2025 (9) TMI 1726 - AT - Income Tax

Search-based 153A assessments challenged over rubber-stamp 153D approvals; lack of year-wise, reasoned sanction led to annulment.

Assessments framed u/s 153A were challenged as void for want of valid prior approval u/s 153D. The ITAT held that approval u/s 153D is justiciable and ... Validity of assessment order u/s 153A for want of valid approval u/s 153D - approvals were given for 11 different assessees for a total of 63 assessments pertaining to numerous assessment years. HELD THAT:- The principles that emerge in our understanding are: (i) Approval u/s 153D of IT Act cannot be a mechanical exercise. The approval must be granted by the approving authority after due application of independent mind. When this requirement is not met, the approval suffers from infirmity and is invalid. (ii) The contention of Revenue that approval u/s 153D of the IT Act being an administrative act, is not justiciable; is wrong. (iii) It is a bare minimum requirement that the approving authority must indicate what thought process was involved in granting the approval. Even if elaborate reasons are not given; there has to be some indication that the approving authority has examined the draft orders with regard to applicable law and all the relevant materials. When this requirement is not met, such approval suffers from infirmity and is invalid. (iv) The directions given by CBDT in Search Manual regarding granting of approval, although initially issued in the context of section 158BG of I.T. Act, are also applicable for approval u/s 153D of the IT Act; and are mandatory. When these directions are not met; the approval suffers from infirmity and is invalid. (v) The approval of draft assessment order by approving authority being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise without due application of independent mind by the approving authority on the relevant materials and reasoning given in the assessment order; so as to appreciate factual and legal aspects to ensure that the entire material has been factored in, in the draft assessment order proposed by the Assessing Officer. (vi) Section 153D of the IT Act requires that the Assessing Officer shall obtain prior approval of JCIT in respect of each assessment year. As separate returns are to be filed for each assessment year, and as separate assessment orders are to be passed for each assessment year; it follows that approvals u/s 153D of the IT Act are to be given by the approving authority separately for each assessment year. If approvals for multiple assessment years are given u/s 153D of the IT Act through a common letter of approval; this violates statutory requirements; and such approvals suffer from infirmity and are invalid. (vii) In Manual of Office Procedure, Volume-II (Technical) issued by CBDT is exercise of powers u/s 119 of the IT Act has directed in Chapter -3 that the Assessing Officer should submit draft assessment order in search cases to the approving authority well in time; and the approving authority should give due opportunity of being heard, at least one month before time barring date. These directions are binding on the Assessing Officer. (viii) The Assessing Officer, while framing assessment, acts in quasi-judicial capacity and he ought to conform to the more elementary rules of judicial procedure; and in particular, to conduct the case himself, and not allow somebody else, even his superior officer to interfere in the conduct of the case. Higher authorities an Assessing Officer, Addl. CIT/Joint CIT i.e. JCIT or CIT or CCIT are not entitled to interfere in process of framing of assessment order by the Assessing Officer; except by mandate of law. The Addl.CIT/JCIT is entitled to issue directions u/s 144A of IT Act. Other than that, his role starts when he receives draft assessment orders for approval u/s 153D of the IT Act (wherever such approval is required under law). When first draft is returned back; his role ceases; and the role of Add. CIT / JCIT starts again when he receives the final draft of the proposed assessment order, which he eventually approves. The question if the approval u/s 153D of the IT Act suffered from infirmity and was invalid is to be decided having regard to receipt of final draft of the proposed assessment order which the Addl. CIT /JCIT eventually approved. The association of Addl. CIT/JCIT with the Assessing Officer, and involvement of the Addl. CIT/JCIT in the assessment proceedings before that has no relevance for deciding whether approval u/s 153D of the IT Act suffered from infirmity and was invalid. In fact, in view of the foregoing discussion, any such association and involvement may, depending on facts and circumstances of the case, be fatal to the assessment on strict application of rules of judicial procedure as aforesaid; depending on facts and circumstances of the case. (ix) When approval u/s 153D of the IT Act suffers from infirmity and is invalid for one or more aforesaid reasons, the entire assessment order becomes vitiated; and is to be annulled. We accept the contention of the learned Departmental Representatives, as referred to in foregoing paragraph (H.1.1) of this order that whether in a particular case, JCIT had given approval u/s 153D of the IT Act after due application of mind, is a question of fact and the answer would depend on facts and circumstances of the particular case, independent of conclusion arrived at in any other case. Coming to the facts and circumstances of the present case; we accept the contention of the learned Counsel for the assessee that the affidavit of Shri M. L. Meena, the Assessing Officer and personal testimony of Shri Agrahari, Departmental Inspector are de void of any credibility; having regard to submissions made by learned Counsel for the assessee as referred to in foregoing paragraph (I) of this order. Further, in view of submissions of learned Counsel for the assessee as referred to in foregoing paragraph (I.1) of this order, we are of the opinion that neither the story presented by Revenue regarding Pen Drive inspires confidence nor, in any case it advances the case of Revenue, in the absence of any description of the contents of the Pen Drive in letter dated 18/07/2017 of the Assessing Officer and in the absence of any reference to Pen Drive in the notes and order sheet of the JCIT, the approving authority. Moreover, it is claimed by Revenue that all relevant records/materials were sent to the Addl. CIT/JCIT along with editable soft copies of the draft assessment order together with letter dated 18/07/2017, but there is no mention of 'all relevant records/materials' in the letter dated 18/07/2017. Also, as mentioned earlier, there is no description of the contents of the Pen Drive in letter dated 18/07/2017. Common approval letter dated 31/07/2017 was