ITAT rules mechanical approval under section 153D without proper examination invalidates assessment orders

The ITAT Delhi held that approval under section 153D granted mechanically without proper examination vitiates the assessment order. Following Orissa HC's decision in ACIT vs Serajuddin & Co., the tribunal ruled that approving authorities must indicate their thought process and examine draft orders to ensure legal compliance. Mere rubber-stamping or repeating statutory words is insufficient. The approval in question was found defective as it covered two assessment years without mentioning seized material or showing superior authority involvement. Non-compliance with section 153D requirements is not merely procedural but substantive, potentially invalidating the entire assessment. The assessee's appeal was allowed.

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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, which is a prerequisite for initiating assessment proceedings under Section 153C. Specifically, the issues include:

• Whether the approval accorded under Section 153D was given after proper application of mind or was merely a mechanical or perfunctory act.
• Whether a single approval under Section 153D can be granted for multiple assessment years collectively or whether approval must be granted separately for each assessment year.
• The impact of any procedural lapses or mechanical approvals under Section 153D on the validity of the subsequent assessment order framed under Section 153C.
• Whether the statutory requirements under Section 153D, including perusal of draft assessment orders and consideration of seized material, were complied with by the approving authority.
• The effect of judicial precedents on the interpretation and application of Section 153D approvals.

Issue-wise Detailed Analysis:

1. Legality and Validity of Approval under Section 153D of the Act

The legal framework mandates that before passing an assessment order under Section 153C, the draft assessment order must be approved by the specified authority under Section 153D. The approval is not a mere formality but requires an independent application of mind by the approving authority to ensure compliance with statutory requirements.

Precedents cited include judgments from the Jurisdictional High Court and other High Courts, notably the case of Principal Commissioner of Income Tax vs. Shiv Kumar Nayyar, which emphasized that approval under Section 153D must be granted for each assessment year separately and cannot be a mechanical or rubber-stamp exercise. The Allahabad High Court in PCIT v. Sapna Gupta elaborated that the approving authority must verify the draft assessment order and apply independent mind, and the approval must not be a mere ritualistic formality.

The Court examined the approval letter dated 28/12/2021 granted by the Additional Commissioner of Income Tax (Addl. CIT). It was observed that the approval was a "Performa approval," lacking any mention of perusal or consideration of the draft assessment order or seized documents. The approval was granted on the same day the draft order was submitted and covered multiple assessment years collectively, which is contrary to the statutory mandate.

The Court also relied on the Orissa High Court decision in ACIT vs. Serajuddin & Co., which held that while elaborate reasons for approval need not be given, there must be some indication that the approving authority examined the draft order and found it to meet legal requirements. Mere repetition of statutory language or rubber stamping does not satisfy the legal requirement. The Court noted that the Technical Manual of Office Procedure, though issued in the context of Section 158BG, is equally applicable to Section 153D, prescribing that the draft order must be submitted well in time, approval must be in writing, and the approval must be mentioned in the assessment order.

In the instant case, the approval was granted for 43 cases in a single day, including 14 cases pertaining to the assessee and another party, which the Court found to be humanly impossible to constitute a proper application of mind. The approval letter failed to indicate any examination or thought process, thus rendering the approval mechanical and invalid.

2. Requirement of Separate Approval for Each Assessment Year

The Court underscored that Section 153D requires approval to be granted for each assessment year individually. The judgments cited clarified that the phrase "each assessment year" in Sections 153A and 153D is deliberate and mandates separate scrutiny and approval for every assessment year involved.

In the present matter, a single approval was granted for two assessment years collectively, which is contrary to the legislative intent and judicial pronouncements. This procedural lapse was held to vitiate the assessment proceedings.

3. Effect of Mechanical Approval on the Validity of Assessment Order

The Court held that mechanical or perfunctory approval under Section 153D vitiates the entire assessment order framed under Section 153C. This is because the approval is a mandatory precondition and its absence or invalidity affects the very substratum of the assessment proceedings.

The Court referred to the dismissal of the Special Leave Petition by the Supreme Court against the decision in Serajuddin & Co., thereby reinforcing that non-compliance with Section 153D's approval requirements is not a mere procedural irregularity but a substantive defect that invalidates the assessment.

4. Treatment of Competing Arguments

The Departmental Representative argued that the Additional Commissioner had perused the draft assessment order and applied mind before granting approval, as the draft was available on the file a day before approval. However, the Court found no indication in the approval letter or record to support this claim. The lack of any mention of the draft order's perusal or consideration of seized material in the approval letter led the Court to reject the Department's contention.

The Assessee's argument, supported by judicial precedents, that the approval was mechanical, arbitrary, and without application of mind, was accepted. The Court emphasized the need for the approval to reflect a conscious and independent evaluation rather than a symbolic or routine act.

5. Application of Law to Facts

Applying the legal principles and precedents to the facts, the Court found that the approval under Section 153D was granted on the same day the draft assessment orders were submitted, covering multiple assessment years in a single approval, without any indication of examination or thought process. This violated the statutory requirement of separate and considered approval for each assessment year.

Consequently, the assessment order framed under Section 153C based on such approval was held to be invalid and was quashed.

Significant Holdings:

"The approval granted under Section 153D of the Act smacks of mechanical or perfunctory approval in a symbolic exercise of powers vested under Section 153D of the Act."

"The approval under Section 153D has to be granted for 'each assessment year' referred to in clause (b) of sub-section (1) of Section 153A of the Act. The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power."

"The approving authority is expected to indicate his thought process while granting approval. Mere repeating of the words of the statute or mere 'rubber stamping' will not satisfy the requirement of the law."

"Non-compliance of the requirement of Section 153D of the Act is not a mere procedural irregularity and lapse committed by Revenue may vitiate the assessment order."

"A single approval granted for multiple assessment years is contrary to the legislative intent and judicial pronouncements and vitiates the assessment proceedings."

"The assessment order based on ritualistic approval stands vitiated and is quashed."

The Court's final determination was to allow the appeal of the Assessee, quashing the assessment order on the ground that the approval under Section 153D was granted mechanically, without application of mind, and for multiple assessment years in a single approval, thereby violating statutory mandates and established judicial precedents. Since the assessment order was quashed on this ground, the Court did not consider it necessary to address other legal and factual contentions raised by the Assessee.

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