Assessment order under section 143(3) invalid due to mechanical approval under section 153D without application of mind

ITAT Delhi held that assessment order u/s 143(3) was invalid due to improper approval under section 153D. The AO sought consolidated approval for 21 cases spanning assessment years 2013-14 to 2019-20 through a common letter dated 28-09-2021. The ACIT granted approval for all years via single letter on the same day (28-09-2023). The tribunal found this approval was mechanical and without application of mind, as required under section 153D. Consequently, the assessment order was deemed invalid and the assessee's appeal was allowed.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the assessment order passed under section 143(3) of the Income Tax Act, 1961 for the assessment year 2019-20 is valid in the absence of proper and valid approval under section 153D of the ActRs.

(b) Whether the approval granted by the Additional Commissioner of Income Tax (Addl. CIT) under section 153D was mechanical and without due application of mind, thereby rendering the assessment order illegal and void ab initioRs.

(c) Whether the assessment order passed under section 143(3) is barred by limitation as prescribed under section 153B of the ActRs.

(d) Whether the addition made on account of unexplained jewellery found during search and seizure is justified, especially in light of the assessee's explanations and the absence of a show cause noticeRs.

(e) Whether the notice of demand issued under section 156 prior to the conclusion of assessment proceedings under section 143(3) is valid, including compliance with mandatory requirements such as the inclusion of Document Identification Number (DIN) as per Circular No. 19/2019Rs.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of assessment order in absence of proper approval under section 153D and whether approval was mechanical

The legal framework mandates that for assessments arising out of search and seizure operations under section 132, the Assessing Officer (AO) must obtain prior approval from the Joint Commissioner of Income Tax (JCIT) or Additional Commissioner of Income Tax (Addl. CIT) under section 153D before passing an assessment order under section 143(3). This approval is intended as a safeguard to ensure that the assessment is not passed arbitrarily and that the approving authority applies independent mind to the facts and materials before sanctioning the assessment.

The assessee challenged the validity of the assessment on the ground that the approval granted by the Addl. CIT was mechanical, being granted for 21 cases in a single order on the same day without individual consideration or application of mind. The assessee relied on several precedents supporting the proposition that mechanical or blanket approvals without examination of seized material and appraisal reports render the assessment invalid.

The Tribunal examined the approval letter dated 28-09-2021 and the related correspondence. It noted that the AO had sent a common letter seeking approval for multiple assessment years and cases, and the Addl. CIT granted approval for all these cases on the same day through a single letter. This was found to be inconsistent with the statutory requirement that approval under section 153D must be year-wise and case-wise, with due application of mind.

The Tribunal referred extensively to binding precedents, including decisions of coordinate benches of the Tribunal and High Courts, which have held that:

• Approval under section 153D must be a speaking order reflecting application of mind and cannot be a mere formality or mechanical act.
• Approvals granted on the basis of draft assessment orders or certificates from the AO without independent scrutiny of appraisal reports, seized material, and other records are invalid.
• When approval is granted mechanically or without application of mind, the assessment order loses its validity and is liable to be quashed.

Specifically, the Tribunal cited decisions where approval letters merely stated "Following draft assessment orders are being approved" without elaboration or evidence of independent examination were held to be insufficient. The Tribunal also noted the inherent fallacy in the belief expressed by some approving authorities that approval is a mere formality culminating the application of mind exercised by the AO during assessment proceedings.

Applying the law to the facts, the Tribunal found that the Addl. CIT's approval in the instant case was similarly mechanical and without due application of mind, as it was a consolidated approval for 21 cases granted on the same day without individual consideration. The Tribunal held that such approval is invalid and quashed the assessment order accordingly.

Issue (c): Limitation under section 153B

The assessee raised the ground that the assessment order and notice of demand were issued beyond the limitation period prescribed under section 153B. However, since the Tribunal quashed the assessment on the ground of invalid approval under section 153D, it did not adjudicate this issue, rendering it academic.

Issue (d): Addition on account of unexplained jewellery

The assessee challenged the addition of Rs. 4,15,898 on account of unexplained jewellery found during the search, contending that satisfactory explanation was furnished and no show cause notice was issued before making the addition. However, as the assessment was quashed on the ground of invalid approval, the Tribunal did not examine the merits of this addition or the procedural compliance regarding show cause notice, leaving these issues open for future adjudication.

Issue (e): Validity of notice of demand under section 156 and compliance with DIN requirements

The assessee contended that the notice of demand issued prior to the conclusion of assessment proceedings and without mentioning the Document Identification Number (DIN) was defective and invalid. Again, since the assessment was quashed on the primary legal ground of invalid approval, the Tribunal refrained from adjudicating this issue, considering it academic.

3. SIGNIFICANT HOLDINGS

The Tribunal's crucial legal reasoning is captured in the following verbatim excerpts:

"In view of the aforesaid discussions and also by respectfully following the aforesaid binding precedents, we hold that the approval dated 28-09-2021 granted u/s 153D of the Act by the Addl. Commissioner of Income Tax Central Range Meerut is mechanical and without due application of mind. Accordingly, we quash the assessment and allow the legal ground raised by the assessee. Since we have quashed the assessment, the other grounds have become academic, hence need not be adjudicated upon."

Another important principle reiterated is:

"Whenever any statutory obligation is cast upon any authority, such authority is legally required to discharge the obligation by application of mind. The approval of JCIT should reflect application of mind, which is missing in the instant case. The requirement of approval cannot be treated as mere formality and the mandate of the Act is that the approving authority has to act in a judicious manner by due application of mind in a manner of a quasi-judicial authority."

The Tribunal also emphasized that mere issuance of a blanket approval without examination of the appraisal report, seized material, or other relevant records is insufficient and vitiates the assessment proceedings.

Final determinations on each issue are:

• The assessment order passed under section 143(3) without valid and proper approval under section 153D is invalid and liable to be quashed.
• The approval granted by the Addl. CIT under section 153D was mechanical and without due application of mind, rendering the assessment void ab initio.
• Issues relating to limitation under section 153B, additions on unexplained jewellery, and validity of notice of demand were not adjudicated due to the quashing of the assessment on the primary legal ground.

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