s.153A search assessments challenged over defective s.153D approvals; orders remanded for fresh, assessee-wise and year-wise approvals

Whether assessments under s.153A were vitiated for want of valid approval under s.153D was the dominant issue. The ITAT held that the HC decision relied on did not lay down a binding rule that every irregular s.153D approval mandates annulment, applying the SC principle that precedents must be confined to issues actually decided. On facts, the Range Head could not be treated as having granted "mechanical" approval because CBDT guidelines required his involvement and he filed an affidavit rebutting non-application of mind; however, approvals were not granted assessee-wise and year-wise as required, rendering the s.153A orders defective. Applying SC and Tribunal authorities on curable procedural defects, the matters were remanded to the AO to obtain fresh lawful approvals; additional grounds were partly allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1) Whether the Tribunal should admit additional grounds challenging the validity of assessments on the basis that approval under section 153D was granted mechanically, and whether related documents filed with such grounds could be admitted.

2) Whether the Tribunal had jurisdiction to examine the validity of assessments on the ground of defective/invalid approval under section 153D, even though the issue was not decided by the first appellate authority.

3) Whether, on the facts, the approval granted under section 153D was a "mechanical" approval (i.e., without application of mind), and the evidentiary value/admissibility of the approving authority's affidavit tendered to rebut that allegation.

4) Whether the section 153D approval was legally defective because it was not granted separately for each assessee and each assessment year, and the consequence of such defect (annulment versus restoration for fresh approval).

5) Consequentially, whether merits-grounds on additions/disallowances survived after the Tribunal's decision on the section 153D approval issue.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admission of additional grounds and supplementary paper books

Legal framework (as discussed by the Tribunal): The Tribunal considered the permissibility of raising a new ground at the Tribunal stage, relying on the principle that a purely legal ground going to validity may be admitted. It also examined objections founded on Rules 11, 18 and 29 of the ITAT Rules regarding raising additional grounds and filing supplementary documents.

Interpretation and reasoning: The Tribunal held that the challenge-whether assessments become illegal/non est if approval under section 153D is mechanical or not "in the eyes of law"-is a question of law affecting validity, notwithstanding that determination of "mechanical approval" involves factual examination. It rejected objections that the Tribunal could not admit the additional grounds or related papers, holding that the Tribunal had heard the Department on admission, that supplementary paper books were filed by both sides, and that letters forming part of assessment record are not "additional evidence" merely because not earlier relied upon.

Conclusion: Additional grounds challenging validity on section 153D approval were admitted, and supplementary paper books relevant to those grounds were also admitted.

Issue 2: Tribunal's jurisdiction to consider section 153D validity though not decided by the first appellate authority

Legal framework (as discussed by the Tribunal): The Tribunal addressed the Department's objection that the issue did not "emanate" from the first appellate order and that section 153D approval is not separately appealable. It considered appellate competence to decide an issue going to the root of validity even if the lower authority decided the matter on other grounds.

Interpretation and reasoning: The Tribunal held that a challenge to validity of assessment can be raised at the Tribunal stage and is within its competence to decide when it goes to the root of the matter. It reasoned that it is the final fact-finding authority and, where material is available, it can determine the facts without remand merely because the first appellate authority did not decide that ground.

Conclusion: The Tribunal rejected the jurisdictional objection and proceeded to adjudicate the section 153D approval issue.

Issue 3: Whether approval under section 153D was "mechanical" and evidentiary value of the approving authority's affidavit

Legal framework (as discussed by the Tribunal): The Tribunal evaluated competing positions: assessees asserted "human impossibility" of application of mind due to approvals being given for numerous cases within a short time; the Department relied on CBDT search-assessment guidelines (22.12.2006) describing the Range Head's supervisory involvement and filed an affidavit of the approving authority asserting continuous monitoring and due application of mind. The Tribunal also considered the objection that an affidavit cannot "supplement reasons" and the relevance of presumptions regarding performance of official acts.

Interpretation and reasoning: The Tribunal held that the affidavit did not seek to add reasons to an assessment order but rebutted an allegation against the approving authority, explaining the manner of supervision, visits, and exchange of draft orders. It distinguished the principle against post-hoc supplementation of reasons as inapplicable to a rebuttal affidavit defending the approval process. It also noted the affidavit remained uncontroverted by any counter-affidavit or cross-examination request. Considering the CBDT guidelines indicating close participation of the Range Head during assessment stages and the affidavit's assertions consistent with such role, the Tribunal declined to hold that approval was mechanical merely because many approvals were issued quickly.

Conclusion: The Tribunal accepted the affidavit for consideration and held that the approvals could not be treated as "mechanical" on the ground of short time/volume alone, given the supervisory involvement described and the unrebutted affidavit.

Issue 4: Defect in section 153D approval for not being granted for each assessee and each assessment year; consequence-annulment vs restoration

Legal framework (as discussed by the Tribunal): The Tribunal considered the requirement (as stated in decisions discussed in the judgment) that approval under section 153D must be with respect to "each assessment year" and for each assessee. It then examined what follows if approval is not in that manner, including whether the defect is curable by remand/restoration, referring to principles on illegality arising after lawful initiation and restoration to the stage of illegality rather than quashing the entire proceeding.

Interpretation and reasoning: On the record, the Tribunal found that the approval letter granted approvals for multiple assessees and multiple years together and did not grant approval separately for each assessee and each assessment year. It held this was not "in accordance with the provisions of the Act" and therefore vitiated/defective. However, since the proceeding was otherwise validly initiated and the defect related to the approval stage, and because the Tribunal did not find the approval to be mechanically granted without reference to material, it treated the defect as one warranting restoration to the assessment stage for obtaining fresh approval "in accordance with law" rather than annulment of assessments. It expressly chose restoration to the Assessing Officer for seeking fresh approvals from the Range Head.

Conclusion: Section 153D approval was held defective for not being assessee-wise and assessment-year-wise; the remedy ordered was restoration/remand to the Assessing Officer for obtaining fresh approvals in accordance with law. Additional grounds were partly allowed on this basis.

Issue 5: Effect on merits issues (additions/disallowances) after restoration for fresh section 153D approval

Interpretation and reasoning: Because the Tribunal restored assessments to the Assessing Officer for fresh section 153D approvals, it held that challenges to merits of additions and other issues did not survive at that stage.

Conclusion: Merits grounds (other than those relating to section 153D approval) were dismissed as infructuous; departmental appeals and related cross-objections were also dismissed as infructuous where assessments were restored.

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