2025 (8) TMI 541 - AT - Income Tax

Approval under Section 153D Valid; Additions Under Sections 153A and 69C Upheld in Tax Assessment Appeal

The ITAT upheld the validity of approval under section 153D, finding no evidence that the JCIT granted approval mechanically or without application of ... Validity of approval u/sec. 153D - allegation of non application of mind by JCIT - whether the JCIT had accorded mechanical approval u/s 153D of the Act or not? - HELD THAT:- It is settled position of law that the approval of the superior officer should not be done mechanically, without application of mind. Where the approval is granted mechanically, it would vitiate the assessment order itself. The issue whether the JCIT had accorded the approval mechanically or not has to be judged based on the material on the basis of which the JCIT formed the opinion and accorded the approval. In the present case, no material was produced before us to show that JCIT had accorded approval u/sec. 153D mechanically. Communication received by the AO from JCIT is nothing but a covering letter forwarding approval from JCIT to AO. It is not copy of actual approval accorded by JCIT. Based on this material, it is difficult for us to judge whether the JCIT had accorded approval mechanically or not. Thus, the appellant had failed to adduce any evidence to show that the approval was mechanical. No relief can be granted based on the bald submissions. The findings of the learned CIT(A) that the impugned assessments were jointly monitored by the JCIT, remains uncontroverted by the assessee, merely because, the AO and JCIT were located at different places would not mean that there had been non-application of mind, especially when there was a time of 10 days between the last date of hearing by the AO and the date of assessment orders. Therefore, the ratio of Chhagan Chandrakant Bhujbal [2021 (12) TMI 769 - BOMBAY HIGH COURT] is squarely applicable in the present appeal. in the present case, the assessment orders the AO clearly mentioned that the assessment order is after getting approval as per section 153D of the Act from JCIT, Central Range, Kochi. In the absence of any material to the contrary, it is presumed that the statutory authorities have acted bonafide and lawfully. In the present case, the assessment orders the AO clearly mentioned that the assessment order is after getting approval as per section 153D of the Act from JCIT, Central Range, Kochi. In the absence of any material to the contrary, it is presumed that the statutory authorities have acted bonafide and lawfully. Addition made u/s 153A in the absence of any incriminating material - Contention of the assessee that no addition can be made in the assessment made pursuant to notice u/s 153A, based on the statement of third party placing reliance on the judgment of Anand Kumar Jain, this contention cannot be accepted in view of the judgment of Abhisar Builwell P. Ltd [2023 (4) TMI 1056 - SUPREME COURT] wherein it was held that once the AO assumes jurisdiction u/s. 153A, in case any incriminating material is found/unearthed, even in case of unabated/completed assessments, the AO would assume the jurisdiction to assess or reassess the “total income” taking into consideration the incriminating material unearthed during the search and the other material available with the AO including the income declared in the returns of income. On merits of the addition, on mere perusal of the assessment order, it is evident that the AO made the addition based on the contents of the seized material. When the seized material was confronted to the assessee, the same was admitted by the assessee during the course of recording statement u/s. 132(4) of the Act. Thus, the AO brought a clinching evidence on record to show that the assessee is deriving income from sale of liquor, food etc. As regards the allowance of expenditure incurred to earn the income, the same cannot be allowed in view of the proviso inserted to section 69C of the Act which expressly prohibits the allowance of expenditure as a deduction in case of addition made on account of unexplained expenditure. Thus, we do not find any merit in these grounds of appeal raised by the assessee and accordingly appeal is dismissed. ISSUES: Whether the approval granted by the Joint Commissioner of Income Tax (JCIT) under section 153D of the Income Tax Act was accorded mechanically without application of mind, thereby vitiating the assessment order.Whether additions to income can be made in assessments under section 153A of the Act in the absence of incriminating material found during search and seizure operations.Whether estimation or extrapolation of income is permissible in search assessments under section 153A of the Act.Whether additions based on statements of third parties are valid in assessments under section 153A when incriminating material is found.Whether expenditure incurred can be allowed as deduction against additions made under section 69C of the Act for unexplained expenditure. RULINGS / HOLDINGS: On the issue of mechanical approval under section 153D, the Court held that the approval should not be given 'mechanically, without application of mind,' and where such mechanical approval is found, it 'would vitiate the assessment order itself.' However, in the present case, no evidence was produced to show mechanical approval, and a mere covering letter forwarding approval was insufficient to establish non-application of mind. Therefore, the approval was presumed to be lawful and bona fide.Regarding additions in absence of incriminating material, the Court clarified that under section 153A, additions can only be made based on incriminating material found during search and seizure operations. However, once some incriminating evidence is found, the Assessing Officer is empowered to make all other additions irrespective of whether the additions are directly based on the seized incriminating material or not, as per the Supreme Court ruling in PCIT vs. Abhisar Buildwell P. Ltd.The Court upheld the permissibility of estimation or extrapolation of income in search assessments, relying on the judgment in CIT vs. Hotel Meriya, which recognizes that 'the assessing officer is authorised and empowered to make block assessment in a judicious manner on the basis of the materials disclosed during search.' The Court emphasized that uniform concealment of income during the block period can be presumed based on consistent practices revealed during search.The Court rejected the contention that additions based solely on statements of third parties are invalid where incriminating material is found, affirming the principle that once jurisdiction under section 153A is assumed and incriminating material is found, the AO may assess total income taking into account all material available.Regarding expenditure deduction against additions under section 69C, the Court held that the proviso to section 69C 'expressly prohibits the allowance of expenditure as a deduction in case of addition made on account of unexplained expenditure,' and therefore no expenditure deduction is allowable in such cases. RATIONALE: The Court applied statutory provisions of the Income Tax Act, particularly sections 132, 153A, 153D, and 69C, alongside binding precedents including Supreme Court decisions in Rajesh Kumar vs. DCIT, Sahara India (Firm) vs. CIT, and PCIT vs. Abhisar Buildwell P. Ltd.The Court distinguished the facts of the present case from other decisions where mechanical approval was found, noting the absence of material to prove non-application of mind and reliance on the decision of the Hon'ble Bombay High Court in Chhagan Chandrakant Bhujbal vs. ITO, which emphasized that mechanical approval cannot be presumed merely on timing or location differences.The Court reaffirmed the principle that in block assessments under section 153A, additions must be grounded on incriminating material found during search, but once such material exists, the AO's jurisdiction extends to assess total income including other undisclosed income.The Court recognized the legislative intent behind allowing estimation in block assessments, acknowledging practical difficulties in obtaining documentary evidence for every concealment, as elucidated in CIT vs. Hotel Meriya.The Court noted the statutory prohibition on allowance of expenditure against additions under section 69C to prevent unjustified deductions for unexplained expenditure.No dissenting or concurring opinions were recorded in this judgment.