Assessment under Section 153C invalid when approval granted mechanically without proper application of mind by authorities

ITAT Rajkot held that penalty u/s 271(1)(c) cannot be sustained when the underlying assessment order is invalid. The tribunal found that ACIT granted approval u/s 153D mechanically without application of mind on the same day, making the assessment u/s 153C r.w.s. 143(3) bad in law. Despite procedural non-compliance, assessee had accepted the assessment. Following Atlanta Electricals precedent, tribunal ruled that when quantum assessment itself is susceptible, penalty consequences are not justified. Assessment order annulled and penalty deleted in favor of assessee.

---

---

Issues Involved:
1. Ex parte order by the Commissioner of Income-tax (Appeals).
2. Levy of penalty under Section 271(1)(c) of the Income Tax Act.
3. Validity of the penalty order based on the approval process under Section 153D of the Act.

Summary:

1. Ex parte order by the Commissioner of Income-tax (Appeals):
The assessee contended that the Commissioner of Income-tax (Appeals)-11, Ahmedabad erred in passing an ex parte order without a speaking order. The Tribunal did not specifically address this issue, focusing instead on the penalty and approval process.

2. Levy of penalty under Section 271(1)(c) of the Income Tax Act:
The primary issue was the confirmation of a penalty of Rs. 60,738/- under Section 271(1)(c) of the Act. The assessee argued that the penalty was invalid because the assessment order was based on a mechanical approval under Section 153D, which lacked proper application of mind. The Tribunal noted that the assessment under Section 153C read with Section 143(3) was framed without proper approval from the Joint Commissioner, rendering the penalty order unsustainable.

3. Validity of the penalty order based on the approval process under Section 153D of the Act:
The Tribunal examined whether the approval granted under Section 153D was valid. It was found that the approval process was mechanical and lacked proper scrutiny and application of mind by the Joint Commissioner. The Tribunal cited several judgments, including those from the Supreme Court and High Courts, emphasizing that prior approval must reflect application of mind and cannot be granted mechanically. Consequently, the Tribunal held that the assessment order was invalid, and thus, the penalty based on such an order could not be sustained.

Conclusion:
The Tribunal concluded that the penalty levied under Section 271(1)(c) was not maintainable due to the invalidity of the assessment order. The appeals for the assessment years 2011-12 to 2015-16 were partly allowed, focusing primarily on the technical invalidity of the penalty orders due to improper approval under Section 153D.

Order:
All five appeals of the assessee for the assessment years 2011-12 to 2015-16 were partly allowed. The order was pronounced on 08/11/2023 at Ahmedabad.

---