2025 (6) TMI 1461 - AT - Income Tax

Competent authority's mechanical approval under Section 153D without independent examination renders assessment proceedings invalid

Mamta Agrawal Versus The Assistant Commissioner of Income Tax Central Circle, Bilaspur (C.G)

Mamta Agrawal Versus The Assistant Commissioner of Income Tax Central Circle, Bilaspur (C.G) - TMI The core legal issue considered in this judgment pertains to the validity of the approval granted under Section 153D of the Income Tax Act, 1961 ('the Act') by the competent authority. Specifically, the question is whether the approval granted on a mechanical and summary basis, without any independent application of mind or recording of satisfaction for each assessment year and each assessee, is valid in law. The validity of the assessment order framed under Section 143(3) read with Section 153A, consequent to such approval, is also in question.Two intertwined issues emerge: (i) the procedural and substantive requirements for granting approval under Section 153D of the Act, and (ii) the effect of a mechanical or non-application of mind approval on the validity of the subsequent assessment order.Regarding the first issue, the legal framework is Section 153D of the Act, which mandates that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner without prior approval of the Joint Commissioner, for each assessment year under Section 153A or 153B. The approval must be for 'each assessment year' and 'each assessee' separately, reflecting an independent application of mind by the approving authority. The legislative intent behind Section 153D is to ensure that superior authorities scrutinize the basis of assessments in search or requisition cases to prevent arbitrary or erroneous assessments.Relevant precedents extensively relied upon include decisions of the High Courts of Delhi and Orissa, which have consistently held that the approval under Section 153D cannot be a mere formality or 'rubber stamping.' The approving authority must apply mind to the material on record, including draft assessment orders and seized materials, and provide at least a brief indication of the reasoning or satisfaction reached. For instance, the Delhi High Court in PCIT v. Shiv Kumar Nayyar emphasized that approval must be granted for each assessment year and each assessee separately, and mere mechanical approval defeats the legislative purpose. Similarly, the Orissa High Court in Asst. CIT v. Serajuddin and Co. held that even a token indication of independent examination is necessary, and mere repetition of statutory language or blanket approvals without reference to seized materials or draft orders is insufficient.The Court also noted the CBDT Circular No. 3 of 2008, which elucidates the legislative intent behind Section 153D, emphasizing that prior approval is required to ensure assessments in search or requisition cases are passed after due consideration by higher authorities.In the present case, the approval under Section 153D was granted on the same day the request was made by the Assessing Officer, covering seven assessment years and two assessees in a single order. The approval letter contained no independent findings, reasons, or indication that the competent authority examined the draft orders or seized materials. Paragraphs 3 and 4 of the approval merely presumed that the Assessing Officer had given appropriate opportunity to the assessee and verified seized material, and concluded with a direction to 'act accordingly.' This was held to be a mechanical and summary exercise, amounting to borrowed satisfaction from the Assessing Officer without independent application of mind.The Court applied the law to these facts by comparing the approval letter with the requirements established in the precedents. It found that the approval failed to meet the minimum standards of independent scrutiny and reasoned satisfaction mandated by Section 153D and judicial pronouncements. The absence of any recorded reasons or findings, the simultaneous date of request and approval, and the blanket coverage of multiple years and assessees in a single letter were decisive factors demonstrating the mechanical nature of the approval.Competing arguments by the Revenue, which asserted that the approval was granted after due application of mind and was valid, were rejected on the ground that the approval letter itself did not disclose any such application of mind or reasoning. The Court emphasized that the power to grant approval under Section 153D is not to be exercised as a mere formality but requires an independent evaluation of the material on record.As a consequence, the Court held that the approval under Section 153D was void ab initio. Since the assessment order under Section 143(3) read with Section 153A was passed relying on this invalid approval, the assessment order itself was rendered non-est and liable to be quashed. The Court explicitly stated that any proceedings based on such void approval cannot sustain legal validity.In terms of significant holdings, the Court reiterated the principle that:'The approval if granted in a mechanical manner wherein the approval letter itself does not disclose the reasons nor show any application of mind such an approval shall have to be held as void ab initio since it vitiates the very intent of the legislature enshrined u/s.153D of the Act.'It further underscored that:'The competent authority shall examine the case records for each of the assessment years and though it is not mandatory to give exhaustive reasons for such approval but at least requirement of law shall be complied if such authority pronounces few words in the said approval given which shall reflect his independent application of mind.'Additionally, the Court recognized the legislative intent behind Section 153D as ensuring that assessments in search or requisition cases are passed only after due scrutiny by higher authorities, thereby preventing arbitrary or unjust assessments.On the final determination, the Court allowed the appeal on the legal ground of invalidity of approval under Section 153D, quashed the assessment order, and held that all other grounds on merits became academic and were not adjudicated.