2025 (5) TMI 1782 - AT - Income Tax

Assessment proceedings under section 153C quashed for non-compliance with mandatory section 153D approval requirements

The ITAT Delhi quashed assessment proceedings initiated under section 153C read with section 153A of the Income Tax Act. The tribunal held that the entire ... Assessment u/s 153C - non complying with mandatory conditions - approval u/s.153D has not been obtained in accordance with law - HELD THAT:- Entire proceedings initiated under section 153C r.w.s. 153A of the Act in the absence of a valid approval granted by the Ld. ACIT, Central Range-4, New Delhi dated 30.12.2019 quashed - legal ground raised by the assessee. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered by the Tribunal was whether the assessment order passed by the Assessing Officer (AO) under section 153C read with section 153A of the Income Tax Act was valid in the absence of a valid approval under section 153D of the Act. Specifically, the Tribunal examined:Whether the approval granted under section 153D was obtained in accordance with law, including the requirement of an independent application of mind by the approving authority.Whether a single composite approval covering multiple assessment years and multiple assessees satisfied the statutory mandate under section 153D, which requires approval for each assessment year separately.The legal effect of a mechanical or perfunctory approval granted by the Additional Commissioner of Income Tax without due consideration of the draft assessment orders.The applicability of precedents regarding the necessity of genuine application of mind in granting approval under section 153D.The consequences of non-compliance with the procedural and substantive requirements of section 153D on the validity of assessment proceedings initiated under sections 153A and 153C.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Approval under Section 153D of the Income Tax ActRelevant Legal Framework and Precedents: Section 153D mandates that no assessment or reassessment order under sections 153A or 153C shall be passed without prior approval of the Joint Commissioner or an officer of equivalent rank. The approval must be granted after due application of mind to the draft assessment order. Precedents such as Shreelekha Damani vs. DCIT (173 TTJ 332 (Mum.)) and the decision of the Hon'ble Bombay High Court (reported in 307 CTR 218) emphasize that approval cannot be a mere formality or rubber stamping; it must be based on consideration of relevant material and independent analysis. The Hon'ble Delhi High Court in PCIT vs. Shiv Kumar Nayyar reiterated that approval under section 153D cannot be mechanical and must reflect an appropriate application of mind.Court's Interpretation and Reasoning: The Tribunal noted that the approval in the present case was granted on the same day the draft assessment orders were submitted, covering 43 cases in one day, including multiple assessment years for the assessee and related family members. The approval was a common composite order and did not indicate any perusal or independent consideration of each draft order. The Additional Commissioner explicitly stated that due to time constraints, the approval was granted 'as is,' without analysis of merits. This amounted to a mechanical exercise lacking application of mind, rendering the approval invalid in law.Key Evidence and Findings: The approval letter dated 30.12.2019 was scrutinized, showing a single composite approval for multiple assessment years and assessees. The Tribunal relied on the affidavit and paper book filed by the assessee and the precedent order dated 10.01.2025 in a related family member's case, which held similarly. The Right to Information (RTI) response obtained by a related party further confirmed the mass approval practice by the Additional Commissioner.Application of Law to Facts: The statutory requirement under section 153D is that approval must be granted for each assessment year after an independent application of mind. The composite approval covering multiple years and assessees without examination of individual drafts violated this requirement. The approval was thus invalid, vitiating the entire assessment proceedings initiated under sections 153A and 153C.Treatment of Competing Arguments: The Revenue contended that the approval was an administrative act and procedural irregularities in the approval process did not affect the validity of assessment orders. The Tribunal rejected this argument, holding that the procedure and substance of approval are integral to the validity of the assessment. The approval cannot be a mere formality, and failure to comply with statutory mandates renders the proceedings null and void.Conclusions: The Tribunal concluded that the approval under section 153D was invalid due to lack of application of mind and improper composite approval covering multiple years and assessees. Consequently, the assessment orders passed under sections 153A and 153C without valid approval were quashed.Issue 2: Requirement