2024 (11) TMI 1540 - AT - Income Tax

AO's second-round assessment dated 11.06.2015 under s.153A without s.153D approval held invalid; appeal dismissed and remand proceedings confirmed defect

ITAT (DELHI) held that any assessment framed under s.153A without prior approval required by s.153D is unsustainable. The AO's 'second-round' assessment ... Assessment to be framed after obtaining due approval u/s 153D - validity of assessment u/s 153A - HELD THAT:- Revenue’s forgoing vehement submissions on the issue of section 153D approval and find no merit therein. This is for the precise reason that as evident from the above extracted detailed discussion, AO had framed nothing else but a second-round assessment vide order dated 11.06.2015 without getting it approved u/s 153D of the Act. It would be indeed not out of the context to observe here that the CIT(A)’s lower appellate proceedings on this issue witnessed remand proceedings as wherein the Assessing Officer had been very fair that his second-round assessment stood framed without section 153D approval. Thus, any assessment; be it first round or otherwise framed u/s 153A of the Act without getting approval u/s 153D of Act, is not sustainable in law. Revenue appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment framed under section 153A of the Income-tax Act without prior approval under section 153D is vitiated and liable to be quashed. 2. Whether proceedings taken by the Assessing Officer pursuant to a tribunal remand (second-round assessment) constitute an assessment/reassessment under sections 143/153A (and therefore attract the requirement of section 153D approval), or are merely administrative steps not requiring fresh approval. 3. Whether the absence of section 153D approval in second-round proceedings is a mere procedural irregularity which can be cured, or a jurisdictional/mandatory defect invalidating the assessment. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Mandatory nature of section 153D approval for assessments under section 153A Legal framework: Section 153A prescribes assessment proceedings where searched or requisitioned records relate to multiple persons; section 153D requires prior approval by the prescribed authority (Joint/Additional CIT) before making an assessment/reassessment under specified provisions (including section 153A/143) in cases arising from search or requisition. Precedent treatment: The tribunal and High Court authorities relied upon in the decision treat orders passed by the Assessing Officer in consequence of appellate remands as assessments under sections 143/144 (and by extension under 153A where applicable), thereby attracting applicable statutory safeguards including requisite approvals. The judgment refers to prior authoritative exposition (including a Division Bench view) that an AO's order made to give effect to appellate directions is not merely administrative but is an assessment. Interpretation and reasoning: The Court reasoned that where the AO, on remand, carries out inquiries, issues notices under section 142 and frames an order captioned as an assessment (e.g., under sections 254/250/147/143(3) or 153A), such action amounts to making a fresh assessment/reassessment. The consequence of the prior tribunal order was that the original assessment stood set aside and demand extinguished, so the subsequent order created a fresh demand. Given this substantive effect, the statutory pre-condition of approval under section 153D cannot be dispensed with. Ratio vs. Obiter: Ratio - An order framed by the AO on remand that results in a fresh assessment under section 153A without prior approval under section 153D is unsustainable and must be quashed. Observational (supporting) dicta - administrative characterizations of AO actions are rejected where the order is expressly an assessment. Conclusion: Mandatory compliance with section 153D is required for assessments under section 153A, including those made after remand; absence of such approval vitiates the assessment. Issue 2 - Characterisation of AO's remand proceedings: assessment/reassessment vs. administrative act Legal framework: Appellate remands under sections such as 250/254 require the AO to act in accordance with directions and, where necessary, to reopen or re-frame assessment pursuant to statutory provisions (e.g., sections 143/144/153A). The nature of the AO's resultant order depends on its form and effect. Precedent treatment: The decision follows established authority holding that an AO's order made in consequence of an appellate authority's remand is an order of assessment (not a mere administrative act). The Court cites and adopts the reasoning that appellate powers include confirming, reducing, enhancing, annulling or setting aside assessments; where set aside, the AO must start afresh and make an assessment complying with directions. Interpretation and reasoning: The Court observed factual indicia - issuance of notice under section 142(1), framing of order under sections 143(3)/153A, creation of fresh demand and service of notice of demand/preservation of appellate rights - demonstrating that the AO conducted statutory assessment proceedings rather than executing an administrative formality. The tribunal's earlier order had rendered the original assessment non est, necessitating a fresh assessment process. Ratio vs. Obiter: Ratio - Remand-resultant proceedings that culminate in an assessment order are substantive assessments and must be treated accordingly for the application of statutory safeguards (including section 153D). Obiter - The suggestion that internal directions of appellate authorities are 'mere recommendations' is rejected where statutory forms and consequences indicate otherwise. Conclusion: Proceedings on remand that culminate in an assessment are assessments/reassessments in law and not merely administrative acts; they attract all statutory requirements applicable to assessments, including section 153D approval. Issue 3 - Effect of omission of section 153D approval: procedural defect vs. jurisdictional invalidity Legal framework: Statutory scheme distinguishes between procedural irregularities and mandatory jurisdictional conditions; where legislation prescribes prior approval as a condition precedent, non-compliance may render resulting action void. Precedent treatment: The Court relied on judicial pronouncements treating the section 153D approval as a mandatory pre-condition in the context of assessments under section 153A; authorities concluding that AO's consequent orders are assessments were used to justify treating omission as fatal. Interpretation and reasoning: The Court analysed the practical and legal consequences of the AO's order - fresh demand, right to appeal, and the captioning of the order as assessment - and concluded that the absence of the prescribed approval could not be treated merely as a curable irregularity. Given the mandatory wording and the protective purpose of section 153D, the omission vitiates the assessment so framed and necessitates quashing. Ratio vs. Obiter: Ratio - Omission to obtain mandatory section 153D approval before framing an assessment under section 153A is not a mere procedural irregularity but a jurisdictional defect invalidating the assessment. Obiter - The suggestion by Revenue that such omission is only procedural and curable is repelled. Conclusion: Failure to obtain section 153D approval in proceedings attracting that section renders the resultant assessment unsustainable and is a ground for quashing the assessment. Final Disposition and Consequential Points The Court upheld the lower appellate conclusion quashing the second-round assessment for want of section 153D approval. All other merits issues were held academic in light of this quashing. The appeal by Revenue was dismissed accordingly.