed examination of the records or seized materials.
- It was highlighted that the approval memo did not mention any specific issues or materials considered, indicating a lack of due diligence and application of mind. The Tribunal emphasized that the approval under Section 153D should not be a mere formality but should reflect a thorough and objective evaluation.
- The Tribunal referred to several judicial precedents, including the decisions of the Bombay High Court in Pr. CIT vs. Smt. Shreelekha Damani and the ITAT Mumbai in Shreelekha Damani vs. DCIT, which disapproved of mechanical approvals under Section 153D.
- Based on the facts and the legal principles, the Tribunal concluded that the approval granted under Section 153D in this case was invalid, rendering the subsequent assessment orders void and bad in law.

2. Admissibility of Additional Grounds of Appeal:
- The assessee raised additional grounds of appeal challenging the legality of the approval under Section 153D. The Revenue opposed the admission of these additional grounds, arguing that they were raised belatedly and that the relevant records were misplaced.
- The Tribunal rejected the Revenue's objections, stating that legal objections can be raised at any stage if the relevant facts are available on record. The Tribunal emphasized that income tax proceedings are not strictly adversarial and that a fundamental error of law can be pointed out at any stage.
- The Tribunal admitted the additional grounds of appeal for adjudication, recognizing the importance of addressing the legal issue raised by the assessee.

3. Validity of Search Assessments:
- The Tribunal examined the validity of the search assessments conducted under Section 153A/143(3) of the Income Tax Act. The assessments were based on the approval granted under Section 153D, which was found to be mechanical and lacking application of mind.
- The Tribunal observed that the AO had forwarded the draft assessment orders to the Addl. CIT without any detailed reference to the seized materials or specific issues. The approval was granted promptly without any substantive examination, indicating a perfunctory exercise.
- The Tribunal concluded that the search assessments were invalid due to the flawed approval process under Section 153D. Consequently, the assessment orders for the relevant years were quashed.

4. Disallowance of Alleged Non-Genuine Purchases:
- In the case of the assessee for the Assessment Year 2011-12, the AO made disallowances of the entire amount of purchases from certain parties, alleging them to be non-genuine. The CIT(A) revisited the disallowances and estimated them at 12.5% of the purchases.
- Both the assessee and the Revenue challenged the CIT(A)'s decision. The assessee sought further relief, while the Revenue contested the partial relief granted.
- The Tribunal referred to its earlier decision in the assessee's own case for the Assessment Year 2010-11, where the disallowance was restricted to 4% of the alleged unsupported purchases. The Tribunal directed the AO to restrict the disallowance to 4% for the Assessment Year 2011-12 as well, in line with the earlier decision.

Conclusion:
- The Tribunal allowed the appeals of the assessee and quashed the assessment orders for the relevant years due to the invalid approval under Section 153D. The additional grounds of appeal were admitted, and the legal objections were upheld.
- In the case of disallowance of non-genuine purchases for the Assessment Year 2011-12, the Tribunal directed the AO to restrict the disallowance to 4%, consistent with the decision in the earlier year.
- The cross objections raised by the assessee were rendered infructuous due to the quashing of the assessment orders on legal grounds. The appeals of the Revenue were dismissed.

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