2025 (2) TMI 1267 - AT - Income Tax

Assessments under Section 153A quashed where Section 153D approval was mechanical and invalid, nullifying consequential assessments

ITAT DELHI - AT quashed the assessments framed under section 153A, holding that the approving authority's endorsement under section 153D was mechanical ... Validity of assessment order with regard to the approval granted u/s 153D - HELD THAT:- The department could hardly dispute in this factual backdrop that the foregoing learned prescribed authority had approved the Assessing Officer’s section 153D proposal vide common note on 27.03.2014 in a mechanical manner without giving due consideration to the entire search/scrutiny records enclosed therewith. We accordingly quote PCIT Vs. Shiv Kumar Nayyar [2024 (6) TMI 29 - DELHI HIGH COURT] PCIT Vs. Anuj Bansal [2024 (7) TMI 852 - SC ORDER] and PCIT Vs. MDLR Hotels (P.) Ltd [2024 (8) TMI 1138 - DELHI HIGH COURT] to quash the impugned assessments framed by the learned Assessing Officer in assessees’ case u/s 153A of the Act for this precise reason. ISSUES PRESENTED AND CONSIDERED 1. Whether assessments framed under section 153A r.w.s. 153C r.w.s. 143(3) are valid where the Assessing Officer proceeded after a common/identical 'prior approval' by the higher authority which on the record appears to be mechanical and lacking application of mind. 2. Whether the statutory phrase 'prior approval' (in the provision governing approval of proposals to issue assessments in search/seizure or related proceedings) requires a written, reasoned order evidencing application of mind by the approving authority, or whether limited administrative approval (potentially without detailed reasons) suffices. 3. What is the scope of judicial/tribunal scrutiny of administrative approvals under the relevant provision - i.e., whether principles of judicial review (illegality, irrationality/Wednesbury unreasonableness, procedural impropriety) constrain interference with such approvals, and how prior Supreme Court decisions on review of administrative acts apply. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of assessments framed under section 153A/153C r.w.s. 143(3) where the Assessing Officer acted on a common/identical prior approval that appears mechanical. Legal framework: The statutory scheme requires 'prior approval' from the specified higher authority before the Assessing Officer proceeds to frame assessments under the special assessment provisions triggered by searches/seizures (i.e., sections dealing with assessments under 153A/153C read with 143(3)). The approval is a precondition for validity of the consequent assessment actions. Precedent treatment: The Tribunal applied and relied on recent authoritative decisions (referred to in the judgment) which hold that where an approving authority grants approval in a mechanical manner without application of mind to the materials before it, such approval is vitiated and consequential assessments cannot stand. Interpretation and reasoning: The Tribunal examined the record and found that the approving authority had issued a common approval (document dated 14 July 2021 and an earlier note dated 27.03.2014 was noted) that was given in a mechanical fashion, without due application of mind to the search/scrutiny records and the proposal submitted by the Assessing Officer. The Tribunal reasoned that the statutory requirement of 'prior approval' cannot be satisfied by a mere formality when the approval is demonstrably bereft of consideration of the materials the statute contemplates the approver must examine. Consequently, the consequential assessments framed by the AO under the preconditionally dependent provisions are invalid. Ratio vs. Obiter: Ratio - where the prior approval required by statute is shown on the record to be mechanical and not based on application of mind to the material before the approving authority, the subsequent assessments under the special provisions are invalid and liable to be quashed. Obiter - none of the Tribunal's core findings on this point are treated as mere obiter; the finding directly determines the outcome. Conclusions: The impugned assessments framed under section 153A/153C r.w.s. 143(3) were quashed because the prior approval was mechanical and therefore did not meet the statutory requirement; appeals of the assessees were allowed and revenue appeals dismissed on this ground. Issue 2: Whether 'prior approval' requires a written/ reasoned order evidencing application of mind, or whether administrative/brief approval suffices. Legal framework: The statute uses the phrase 'prior approval' but does not explicitly mandate a form or the contents of the approving authority's order. Administrative practice and statutory preconditions, however, require the approver to understand and apply the law to the decision-making