2024 (7) TMI 1699 - AT - Income Tax

Approval under section 153D found mechanical and invalid; assessment quashed; notice under section 143(2) not proved

ITAT KOLKATA - AT held the approval under section 153D was mechanical and given without application of mind, as indicated by inconsistencies and ... Validity of proper approval u/s. 153D - allegation of non application of mind - HELD THAT:-Mistakes/inconsistencies/mismatch of figures indicate that the approving authority has not even read the draft assessment order and has not applied mind to the facts and assessment records and, therefore, the approval u/s. 153D of the Act clearly seems to be given in a mechanical and casual manner. Under these given facts and circumstances, when there is no proper approval u/s. 153D of the Act the assessment proceeding are illegal, bad in law and deserves to be quashed. Not serving valid notice u/s. 143(2) since the Ld. DR failed to prove that whether proper notice u/s. 143(2) of the Act has been issued or not as the date of notice u/s. 143(2) of the Act is prior to the date of filing return of income, we are, therefore, inclined to allow the legal ground raised by the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessment orders framed after search and seizure are valid where the prior approval required under section 153D of the Income Tax Act, 1961 appears to have been granted mechanically without application of mind. 2. Whether the assessment orders are vitiated for want of a valid notice under section 143(2) of the Income Tax Act when the record indicates the notice date precedes the date of filing the return. 3. Whether other additions/assessments (e.g., additions under sections 68, 69, 69C, invocation of section 115BBE, double additions, disallowance/short allowance of Chapter VI-A deductions, interest under section 234C, credit for TDS) require adjudication once the proceedings are quashed on procedural grounds. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of approval under section 153D - Legal framework Section 153D mandates prior approval by a Joint Commissioner (or specified superior authority) before an Assessing Officer below that rank may pass an assessment or reassessment order in cases arising out of search (s.132) or requisition (s.132A). The statutory approval is intended as an inbuilt safeguard to ensure senior supervision and prevention of arbitrary or unjust exercise of assessing powers in seizure/search matters. Precedent Treatment The Tribunal follows a line of authorities holding that approval under the statutory provision cannot be a mere formality or mechanical endorsement; it must reflect application of mind. Decisions referenced by the Tribunal (including decisions of coordinate Benches and higher courts) were followed: approval must disclose that the approving authority perused draft order, appraisal report and seized material and applied independent mind; mechanical or unreasoned approvals render subsequent assessments void. Interpretation and reasoning The Tribunal examined the approval letters and the assessment records. It found consistent internal errors, mismatches, miscalculations and incorrect statutory references in draft assessment orders (e.g., conflicting figures for short-term and long-term capital gains, incorrect rent computations, invocation of sections not in force for the relevant years, additions invoking ss.68/69C where preconditions did not exist, and other arithmetical and logical inconsistencies). The approval letters referred to draft orders under section 153C instead of section 153A, and the assessment orders themselves did not mention approval. The combined record indicated the approving authority had not read or applied mind to the draft orders, and approvals appeared to be granted as a rote or mechanical exercise. Ratio vs. Obiter Ratio: Where the approving authority's letter or surrounding record demonstrates lack of application of mind (e.g., manifest factual/arithmetical inconsistencies in the draft order that the approving authority did not address, reference to incorrect statutory sections, or admissions in the approval that there was insufficient time to analyze issues), the approval under section 153D is invalid and the resulting assessment is vitiated. This follows established precedent and is treated as the operative ratio of the Tribunal's decision. Obiter: General procedural descriptions of departmental practices (e.g., the departmental action note process) recited by the Revenue in submissions and reproduced in the record are not the basis of the decision when contradicted by the content of the approval/assessment; such procedural narrative is ancillary and does not displace the requirement of demonstrable application of mind in approval. Conclusion The Tribunal concluded that the approval(s) under section 153D were mechanical and devoid of independent application of mind. Consequently the assessments framed pursuant to those approvals are illegal, bad in law and were quashed. This holding was applied to the lead year and, mutatis mutandis, to the other years before the Tribunal. Issue 2: Validity of notice under section 143(2) - Legal framework Section 143(2) requires the Assessing Officer to serve a notice within specified procedural requirements to proceed with scrutiny assessment. A valid notice must be shown to have been issued in accordance with statutory timelines and after the return is filed (when the assessment is based on a return). Precedent Treatment The Tribunal relied on the general administrative and judicial principle that jurisdictional notices must be validly issued; where the department fails to establish issuance consistent with statutory requirements, assessment consequences follow. The Tribunal treated this ground consistent with the principle that procedural jurisdictional defects vitiate assessments. Interpretation and reasoning The assessee pointed to the assessment record showing a date of notice under s.143(2) prior to the date on which the return was filed, undermining the asserted sequence and validity. The Revenue failed to prove that a proper notice under s.143(2) was issued after filing of the return. In absence of evidence of valid issuance, the Tribunal accepted the assessee's contention. Ratio vs. Obiter Ratio: Failure by the Revenue to prove issuance of a valid notice under section 143(2) where required renders the assessment vitiated; such procedural defect is jurisdictional and supports quashing of the assessment (ratio applied together with invalid approval under s.153D in this case). Obiter: No broader pronouncements on intrinsic limits of notice issuance beyond the facts were necessary. Conclusion The Tribunal allowed the ground challenging the validity of the s.143(2) notice due to absence of evidence proving proper issuance; this ground independently supported quashing of the impugned assessments. Issue 3: Adjudication of substantive/merit grounds rendered academic Legal framework When a court or tribunal quashes an assessment on jurisdictional or procedural grounds going to the root of the proceedings (e.g., invalid statutory approval, defective notice), adjudication of underlying merits (quantum additions, specific disallowances, double additions, invocation of particular substantive sections) becomes academic unless the matter is remitted for fresh adjudication. Interpretation and reasoning Having quashed the assessment orders for want of valid approval under s.153D and for absence of valid notice under s.143(2), the Tribunal held that detailed consideration of the merits (other grounds raised by the assessee concerning double additions, specific additions under ss.68/69/69C, chapter VI-A deductions, interest under s.234C, TDS credit etc.) was unnecessary and academic. The Tribunal therefore did not decide on those merits and allowed the appeals on the procedural grounds alone. Ratio vs. Obiter Ratio: Quashing on foundational procedural grounds obviates need to decide substantive additions; accordingly, merits are left open for fresh proceedings if proper statutory process is followed by assessing authorities. Conclusion The Tribunal quashed the assessments for the lead year and applied the same outcome mutatis mutandis to the other assessment years; substantive grounds were not adjudicated and remain open for re-examination in any valid fresh proceedings. Disposition The Tribunal allowed the appeals for the assessment years before it by quashing the assessment orders due to (i) invalid/mechanical approvals under section 153D and (ii) lack of proof of valid notices under section 143(2); merits were left academic and not decided; the result was applied mutatis mutandis to all connected assessment years.