2025 (6) TMI 1296 - AT - Income Tax

Section 153D approval and consequential assessments quashed for being unsustainable without proper reasoning

ITAT Delhi quashed section 153D approval dated 23.12.2019 and consequential assessments, ruling they were unsustainable. The tribunal rejected revenue's ... Validity of approval u/s 153D - scope of common orders passed - HELD THAT:- We see no merit in the learned CIT-DR foregoing arguments. This is for the precise reason that there is no such procedure of getting the field authorities affidavit in support of their respective orders under the provisions of the Act that stated in the case records. Case law Hindustan Lever Ltd. Vs. R.B. Wadkar [2004 (2) TMI 41 - BOMBAY HIGH COURT] has already settled the issue; in section 148/147 jurisprudence, that even reasons recorded by the assessing authority could not be allowed to be improved of any latter stage which have to be read as standalone basis. The very legal proposition is applicable in administrative law as well as in hon'ble apex court's landmark decision in Mohinder Singh Gill & Anr. [1977 (12) TMI 138 - SUPREME COURT] as held when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds latter brought out. Thus given the fact that the impugned section 153D approval dated 23.12.2019 is a common one in all these assessment years, these consequential assessments dated 23.12.2019, are not sustainable in the eyes of law. The same are hereby quashed in very terms. Assessee appeal allowed. The core legal questions considered by the Tribunal in this batch of appeals revolve around the validity of assessments framed under section 143(3) read with section 153A of the Income Tax Act, 1961, particularly focusing on whether the Assessing Officer had obtained valid prior approval under section 153D of the Act before passing such assessments. The key issues include:1. Whether the impugned assessments framed pursuant to a search action are valid in the absence of a proper and valid approval under section 153D.2. The legal requirements and nature of the approval under section 153D-whether it must be a 'written approval' and the extent of the application of mind required by the approving authority.3. Whether a common or consolidated approval covering multiple assessment years is legally sustainable.4. The evidentiary value and admissibility of affidavits filed by departmental officers to prove due application of mind in granting section 153D approval.5. The scope of judicial review over administrative approvals and the limits on courts in interfering with administrative decisions.Issue-wise Detailed Analysis1. Validity of Assessments Framed without Valid Section 153D ApprovalThe Tribunal examined the validity of assessments passed under section 143(3) r.w.s. 153A following a search conducted on 29.03.2012. The Assessing Officer's approval proposal and the subsequent approval dated 23.12.2019 were scrutinized. The Tribunal relied heavily on precedents from coordinate benches, notably the order in DCIT Vs. Empire Realtech Pvt. Ltd., where it was held that assessments framed without valid section 153D approval are unsustainable in law. The Tribunal further cited the decision in Aditya Sharma Vs. ACIT, which emphasized that a common section 153D approval for multiple assessment years vitiates the entire assessment process.Applying these precedents, the Tribunal found that the impugned assessments were based on a common approval and thus lacked validity. The legal framework mandates that prior approval under section 153D is a prerequisite for framing assessments under section 153A. The absence of valid approval renders the assessment orders null and void.The Revenue's contention that the approval was valid was rejected based on the legal principle that such approval must be specific and not a blanket sanction covering multiple years without distinct application of mind for each year.2. Legal Nature and Requirements of Section 153D ApprovalThe Tribunal considered the Revenue's submission that the term 'written approval' is not expressly mentioned in section 153D, only 'prior approval' is required, and that such approval is an administrative order rather than a quasi-judicial or judicial order. The Tribunal examined Supreme Court decisions on judicial review of administrative action, including Municipal Council Neemuch vs Mahadeo Real Estate and West Bengal Central School Service Commission vs Abdul Halim.These decisions establish that judicial review of administrative orders is limited to legality, rationality, procedural propriety, and absence of arbitrariness or irrationality. The Court cannot sit in appeal over the merits but can intervene if the decision is perverse or taken without application of mind.Applying these principles, the Tribunal noted that the approval under section 153D must involve application of mind by the approving authority, but the procedural requirements are less stringent than for judicial orders. The approval need not be a detailed speaking order but must not be mechanical or perfunctory.3. Application of Law to Facts Regarding Section 153D ApprovalThe assessee challenged the approval on grounds that it was granted mechanically, without examination of the assessment records or seized material, and that a common approval was given without specific reasoning for each assessment year. The Tribunal considered affidavits filed by the Assessing Officer and the Additional Commissioner (approving authority) stating that the approval was granted after detailed discussions, regular meetings, and examination of appraisal reports and seized materials. It was affirmed that the authorities were co-located, facilitating frequent interactions and thorough consideration