2022 (12) TMI 1574 - AT - Income Tax

Approval under Section 153D invalid due to lack of independent mind and procedural lapses, assessment orders quashed

Deputy Commissioner of Income-Tax Central-1, Bhopal Versus M/s. Shri Gurumukhdas Contractors Pvt. Ltd. And (Vice-Versa)

Deputy Commissioner of Income-Tax Central-1, Bhopal Versus M/s. Shri Gurumukhdas Contractors Pvt. Ltd. And (Vice-Versa) - TMI ISSUES: Whether the approval granted under Section 153D of the Income Tax Act, 1961, by the Additional Commissioner of Income Tax (Addl. CIT) was valid and in accordance with statutory requirements.Whether the approval under Section 153D can be granted mechanically or must involve independent application of mind by the approving authority.Whether assessment orders passed under Section 153A read with Section 153D without valid approval are sustainable.Whether additions made in unabated assessment years without incriminating material found during search are legally sustainable.Whether the approval under Section 153D must be given separately for each assessment year or can be granted collectively for multiple years and/or multiple assessees.Whether statements recorded under Section 132(4) of the Act, obtained without presence of Panchas, constitute incriminating material for reopening assessments under Section 153A. RULINGS / HOLDINGS: The approval granted by the Addl. CIT under Section 153D was held to be an empty formality without due process of law and not sustainable as it lacked any recording of satisfaction or independent examination of relevant materials, seized documents, or incriminating evidence.The power to grant approval under Section 153D is not to be exercised casually or in a routine manner but requires the concerned authority to apply due application of mind and verify the materials on record before approving the draft assessment order.Assessment orders passed without valid approval under Section 153D are void-ab-initio and liable to be quashed.Additions in unabated assessments without incriminating material found during search are not sustainable in law.Approval under Section 153D must be granted separately for each assessment year after verifying the incriminating material relevant to that year; blanket or consolidated approvals for multiple years or multiple assessees are invalid.Statements recorded under Section 132(4) without presence of Panchas do not constitute incriminating material for reopening assessments under Section 153A. RATIONALE: The Court relied on the statutory framework of Section 153D of the Income Tax Act, which mandates prior approval by a superior authority (Joint or Additional Commissioner) before passing assessment or reassessment orders under Section 153A arising out of search or requisition.The approval must reflect the superior authority's satisfaction based on independent verification of seized materials, appraisal reports, and other evidences, ensuring that the assessment is not arbitrary or unjust.Judicial precedents including Sahara India (Firm) vs. CIT and various Tribunal decisions emphasize that such approval is an inbuilt protection against arbitrary exercise of power and must not be a mere formality or mechanical act.The Court highlighted multiple Tribunal and High Court decisions holding that approval granted on the basis of mere certificate or undertaking by the Assessing Officer without examination of materials is invalid.The Court noted that consolidated approvals for multiple assessment years or multiple assessees without separate consideration for each year or case defeat the legislative intent and statutory mandate under Section 153D.The requirement of incriminating material found during search for reopening unabated assessments is supported by decisions such as PCIT vs. Best Infrastructure and CIT vs. Kabul Chawla, upheld by the Supreme Court, which hold that mere statements under Section 132(4) do not constitute incriminating evidence.The Court applied these principles to the facts, finding that the approval was granted in a hasty, mechanical manner without application of mind, rendering the approval and consequent assessments invalid.