2025 (5) TMI 2120 - AT - Income Tax

Section 153D approval covering seven years without mentioning seized material held mechanical and arbitrary, assessment orders quashed

ITAT Delhi quashed assessment orders under section 153A after finding that approval under section 153D was mechanical and arbitrary. The tribunal held ... Assessment u/s 153A - Approval accorded u/s 153D is a mechanical and arbitrary approval without their being any application of mind and also without satisfying the statutory pre-conditions of the Act as such the assessment so framed is null and void HELD THAT:- In the instant case, a single approval u/s 153D has been accorded in respect of seven Assessment Years pertaining to the Assessee, there is no mentioning of seized material in the other material to show involvement of the superior authority in the approval granted by the ACIT. The assessment orders based on ritualistic approval stands vitiated and thus we quash the respective impugned Assessment Orders and the consequential orders of the Ld. CIT(A) by allowing the additional ground of the respective Appeals. The core legal questions considered in this judgment revolve around the validity and legality of the approval granted under Section 153D of the Income Tax Act, 1961 ('the Act') in the context of assessment proceedings initiated following a search under Section 132 of the Act. Specifically, the issues include:1. Whether the approval accorded under Section 153D of the Act for multiple assessment years in a single order without individual application of mind is valid.2. Whether the approval under Section 153D can be mechanical or perfunctory, or must involve an independent application of mind by the approving authority.3. Whether the failure to accord proper approval under Section 153D vitiates the assessment orders passed under Section 153A of the Act.4. The procedural propriety and statutory requirements for granting approval under Section 153D, including the timing and manner of such approval.5. The impact of raising additional grounds of appeal concerning Section 153D approval at a belated stage without prior mention before the Commissioner of Income Tax (Appeals).Issue-wise Detailed Analysis1. Validity of Single Approval for Multiple Assessment Years under Section 153DLegal Framework and Precedents: Section 153D mandates that prior approval of the Joint Commissioner of Income Tax is required before an Assessing Officer passes any assessment or reassessment order under Sections 153A or 153C in cases involving search or requisition. The approval must be granted for each assessment year separately. The Jurisdictional High Court in the case of Pr. Commissioner of Income Tax vs. Shiv Kumar Nayyar emphasized that the approval under Section 153D must be for 'each assessment year' and cannot be a blanket approval covering multiple years simultaneously. The Allahabad High Court in PCIT v. Sapna Gupta further clarified that the approving authority must apply independent mind to each assessment year and each assessee separately, and mechanical or perfunctory approval defeats the legislative intent.Court's Interpretation and Reasoning: The Court observed that in the present case, a single approval was granted for seven assessment years of the Assessee in one order, without any indication of separate consideration for each year. This was held to be a mechanical or perfunctory approval, lacking any application of mind. The Court relied on the aforementioned precedents to conclude that such approval is invalid.Key Evidence and Findings: The approval letter dated 22/12/2017 by the Joint Commissioner of Income Tax (JCIT) was reproduced and scrutinized. It contained no discussion or reference to the subject matter of additions or any indication that the draft assessment orders were perused. The approval was granted on the same day the draft orders were submitted, and the JCIT had approved multiple cases on that day, making it humanly impossible to apply mind individually.Application of Law to Facts: Applying the legal principles, the Court found that the approval did not meet the statutory requirement of independent application of mind for each assessment year. The single approval for multiple years was contrary to the statutory mandate and judicial precedents.Treatment of Competing Arguments: The Revenue argued that the approval was valid as the JCIT had perused the records and applied mind, relying on CBDT guidelines for coordinated assessment in search cases. The Court rejected this, noting the absence of any indication in the approval letter of such perusal or consideration, and emphasized that the statutory requirement cannot be satisfied by mere administrative convenience or guidelines.Conclusion: The single approval for multiple assessment years was held to be invalid and vitiated the assessment orders.2. Requirement of Independent Application of Mind in Approval under Section 153DLegal Framework and Precedents: The Court relied heavily on the decisions of the Orissa High Court in ACIT v. Serajuddin & Co., the Jurisdictional High Court in Shiv Kumar Nayyar, and other cases such as PCIT vs Anuj Bansal and PCIT vs Subhash Dabas. These authorities uniformly hold that approval under Section 153D is mandatory and must reflect an independent application of mind. Mere rubber stamping or mechanical approval is impermissible and vitiates the assessment.Court's Interpretation and Reasoning: The Court noted the absence of any indication of thought process or examination of draft orders in the approval letter. The approval was a mere formality, described as 'performa approval' and 'mechanical or perfunctory.' The Court underscored that the approving authority must verify the issues raised by the Assessing Officer and ensure that the procedure has been correctly followed.Key Evidence and Findings: The evidence showed that the JCIT granted approvals for 43 cases on the same day, including multiple cases of the Assessee, making