issued by JCIT to give approval u/s 153D of the IT Act for 63 different assessments pertaining to 11 different assessees of Jeevan Jyoti Group, for different assessment years. On perusal of aforesaid common approval letter dated 31/07/2017 issued by JCIT; it is found that there is complete absence of any indication of thought process involved in granting the approvals for the assessment u/s 153D of the IT Act. There is no indication that the JCIT examined the draft order with regard to assessment record, applicable law and all relevant materials. The approval u/s 153D of the IT Act has been given in a non-speaking, summary and formal way, in the manner of rubber stamping. Neither the approving authority gave opportunity of being heard to the assessee before giving approval u/s 153D of the IT Act; nor did the Assessing Officer submit draft assessment order to the approving authority well in time to enable the approving authority to provide opportunity to the assessee (at least) one month before the time barring date of 31/07/2017. Thus, the approving authority and the Assessing Officer, both, failed to comply with mandatory direction of CBDT, issued in exercise of power u/s 119 of the IT Act, in Chapter-3 of Manual of Office Procedure, Volume-II (Technical). Thus, concluded that approval u/s 153D of the IT Act was given by the JCIT in a mechanical manner without due application of mind. It is further concluded that the approval u/s 153D of the IT Act given by the JCIT suffered from infirmities. Accordingly, it is concluded that the approval given u/s 153D of the IT Act suffers from multiple infirmities; and is invalid; because of which the entire assessment order is vitiated - The limitation period available to Revenue is inclusive of time taken for granting approval u/s 153D of the IT Act; and there is no provision of law permitting extention of period of limitation for failure of the approving authority to give valid approval u/s 153D of the IT Act. In view of the foregoing; the Assessing Officer is annulled. Decided in favour of assessee. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the search assessments were void because the statutory prior approval under section 153D was granted mechanically, without due and independent application of mind, including by issuing a common approval for multiple assessees and multiple assessment years, and without adherence to the CBDT procedural requirement of seeking approval well in advance. (ii) If the section 153D approval was found invalid, whether the Tribunal should nevertheless remand the matter for fresh approval, or whether the assessments must be annulled with no 'second innings' to the Revenue. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Validity of prior approval under section 153D Legal framework: The Tribunal treated section 153D as a mandatory in-built supervisory safeguard in search assessments, requiring 'prior approval' by the specified superior authority before the Assessing Officer could pass the order. The Tribunal also examined the CBDT Manual/office procedure (referred to as binding departmental guidance) requiring the draft assessment order to be submitted 'well in time', noting the one-month-before-time-barring guideline, and considered the statutory emphasis on 'each assessment year' in the scheme of section 153A/153D. Interpretation and reasoning: The Tribunal held that section 153D approval is not an empty formality and cannot be reduced to rubber-stamping. It identified minimum indicia of valid approval: (a) independent application of mind; (b) some discernible thought process showing examination of relevant record/material and the draft assessment; and (c) compliance with the procedural discipline expected in search assessments, including timely submission for meaningful approval. The Tribunal rejected the contention that section 153D approval, being 'administrative', is immune from scrutiny, and held that mechanical approval vitiates the assessment. The Tribunal found, on the facts, that approvals were granted through a common letter covering a large number of assessments across multiple assessees and multiple years, within an extremely limited time around the limitation date. It held that, having regard to the volume and nature of relevant materials (seized material, digital data, appraisal/reporting material, settlement-related reports and replies, and assessment records), it was humanly impossible for the approving authority to have undertaken a meaningful year-wise and assessee-wise evaluation in the manner required. The approval letter was found to be non-speaking and to lack any indication of the approving authority's examination of the draft orders and record. The Tribunal also found non-compliance with the CBDT procedural expectation that approvals be sought sufficiently before the time-barring date so that the safeguard is real, not ritualistic. It further held that approval for multiple years through a common approval, rather than year-wise approval for 'each assessment year', violated the statutory scheme as understood by the Tribunal. The Tribunal rejected Revenue's attempt to cure the infirmity through later affidavits and oral testimony tendered during appellate proceedings. It held such evidence unreliable in the circumstances, noted the absence of comparable direct support from the approving authority, and held that the record did not demonstrate that the approving authority actually examined the complete relevant material before granting approval. Conclusion: The Tribunal held that the section 153D approval suffered from multiple infirmities-mechanical grant, absence of discernible application of mind, lack of meaningful compliance with the CBDT approval-timelines discipline, and violation of the 'each assessment year' requirement as applied by the Tribunal. Consequently, the approvals were invalid. Issue (ii): Consequence of invalid approval-annulment vs remand for fresh approval Interpretation and reasoning: Having found the section 153D approval invalid, the Tribunal held that the defect goes to the root of the assessment and vitiates the assessment order itself. It refused the Revenue's alternative prayer to remand the matter to the approving authority for fresh approval, holding that such a course would amount to granting a second opportunity to the Revenue and would effectively circumvent statutory limitation, since the time available for assessment includes the time for securing valid section 153D approval and no legal provision was shown permitting extension on account of invalid approval. Conclusion: The Tribunal annulled the assessment orders and set aside the appellate orders founded on them. Since the assessments were annulled on the jurisdictional defect, other grounds on merits were treated as academic and not adjudicated.