before approval.The Tribunal distinguished the present case from precedents cited by the assessee where no such discussions or application of mind were demonstrated. The fact that the approving authority suggested modifications to the draft assessment order before granting approval was taken as evidence of due application of mind.Accordingly, the Tribunal rejected the contention that the approval was mechanical or without application of mind, holding that the approval was valid and complied with the legal requirements under section 153D.4. Admissibility and Evidentiary Value of AffidavitsThe Tribunal addressed the Revenue's reliance on affidavits from the Assessing Officer and approving authority to prove due application of mind. The assessee objected to the use of affidavits, arguing that administrative orders cannot be supplemented by later explanations or affidavits.The Tribunal referred to settled legal principles from Hindustan Lever Ltd. vs R.B. Wadkar and Mohinder Singh Gill vs CEC, holding that the validity of a statutory order must be judged by the reasons recorded at the time of the order and cannot be bolstered by subsequent affidavits or explanations. However, in the present case, the affidavits were supported by circumstantial evidence, such as references in the assessment orders and the existence of appraisal reports, and were not contradicted by any counter-affidavit from the assessee.Therefore, the Tribunal accorded evidentiary value to the affidavits, considering them sufficient to establish that the approving authority had applied mind before granting approval.5. Legality of Common or Consolidated Section 153D ApprovalThe Tribunal examined the legality of a common approval for multiple assessment years. Precedents cited by both parties were considered. The Tribunal noted that coordinate benches have held that a combined section 153D approval for multiple years is not sustainable, as each assessment year requires separate approval to ensure application of mind specific to facts of that year.However, in the present case, the Tribunal found that the approval letter specifically mentioned the relevant assessment years and that the approval was not a mere blanket sanction but was supported by detailed discussions and appraisal reports covering those years. The Tribunal also observed that the approval was not absolute but subject to modifications suggested by the approving authority.Thus, the Tribunal upheld the validity of the common approval in this factual context, distinguishing it from precedents where no such application of mind or discussion was demonstrated.6. Scope of Judicial Review and Limits of InterferenceThe Tribunal extensively referred to Supreme Court rulings on the limited scope of judicial review over administrative orders, emphasizing that courts should not interfere merely because a decision is not perfect or because a different view could have been taken. Interference is warranted only if the decision is illegal, irrational, procedurally improper, or perverse to the extent that no reasonable authority could have taken it.Applying these principles, the Tribunal found no ground to interfere with the section 153D approval granted in the instant case, as the approval was neither arbitrary nor lacking application of mind.Conclusions on IssuesThe Tribunal concluded that the assessments framed without valid section 153D approval, as in the batch of appeals related to the assessee Himanshu Verma, are not sustainable and are accordingly quashed. This aligns with the legal requirement that prior approval under section 153D is mandatory and must be valid.However, in the separate appeal relating to Usha Satish Salvi, where the assessee challenged the validity of approval on grounds of mechanical grant and non-application of mind, the Tribunal upheld the validity of the approval. This was based on the affidavits and evidence demonstrating regular discussions, examination of appraisal reports, and modifications suggested by the approving authority, thereby establishing due application of mind.Significant Holdings'The Tribunal's recent co-ordinate bench order dated 24.02.2025 ... held such an assessment itself has not sustainable in law for want of valid section 153D approval.''Such a combined section 153D approval indeed vitiates the entire assessment itself.''The approval granted under section 153D is an administrative order ... the legal requirements and benchmarks regarding the principles of 'the application of mind' and 'the speaking order' are not as strict or high, as they are in the case of quasi- judicial or judicial order.''The scope of judicial review of an administrative action is very limited ... The test is not what the Court considers reasonable or unreasonable but a decision which the Court thinks that no reasonable person could have taken, which has led to manifest injustice.''The validity of a statutory order must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise.''The fact of modification suggested in the order itself shows that the approving authority has gone through draft assessment order and analyzed the issue involved therein.''The affidavits filed by the officers coupled with circumstantial evidences available in the assessment folders clearly establish the fact of obtaining necessary approval u/s 153D of the Income-tax Act.'In final determination, the Tribunal quashed the impugned assessments framed without valid section 153D approval and dismissed the Revenue's cross appeals. Conversely, the Tribunal rejected the assessee's challenge to the validity of approval in the appeal relating to Usha Satish Salvi, holding that the approval was granted after due application of mind and was legally valid.