power conferred. Precedent treatment (followed/distinguished/overruled): The Revenue relied upon Supreme Court authorities addressing the limited scope of judicial review of administrative actions, emphasizing that administrative orders are not to be treated with the same demands as quasi-judicial decisions and that courts should interfere only for illegality, irrationality, or procedural impropriety. The Tribunal acknowledged those principles but followed recent decisions (cited in the order) which applied the statutory requirement practically to hold approvals vitiated where no application of mind, or mechanically identical/common approvals, were recorded. Interpretation and reasoning: The Tribunal accepted that while the statute does not expressly require a particular written format, the approving authority must in substance apply its mind to the proposal and the accompanying records. Mechanical or omnibus approvals that do not reflect consideration of the material cannot be equated with genuine 'prior approval' contemplated by the statute. The Tribunal reasoned that the absence of material consideration or any discernible application of mind renders the approval a nullity for statutory purposes even if the statutory text does not prescribe precise formalities. Ratio vs. Obiter: Ratio - substantive application of mind by the approving authority is an implicit requirement of the statutory 'prior approval' and mere formality or mechanical approval does not satisfy the statutory precondition. Obiter - the observation that the statute does not use the words 'written approval' is noted but not treated as determinative; the Tribunal's ratio emphasizes substance over form. Conclusions: The Tribunal concluded that prior approval must reflect application of mind; hence, a mechanically granted common approval without reasons did not meet the statutory requirement and could not sustain assessments made thereafter. Issue 3: Scope of judicial/tribunal scrutiny of administrative approvals - application of principles of judicial review (illegality, irrationality/Wednesbury unreasonableness, procedural impropriety) - and reconciliation with precedents cautioning limited interference. Legal framework: Judicial review of administrative action is constrained to established grounds: illegality (misunderstanding or misapplication of law), irrationality/unreasonableness (Wednesbury standard), and procedural impropriety; review looks to legality and process rather than merits. Precedent treatment: The Revenue placed reliance on Supreme Court authorities reiterating a restrained scope of review - courts should not sit in appeal on administrative decisions and may interfere only where the decision is illegal, perverse, irrational to the point that no reasonable authority could have reached it, or procedurally improper. The Tribunal applied these principles but held that when an approval is demonstrably mechanical and lacks application of mind, such failure amounts to procedural impropriety/illegality warranting interference. Interpretation and reasoning: The Tribunal engaged the permissible scope of review and found that the record disclosed an approval process lacking requisite consideration - a deficiency that falls within the recognized grounds for judicial intervention (procedural impropriety/illegality). The Tribunal reasoned that the cited Supreme Court pronouncements limit review but do not immunize administrative approvals that are plainly mechanical or devoid of any discernible reasoning; where error is apparent on the face of the record, interference is warranted. Ratio vs. Obiter: Ratio - even within the constrained ambit of judicial review, an approval that is mechanical and devoid of application of mind is susceptible to being quashed as vitiated by procedural impropriety/illegality; such error may be apparent on the record and not merely a merits disagreement. Obiter - general observations about the limited scope of review were noted in assessing Revenue's submissions but did not prevent quashing where the record evidenced patent defect. Conclusions: The Tribunal reconciled the limited scope of review with the statutory requirement of genuine prior approval, concluding that where an approval is shown on the record to be mechanical and lacking consideration, intervention is justified. The Tribunal therefore applied judicial review to quash the impugned approvals' consequences. Relief and Outcome (direct consequence of above issues) The Tribunal quashed the impugned assessments framed under the special assessment provisions on the ground that the prior approval(s) on which they rested were granted mechanically without application of mind, followed applicable precedents to that effect, allowed the assessees' appeals (and the connected cross-objection), and dismissed the Revenue's appeals.