Tax proceedings quashed due to invalid composite approval under Section 153D lacking separate assessment year reasoning

The ITAT Delhi quashed proceedings initiated under Section 153C read with Section 153A due to invalid approval under Section 153D. The tribunal found that the Additional Commissioner granted a common composite approval for all assessment years instead of separate approvals for each year as mandated by law. The approval was deemed mechanical and routine, lacking proper application of mind and cogent reasons for each assessment year separately. The tribunal held that such defective approval vitiated the entire proceedings, making them arbitrary and erroneous. Consequently, the assessee's appeal was allowed and all proceedings were quashed.

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Issues Involved:

1. Validity of the notice issued under Section 153C of the Income Tax Act.
2. Jurisdictional error due to lack of valid approval under Section 153D of the Income Tax Act.

Detailed Analysis:

1. Validity of the Notice under Section 153C:

The appellant challenged the validity of the notice issued under Section 153C of the Income Tax Act, arguing that the documents seized during the search at the premises of PSK Finance Solutions Pvt. Ltd. were only 'relating to' and not 'belonging to' the appellant company. According to Section 153C(1) of the Act, applicable from Assessment Year 2015-16, proceedings under this section can only be initiated if the Assessing Officer (AO) of the searched party and the AO of the third party are satisfied that the documents seized belong to the third party. The appellant contended that this condition was not met, rendering the notice invalid.

2. Jurisdictional Error Due to Lack of Valid Approval under Section 153D:

The appellant also raised an issue regarding a jurisdictional error, claiming that the assessment order suffered from a lack of valid approval under Section 153D of the Act. The approval was allegedly granted in a common and consolidated manner for multiple assessment years without separate reasoning for each year, which the appellant argued was not in accordance with the law. The appellant relied on the judgment of the Hon'ble Supreme Court in National Thermal Power Corporation Ltd. vs. CIT, which allows legal questions to be raised at any stage to correctly assess the tax liability. The tribunal found merit in this argument, noting that the approval was granted on the same day the request was made, indicating a lack of application of mind. The tribunal referred to the precedent set by the Hon'ble Delhi High Court in Veena Singh vs. ACIT, which emphasized that approval under Section 153D must reflect due application of mind and not be a mechanical exercise.

The tribunal concluded that the approval granted was not in accordance with the law, as it was generic and did not reflect the necessary application of mind. The tribunal observed that the approval process was hurried and lacked specific reasoning for each assessment year, violating the statutory obligation to ensure due application of mind. Consequently, the tribunal quashed the proceedings initiated under Section 153C read with Section 153A of the Act due to the absence of a valid approval by the Additional Commissioner of Income Tax.

In conclusion, the appeal filed by the assessee was allowed, and the appeal filed by the Revenue was dismissed as infructuous, as the underlying assessment order was quashed.

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