2025 (6) TMI 1386 - AT - Income Tax

Assessment proceedings quashed due to invalid section 153D approval requiring separate year-specific approvals under section 153A

Manoj Kumar Chaudhary Versus DCIT, Central Circle, Noida And Manoj Kumar HUF Versus DCIT, Central Circle, Noida

ITAT Delhi quashed assessment proceedings initiated under section 153C read with section 143(3) due to invalid approval under section 153D. The tribunal ... Validity of approval accorded u/s 153D - as argued approval is mechanical and the approval for section 153D has to be separate for each assessment year and cannot be a common approval - HELD THAT:- We find that in the case of PCIT Central vs. Siddharth Gupta [2022 (12) TMI 1021 - ALLAHABAD HIGH COURT] has decided the similar legal issue in favour of the assessee and against the Revenue as held conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to 'each assessment year' is to be obtained by the AO on the draft assessment order before passing the assessment orders u/s 153A. Section 153A(1)(a) requires that the assessee on a notice issued to him by the Assessing Officer would be required to furnish the return of income in respect of 'each assessment year' falling within six assessment years (and for the relevant assessment year or years), referred to in Clause (b) of sub-section (1) of Section 153A. The proviso to Section 153A further provides for assessment of the total income in respect of each assessment year falling within such six assessment years (and for the relevant assessment year or years). Thus, we quash the entire proceedings initiated under section 153C r.w.s. 143(3) of the Act in the absence of a valid approval granted by the approving authorities. The core legal issues considered by the Tribunal in these connected appeals relate primarily to the validity and legality of the approval granted under Section 153D of the Income Tax Act, 1961, which is a prerequisite for passing assessment or reassessment orders under Section 153A following a search under Section 132. The principal questions include:1. Whether the approval under Section 153D of the Act was validly granted, specifically, whether a common approval covering multiple assessment years and multiple assessees can satisfy the statutory requirement of approval for each assessment year separately.2. Whether the approval granted was a mechanical exercise lacking application of independent mind by the approving authority, thereby vitiating the assessment proceedings.3. Whether the search under Section 132 was validly initiated, and the consequent additions and assessments under Section 153A are sustainable.4. Whether the additions made on account of alleged bogus long-term capital gains, exempt income, and unexplained cash deposits under Section 68 of the Act are justified.5. Whether the assessee fulfilled the burden of proof with regard to the additions made.Issue-Wise Detailed Analysis1. Validity of Approval under Section 153D of the Income Tax ActLegal Framework and Precedents: Section 153D mandates that no order of assessment or reassessment under Section 153A can be passed without prior approval of the Joint Commissioner or an officer of equivalent rank for each assessment year. The approval is a safeguard against arbitrary exercise of power by the Assessing Officer. The approval must be granted after an application of mind to the facts and circumstances of each case and for each assessment year individually.Relevant precedents include the judgment of the Hon'ble Allahabad High Court in PCIT Central vs. Siddharth Gupta, upheld by the Supreme Court, which emphasized that approval under Section 153D cannot be mechanical or a mere formality but must reflect independent consideration of the draft assessment order. Similarly, the Delhi High Court in PCIT vs. Shiv Kumar Nayyar reiterated that approval must not be a ritualistic formality or rubber stamping but must involve application of mind.The ITAT Delhi Bench in M/s Millenium Vinimay (P) Ltd. vs. ACIT also held that mechanical approval without consideration of relevant material is invalid. The Supreme Court in ACIT, Circle-1 (2) vs. Serajuddin and Co. dismissed the Revenue's appeal against a High Court order quashing assessment on similar grounds.Court's Interpretation and Reasoning: The Tribunal scrutinized the approval orders submitted by the Revenue. It was found that a single composite approval was granted covering multiple assessment years and multiple assessees on the same day, without any indication of independent examination of each draft order. The approval letter itself lacked any reasoning or analysis and was granted in a mechanical manner, sometimes on the same day the draft orders were submitted.The Tribunal observed that such blanket approval defeats the legislative intent and statutory safeguard provided by Section 153D. The approving authority failed to discharge its statutory duty to apply independent mind to each case and each assessment