2023 (5) TMI 1448 - AT - Income Tax

Approval under Section 153D must follow strict rules; mechanical approvals invalid, assessments under Section 153A quashed

The ITAT Indore held that the approval granted under section 153D was without proper application of mind, relying on precedent that such approval must ... Assessments framed u/s 153A - as argued approval granted u/s 153D is without application of mind - HELD THAT:- As relying on M/s Shri Gurumukhdas Contractors Pvt. Ltd [2022 (12) TMI 1574 - ITAT INDORE] there was no application of mind by Ld. Addl. CIT who has granted approval u/s 153D in a mechanical manner, not in terms of the mandate prescribed u/s 153D of the Act. Consequently, we too quash the assessment-orders passed by Ld. AO involved in present-appeals. The assessee succeeds in its appeals. ISSUES: Whether the approval granted under Section 153D of the Income-tax Act, 1961 for assessments framed under Section 153A is valid if the approving authority does not record satisfaction after independent verification of seized materials and other relevant documents'Whether the approval under Section 153D can be given in a mechanical, hasty, or routine manner without application of mind'Whether a consolidated approval covering multiple assessment years and/or multiple assessees without separate consideration for each year or case complies with the statutory mandate under Section 153D'Whether assessments framed under Section 153A without valid approval under Section 153D are sustainable'Whether additions made in unabated assessments without incriminating material found during search are valid? RULINGS / HOLDINGS: The approval granted under Section 153D that lacks any recording of satisfaction by the approving authority regarding independent examination of assessment records, seized materials, or incriminating documents is an 'empty formality' and 'not sustainable' as it amounts to abdication of statutory functions and non-application of mind.The approving authority cannot grant approval under Section 153D 'in a mechanical & hasty manner' or 'merely as a formality'; such approval must reflect 'due application of mind' and be based on examination of all relevant materials.Granting a consolidated approval for multiple assessment years and/or multiple assessees without separate verification and satisfaction for each year or case violates the statutory requirement of approval 'in respect of each assessment year' under Section 153D, rendering such approval invalid.Assessments framed under Section 153A without valid approval under Section 153D are 'void-ab-initio' and liable to be quashed.Additions made in unabated assessments under Section 153A without any incriminating material found during search are not sustainable; incriminating statements recorded without compliance with procedural safeguards (e.g., presence of Panchas) do not constitute incriminating evidence. RATIONALE: The Court applied the statutory framework of Sections 153A and 153D of the Income-tax Act, 1961, which require prior approval by a Joint Commissioner or higher authority before passing assessment or reassessment orders following search or requisition.Section 153D mandates that no order of assessment or reassessment under Section 153A shall be passed without prior approval of the designated authority for 'each assessment year,' emphasizing the necessity of individual and independent scrutiny.Precedents including the Supreme Court judgment in Sahara India (Firm) v. CIT and various Tribunal decisions (e.g., Navin Jain, Sanjay Duggal, Arch Pharmalabs Ltd., Goyal Energy & Steel, Inder International, Dharampal Satyapal Ltd.) were relied upon to establish that approval must not be a mere 'empty ritual' but must involve 'application of mind' and 'due diligence' by the approving authority.The Court noted that approvals granted solely on the basis of certifications or undertakings by the Assessing Officer, without the approving authority verifying seized materials, appraisal reports, or assessment records, fail the statutory requirement and are legally unsustainable.The Court recognized that the statutory approval under Section 153D acts as an 'inbuilt protection' against arbitrary or unjust exercise of power by subordinate officers and must be exercised with care and objectivity.On the issue of incriminating evidence, the Court followed the principle that additions in unabated assessments must be supported by incriminating material found during search, and statements recorded in violation of procedural safeguards (such as absence of Panchas) lack evidentiary value, as held in PCIT v. Best Infrastructure and CIT v. Kabul Chawla.The Court declined to adjudicate other grounds on merits, as the invalidity of approval under Section 153D rendered the assessments void and the related appeals academic.