of Separate Approval for Each Assessment YearRelevant Legal Framework and Precedents: Section 153D requires prior approval for each assessment year separately. The Hon'ble Delhi High Court in PCIT vs. Shiv Kumar Nayyar and the ITAT decisions emphasized that a blanket approval for multiple years does not satisfy the statutory requirement.Court's Interpretation and Reasoning: The Tribunal observed that the approval granted was a common composite order for several assessment years and multiple assessees. This approach 'dehors the rules' and shows non-application of mind. The approval was arbitrary and erroneous, failing to comply with the procedural safeguards envisaged in the Act.Key Evidence and Findings: The approval letter did not specify separate consideration for each assessment year. The approval was granted en masse on a single day for 43 cases, indicating a mechanical process.Application of Law to Facts: The statutory mandate requires that each assessment year's draft order be independently considered before approval. The composite approval violated this requirement, rendering the approval invalid and the consequent assessments void.Treatment of Competing Arguments: The Revenue's contention that the composite approval was sufficient was rejected on the ground that statutory provisions must be strictly complied with, especially when they safeguard the rights of the assessee.Conclusions: The Tribunal held that approval must be granted separately for each assessment year, and failure to do so invalidates the approval and the assessment proceedings.Issue 3: Effect of Invalid Approval on Assessment ProceedingsRelevant Legal Framework and Precedents: The provisions under sections 153A, 153C, and 153D collectively regulate assessment proceedings following search or seizure operations. The Supreme Court and various High Courts have held that non-compliance with mandatory procedural requirements, such as valid approval under section 153D, vitiates the assessment proceedings.Court's Interpretation and Reasoning: The Tribunal noted that since the approval under section 153D was invalid, the entire assessment proceedings initiated under sections 153A and 153C were 'non-est and a nullity.' The Tribunal relied on the decision of the Hon'ble High Court of Orissa in ACIT vs. Serajuddin and Co., where the Supreme Court dismissed the Revenue's appeal against invalid approval granted mechanically.Key Evidence and Findings: The Tribunal relied on the factual matrix showing mechanical approval and the absence of application of mind. The prior decisions in related cases of family members also supported the conclusion that assessments without valid approval are void.Application of Law to Facts: The invalid approval meant that the AO lacked jurisdiction to pass assessment orders under sections 153A and 153C. The assessments were thus liable to be quashed.Treatment of Competing Arguments: The Revenue's argument that procedural irregularities in approval do not affect the validity of assessments was rejected as contrary to settled law.Conclusions: The Tribunal quashed the entire assessment proceedings for the relevant assessment year(s) due to invalid approval under section 153D.3. SIGNIFICANT HOLDINGS'The approval granted by the Additional Commissioner of Income Tax was without application of mind and, therefore, not a valid approval in the eye of law. The approval should not be an empty ritual and must be based on consideration of relevant material on record.''The Additional Commissioner recorded that the draft order was submitted late and hence there was no much time left to analyze the issue on merit. Therefore, the draft order is being approved as it is submitted. This amounted to a mere mechanical exercise accepting the draft order without any independent application of mind.''The approval under section 153D of the Income Tax Act must be granted separately for each assessment year after due application of mind. A composite approval covering multiple years and assessees without individual consideration is invalid.''Assessment orders passed under sections 153A and 153C without valid approval under section 153D are non-est and a nullity and are liable to be quashed.''Grant of approval under section 153D cannot be merely a ritualistic formality or rubber stamping by the authority; it must reflect an appropriate application of mind.''The procedure to grant approval is integral to the validity of assessment proceedings. Administrative convenience or procedural lapses cannot override statutory mandates.''The question of validity of approval under section 153D goes to the root of the matter and can be raised at any stage.''The Tribunal respectfully follows the precedents laid down by coordinate benches and the Hon'ble Delhi High Court, which have consistently held that mechanical or blanket approvals under section 153D are invalid.''In view of the invalidity of approval, the Tribunal does not consider it expedient to adjudicate the merits of additions/disallowances made in the assessment orders.'