it practically impossible to apply mind to each case. The approval letters lacked any mention of perusal or independent consideration.Application of Law to Facts: The Court applied the principles from the precedents, concluding that the approval was a mere rubber stamp and thus invalid.Treatment of Competing Arguments: The Revenue submitted that the CBDT guidelines and prior discussions between officers justified the approval. The Court held that administrative guidelines cannot substitute the statutory requirement of application of mind, and that the approval letter must reflect such application.Conclusion: The approval was held to be invalid due to lack of independent application of mind.3. Consequences of Invalid Approval on Assessment OrdersLegal Framework and Precedents: The precedents cited establish that non-compliance with the requirements of Section 153D is not a mere procedural irregularity but goes to the root of the jurisdiction of the Assessing Officer to pass assessment orders. Invalid approval vitiates the assessment order itself.Court's Interpretation and Reasoning: The Court held that since the approval was invalid, the assessment orders passed under Section 153A were also invalid. It quashed the impugned assessment orders and the consequential orders of the Commissioner of Income Tax (Appeals).Key Evidence and Findings: The Court noted that the approval was a prerequisite for the validity of the assessment order. The absence of valid approval rendered the entire assessment process void.Application of Law to Facts: The Court applied the settled legal position that the absence of valid approval under Section 153D vitiates the assessment order passed under Section 153A.Treatment of Competing Arguments: The Revenue did not contest the legal principle but argued on the validity of the approval itself, which the Court rejected.Conclusion: The assessment orders were quashed due to invalid approval.4. Procedural Aspects and Delay in Raising Additional Grounds Regarding Section 153D ApprovalLegal Framework and Precedents: Generally, additional grounds of appeal should be raised at the earliest opportunity, preferably before the Commissioner of Income Tax (Appeals), to avoid procedural objections.Court's Interpretation and Reasoning: The Revenue objected to the Assessee raising the issue of invalid approval under Section 153D belatedly before the Tribunal, after two years and without justification. However, the Court chose to decide the issue on merits, given its fundamental importance to the validity of the assessment.Key Evidence and Findings: The additional grounds were raised only on the last date of hearing before the Tribunal, and not earlier before the CIT(A).Application of Law to Facts: Despite procedural objections, the Court exercised its discretion to consider the issue due to its fundamental nature.Treatment of Competing Arguments: The Court balanced procedural propriety against substantive justice and prioritized the latter.Conclusion: The Court admitted the additional grounds and decided the issue on merits.5. Interpretation of Section 153D Regarding Requirement of Separate Approval for Each Assessment YearLegal Framework and Precedents: The phrase 'each assessment year' in Section 153D has been interpreted by the courts to mean that the approving authority must grant approval separately for each year involved in the search or requisition. This interpretation is supported by the judgments of the Jurisdictional High Court and the Allahabad High Court.Court's Interpretation and Reasoning: The Court rejected the Revenue's submission that a single approval for multiple years is permissible. It held that the statutory language and judicial pronouncements require separate approval for each year to ensure proper scrutiny and application of mind.Key Evidence and Findings: The impugned approval covered seven assessment years in one letter without individual consideration.Application of Law to Facts: The Court applied the statutory interpretation and precedents to hold the approval invalid.Treatment of Competing Arguments: The Revenue's argument based on administrative convenience and CBDT guidelines was rejected as inconsistent with the statutory mandate.Conclusion: Separate approval for each assessment year is mandatory under Section 153D.Significant Holdings'A plain reading of the aforesaid provision evinces an uncontrived position of law that the approval under Section 153D of the Act has to be granted for 'each assessment year' referred to in clause (b) of sub-section (1) of Section 153A of the Act.''For granting approval under Section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for 'each assessment year' in respect of 'each assessee' separately.''The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power.''The mere repeating of the words of the statute, or mere 'rubber stamping' of the letter seeking sanction by using similar words like 'seen' or 'approved' will not satisfy the requirement of the law.''Non-compliance of requirement of section 153D of the Act is not a mere procedural irregularity and lapse committed by Revenue may vitiate the assessment order.''Where the Court finds that the approval is granted mechanically, it would vitiate the assessment order itself.''A single approval for multiple assessment years without any indication of application of mind is invalid and vitiates the assessment orders passed under Section 153A.'The final determination was that the approval accorded under Section 153D of the Act was mechanical, perfunctory, and invalid as it covered multiple assessment years in a single order without application of mind. Consequently, the assessment orders passed under Section 153A based on such approval were quashed. The additional grounds of appeal concerning the invalidity of approval were admitted and decided on merits. Other grounds were not adjudicated upon due to the quashing of assessment orders on this fundamental issue.