year.Key Evidence and Findings: The Tribunal relied on the detailed tabulation of approvals granted on the same date for numerous assessees and assessment years, the content of the approval letters, and the case law precedents highlighting the requirement of application of mind. The Right to Information Act disclosures further revealed the volume of approvals granted on a single day, underscoring the impracticality of genuine scrutiny.Application of Law to Facts: Applying the settled legal principles, the Tribunal held that the approval granted was invalid as it did not comply with the statutory requirement of separate approval for each assessment year and for each assessee. The mechanical nature of the approval rendered the entire assessment proceedings under Section 153A and related provisions non-est and a nullity.Treatment of Competing Arguments: The Revenue contended that approval under Section 153D is an administrative act and procedural in nature, which does not affect the validity of the assessment. The Tribunal rejected this, relying on authoritative precedents that emphasize the substantive nature of approval and the necessity of application of mind.Conclusion: The Tribunal quashed the entire assessment proceedings initiated under Section 153A read with Section 153C for the relevant assessment years due to invalid approval under Section 153D.2. Validity of Search under Section 132 and Consequent AdditionsLegal Framework: Search and seizure under Section 132 require satisfaction of specific conditions and grounds. If the search is invalid, consequential assessments under Section 153A are also impermissible.Court's Reasoning: The assessee challenged the validity of the search, arguing that necessary ingredients for initiating search were not satisfied. The Tribunal, however, did not delve into this issue in detail, as the invalidity of approval under Section 153D itself vitiated the assessment proceedings.Conclusion: The Tribunal refrained from adjudicating on the validity of search and related additions, as the jurisdictional defect on approval was sufficient to quash the proceedings.3. Additions on Account of Bogus Long Term Capital Gains, Exempt Income, and Cash DepositsLegal Framework: Section 68 of the Income Tax Act places the burden on the assessee to explain the source of unexplained cash credits. Additions can be made if the explanation is unsatisfactory or if evidence of bogus transactions is found.Court's Reasoning: The assessee contended that he had fulfilled the burden of proof by submitting detailed cash books and other evidence. The CIT(A) confirmed additions on these grounds, but the Tribunal did not examine these merits as the legal objections on approval under Section 153D were dispositive.Conclusion: The Tribunal held that since the assessment proceedings themselves were quashed for lack of valid approval, the merits of these additions need not be adjudicated at this stage.4. Burden of Proof and Evidentiary SubmissionsThe assessee argued that all evidentiary requirements were met, including submission of detailed cash books and explanations for cash deposits and exempt income. The CIT(A) rejected these submissions. However, the Tribunal did not proceed to examine these issues on merit due to the fundamental jurisdictional defect found.Significant Holdings'The approval of draft assessment order being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise, without application of independent mind by the Approving Authority on the material placed before it and the reasoning given in the assessment order.''The careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to 'each assessment year' is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment orders under Section 153A.''Granting approval in the absence of due application of independent mind to the material on record for each assessment year in respect of the assessee's case separately vitiates the entire proceedings; the same is found to be arbitrary and erroneous and therefore, liable to be quashed.''Such perfunctory approval has no legal sanctity in the eyes of the law.''The question of validity of the approval goes to the root of the matter and could have been raised at any time.'The Tribunal's final determination was that the approval granted under Section 153D was invalid as it was a common, composite, and mechanical approval covering multiple assessment years and assessees without application of mind. Consequently, all assessment proceedings initiated under Section 153A read with Section 153C for the relevant assessment years were quashed. The Tribunal declined to adjudicate on the merits of additions, as the jurisdictional defect rendered those issues infructuous.Accordingly, the appeals filed by the assessee for the assessment years 2011-12, 2012-13, and 2015-16 were partly allowed, setting aside the impugned orders and quashing the assessment proceedings due to invalid approval under Section 153D of the Income Tax Act.