2024 (8) TMI 1508 - HC - Income Tax

Section 153D Income Tax Act approval requires proper application of mind, not mechanical rubber-stamping by authorities

Pr. Commissioner of Income Tax-7 Versus Tirupati Buildings & Offices Pvt Ltd.

The Delhi HC held that approval under Section 153D of the Income Tax Act cannot be granted mechanically or as a mere formality. The court emphasized that ... Assessment u/s 153A - non-application of mind while according approval as contemplated u/s 153D - HELD THAT:- A similar view was taken by this Court in the case of Anuj Bansal [2023 (7) TMI 1214 - DELHI HIGH COURT] whereby, it was reiterated that the exercise of powers u/s 153D cannot be done mechanically. Thus, the salient aspect which emerges from the abovementioned decisions is that grant of approval under Section 153D of the Act cannot be merely a ritualistic formality or rubber stamping by the authority, rather it must reflect an appropriate application of mind. Approval under Section 153D cannot be accorded in a casual or mechanical manner. Rather, the said exercise involves due application of mind which must be reflected in the order of approval passed by the concerned statutory authority. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the approval granted under Section 153D of the Income Tax Act, 1961, was done in a mechanical manner without the application of mind, thereby rendering the assessment under Section 153A invalid.Whether the Tribunal's annulment of the assessment due to non-application of mind in granting approval was justified.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Mechanical Approval under Section 153DRelevant Legal Framework and Precedents: Section 153D of the Income Tax Act mandates that no assessment order shall be passed by an Assessing Officer below the rank of Joint Commissioner without prior approval. The provision emphasizes the need for the approving authority to apply its mind independently for each assessment year and each assessee. The court referred to prior cases, including PCIT v. Sapna Gupta and Asst. CIT v. Serajuddin and Co., which underscored the necessity of non-mechanical approval.Court's Interpretation and Reasoning: The court emphasized that the approval process under Section 153D should not be a mere formality. The approving authority must demonstrate an independent application of mind, as reiterated in previous judgments. The court found that the approval in the present case was granted without such application, aligning with its earlier decision in ITA 243/2023.Key Evidence and Findings: The court noted that the Tribunal annulled the assessment due to the evident non-application of mind by the approving authority. This was supported by the Tribunal's finding that the approval process was conducted mechanically.Application of Law to Facts: The court applied the legal principles from Section 153D and relevant precedents to the facts of the case, concluding that the approval was granted without due diligence or independent consideration.Treatment of Competing Arguments: The appellant's arguments were considered, but the court found them insufficient to overturn the Tribunal's decision. The court highlighted the necessity of a substantive review by the approving authority, which was lacking in this case.Conclusions: The court concluded that the appeal failed to raise any substantial question of law, as the approval under Section 153D was indeed mechanical, justifying the Tribunal's annulment of the assessment.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The approval under Section 153D cannot be accorded in a casual or mechanical manner. Rather, the said exercise involves due application of mind which must be reflected in the order of approval passed by the concerned statutory authority.'Core Principles Established: The judgment reinforces the principle that statutory approvals, particularly under Section 153D, require a thorough and independent application of mind by the approving authority. The process should not be reduced to a mere formality or rubber-stamping exercise.Final Determinations on Each Issue: The court upheld the Tribunal's decision to annul the assessment due to the mechanical nature of the approval process under Section 153D, leading to the dismissal of the appeal.The judgment highlights the importance of adhering to procedural requirements in tax assessments, ensuring that statutory approvals are granted with due consideration and not as a mere formality. The court's reliance on established precedents underscores the consistency in judicial interpretation regarding the application of Section 153D.