Section 153D approval by Additional CIT found mechanical and invalid without proper scrutiny of draft assessment orders

ITAT Delhi held that approval under section 153D by Additional CIT was mechanical and invalid, lacking proper application of mind. The tribunal found that 69 cases were approved in a single day without adequate scrutiny or independent evaluation of draft assessment orders. Consequently, the assessment under section 153A was quashed and the assessee's appeal was allowed, establishing that section 153D approvals require substantive review rather than mere mechanical endorsement.

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The core legal questions considered in this judgment revolve around the validity and legality of the approval granted under section 153D of the Income Tax Act, 1961, in the context of search assessments framed under section 153A. Specifically, the issues include:

1. Whether the assessment order and demand notice are sustainable in law in the absence of quoting Document Identification Number (DIN) as mandated by CBDT Circular No. 19/2019 dated 14.08.2019, effective from 01.10.2019.

2. Whether the approval granted by the Additional Commissioner of Income Tax (Addl. CIT) under section 153D was mechanical and without application of mind, thereby rendering the assessment order invalid.

3. The legal effect of granting approval for multiple cases and assessment years on the same day by a single approval order, and whether such practice complies with statutory requirements.

4. The procedural and substantive requirements for approval under section 153D, including the necessity of due application of mind by the approving authority.

5. The impact of non-compliance with procedural safeguards on the validity of the search assessments, including the effect of non-mention of approval in the assessment order.

6. The correctness of the addition made under section 69A regarding undisclosed jewellery seized during search, as upheld by the lower authorities.

Issue-wise Detailed Analysis:

1. Compliance with CBDT Circular No. 19/2019 and Requirement of DIN in Assessment and Demand Notices

The appellant contended that the assessment order and demand notice lacked the mandatory Document Identification Number (DIN) as required under the CBDT Circular No. 19/2019, rendering them non-est and unsustainable. However, the Tribunal did not dwell extensively on this ground, focusing primarily on the approval under section 153D. The absence of DIN was raised but not adjudicated as a decisive factor in this judgment.

2. Validity of Approval under Section 153D of the Income Tax Act

The pivotal issue concerns whether the approval granted by the Addl. CIT under section 153D was a mere mechanical act without application of mind, thereby vitiating the assessment proceedings. The legal framework mandates that no assessment or reassessment order under sections 153A or 153B can be passed without prior approval of the Joint Commissioner or Addl. CIT under section 153D. This approval is a quasi-judicial function requiring independent application of mind.

Several precedents were extensively relied upon, including decisions of the Hon'ble Delhi High Court, Orissa High Court, Allahabad High Court, and various ITAT benches. These authorities have consistently held that:

• The approval under section 153D must be granted after due application of mind, involving examination of the draft assessment order, seized documents, replies to questionnaires, and other relevant materials.
• Granting approval for multiple cases and assessment years on the same day by a single approval order without individualized consideration is mechanical and invalid.
• The approval must be specific to each assessment year and each assessee, as mandated by the statutory language "each assessment year."
• The approval must be reflected in the assessment order, and failure to mention such approval renders the order non-compliant with procedural requirements.

The Tribunal noted that in the instant case, the Addl. CIT granted approval for 69 cases on the same day through a single approval order without any indication of perusal or application of mind to the draft assessment orders. The approval letter merely stated that the draft orders were approved, without any reasoning or reference to the material examined.

The Tribunal referred to the Hon'ble Orissa High Court's decision in ACIT vs. Serajuddin & Co., which held that mere "rubber stamping" or mechanical approval without any indication of thought process is insufficient. The Court emphasized that the approval must not be an empty ritual but a meaningful exercise of quasi-judicial power.

Similarly, the Allahabad High Court in PCIT vs. Subodh Aggarwal underscored that prior approval under section 153D is an in-built protection against arbitrary or unjust exercise of power by the Assessing Officer, and it requires a judicious application of mind by the approving authority. The Court held that approval granted mechanically for multiple cases in a single day is invalid.

The Delhi High Court in PCIT vs. Anju Bansal reiterated that statutory approval without due application of mind is fatal to the entire search assessment proceedings.

The Tribunal rejected the Revenue's contention that the Addl. CIT's involvement from the inception of search proceedings absolved the need for independent application of mind at the approval stage. The Tribunal clarified that the Act mandates independent scrutiny by the Addl. CIT at the approval stage, separate from the appraisal report or AO's conclusions.

Applying these principles to the facts, the Tribunal found that it was humanly impossible for the Addl. CIT to apply mind to 69 cases on the same day. The approval was therefore mechanical and without application of mind, rendering the assessment orders invalid.

3. Effect of Mechanical Approval on Validity of Assessment Orders

The Tribunal held that the absence of valid approval under section 153D vitiates the entire assessment proceedings framed under section 153A. Since the approval is a mandatory prerequisite, its mechanical grant without application of mind renders the assessment orders void ab initio.

Consequently, all the appeals of the assessee were allowed, and the assessment orders were quashed. The Tribunal also noted that since the entire assessment was invalidated on this ground, other grounds raised by the assessee regarding merits and additions were left open as academic.

4. Addition under Section 69A for Jewellery Seized During Search

The assessee challenged the addition of Rs. 90,71,755/- under section 69A relating to jewellery seized during search. The lower authorities had upheld this addition. However, given the quashing of the entire assessment on the ground of invalid approval, the Tribunal did not adjudicate this issue on merits.

5. Treatment of Competing Arguments

The Revenue argued that the role of the Addl. CIT in Central Range differs from normal range officers, asserting that the Addl. CIT's involvement from the appraisal report stage justified same-day approval. The Revenue also contended that the statute does not explicitly require application of mind, and literal interpretation should suffice.

The Tribunal rejected these arguments, emphasizing the quasi-judicial nature of approval under section 153D and the necessity of independent application of mind. The Tribunal held that ignoring this requirement would render the approval process meaningless and defeat legislative intent.

6. Procedural Requirements and Manual of Official Procedure

The Tribunal referred to the Manual of Official Procedure issued by CBDT, which mandates that the draft assessment order should be submitted well in time to the approving authority, the approval must be in writing, and the approval must be mentioned in the body of the assessment order. Non-compliance with these procedural safeguards further undermines the validity of the assessment.

Significant Holdings:

"The said approval granting proceedings by the ld. JCIT is a quasi judicial proceeding requiring application of mind by the ld. JCIT judiciously."

"If the arguments of the Ld. CIT DR are to be appreciated that the ld. JCIT need not apply his mind while granting approval of the draft assessment orders u/s 153D of the Act as it is not provided in section 153D of the Act, then it would make the entire approval proceedings contemplated u/s 153D of the Act otiose."

"The approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case."

"The mere repeating of the words of the statute, or mere 'rubber stamping' of the letter seeking sanction by using similar words like 'seen' or 'approved' will not satisfy the requirement of the law."

"Granting approval for multiple cases and assessment years on the same day by a single approval order without individualized consideration is mechanical and invalid."

"The prior approval of superior authority means that it should appraise the material before it so as to appreciate on factual and legal aspects to ascertain that the entire material has been examined by the Assessing Authority before preparing the draft assessment order."

"The absence of valid approval under section 153D vitiates the entire assessment proceedings framed under section 153A."

The Tribunal's final determination was to allow the appeals filed by the assessee, quash the assessment orders due to invalid mechanical approval under section 153D, and dismiss the revenue's appeal. The other grounds raised by the assessee were not adjudicated as the invalidation of approval rendered them academic.

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