2025 (8) TMI 1363 - AT - Income Tax

Approvals under Section 153D held mechanically granted without application of mind; resultant assessments void ab initio

YRCE Educare Pvt. Ltd., Shri Atul Manoharrao Yamsanwar Versus Asst. Commissioner of Income Tax Central Circle–2 (1), Nagpur And (Vice-Versa) And Shri Umesh Sadashiv Thakre Versus Asst. Commissioner of Income Tax Central Circle–2 (1), Nagpur

YRCE Educare Pvt. Ltd., Shri Atul Manoharrao Yamsanwar Versus Asst. Commissioner of Income Tax Central Circle–2 (1), Nagpur And (Vice-Versa) And Shri ... 1. ISSUES PRESENTED AND CONSIDERED Issue 1: Whether approval required under section 153D must reflect independent application of mind by the approving authority and is amenable to judicial review. Issue 2: Whether an approval under section 153D given in a mechanical, template or 'stereotype' form (including approvals granted on the same day for multiple assessment years/assessees) without recorded reasoning or reference to seized material renders subsequent assessment orders void ab initio. Issue 3: Whether affidavits and 'confidential' documents filed by the Department after hearing can cure absence of contemporaneous, demonstrable application of mind at the time of granting approval under section 153D, and whether such materials are admissible. Issue 4: Whether additional grounds of appeal raising the question of application of mind in approval under section 153D (when raised for the first time before the Tribunal) should be admitted. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Nature of approval under section 153D - judicial/administrative and justiciability Legal framework: Section 153D mandates prior approval of a specified superior officer before an assessing officer below a specified rank may pass assessment/reassessment consequent to search proceedings. The Manual of Office Procedure (CBDT) prescribes that draft orders be submitted well in time and that the approving authority give due opportunity (including hearing) and record the fact of approval in writing. Precedent treatment: Multiple judicial decisions and tribunals have construed prior approval requirements in comparable provisions as involving more than a mere internal administrative act and emphasized that approval should reflect application of mind; rubber-stamping is impermissible. The Manual has been treated as a relevant procedural guide to ensure meaningful supervisory scrutiny. Interpretation and reasoning: The Tribunal treats approval under section 153D as a quasi-judicial function because it has civil consequences (framing of assessment), requires independent consideration of draft orders and seized material, and performs a supervisory/checking role distinct from the Assessing Officer. The Tribunal rejects the Department's contention that a 153D approval is purely internal and non-justiciable. Ratio vs. Obiter: Ratio - approval under section 153D is a judicial/quasi-judicial act requiring demonstrable application of mind and is open to judicial review. Obiter - observations on the precise content of manual provisions as binding norms in every factual permutation. Conclusions: Approval under section 153D must be meaningful, in writing, and show that the approving authority applied independent mind to the draft assessment order and relevant seized/materials; it is amenable to judicial scrutiny. Issue 2: Effect of mechanical/template approvals on validity of assessments (void ab initio) Legal framework: Statutory scheme contemplates that assessments consequent to search are passed only after prior approval under section 153D. When statute prescribes a mode and conditions (including prior approval) the mode must be followed; failure to comply is a substantive defect. Precedent treatment: Authorities have held that mechanical approvals (mere words like 'approved' or 'Yes') without indication of reasoning or perusal of record are inadequate; where approval was so given, associated assessment/reassessment has been quashed. The Tribunal relied on multiple decisions supporting the proposition that absence of genuine application of mind vitiates the approval and the consequent assessment. Interpretation and reasoning: The Tribunal examined the form and content of the impugned approvals: identical template language repeated across multiple cases, approvals granted the same day as draft submission, absence of reference to seized material or any findings, and approvals not reflecting any corrections or directions. The Tribunal found these features showed mere formality/ rubber-stamping. The statutory purpose of section 153D - an independent supervisory check - would be frustrated by mechanical approvals. Where the approving authority does not demonstrably examine draft orders, seized materials or satisfaction notes, the approval is an empty ritual and cannot supply jurisdictional basis for assessment. Ratio vs. Obiter: Ratio - mechanical or template approvals lacking any record of independent consideration constitute invalid approval under section 153D and render subsequent assessment orders invalid/void ab initio. Obiter - discussion of situations where approving authority might legitimately act swiftly (e.g., genuine prior involvement, ample contemporaneous records) and how such facts would be assessed. Conclusions: Approvals that do not disclose application of mind (stereotype approvals, same-day approvals for many cases, lack of reference to relevant materials) are invalid; consequential assessment orders founded on such approvals are quashed as void ab initio. The defect is substantive and not curable by later explanations. Issue 3: Admissibility and sufficiency of post-hoc affidavits and 'confidential' documents to validate an otherwise blank/templated approval Legal framework: Rules governing production of additional evidence before the Tribunal (including affidavits) require the Tribunal's leave; contemporaneous documentary evidence placed before approving authority is primary; extrinsic/material evidence may be considered where required and properly produced. Precedent treatment: Courts have held that post-fact affidavits cannot substitute for primary/material contemporaneous evidence that approval was applied with due mind; admissions in affidavits are secondary evidence and must be corroborated by files/records showing the approving authority's actual perusal. Interpretation and reasoning: The Tribunal found the affidavits produced by the officers to be self-serving and insufficient: they did not refer to or produce the draft orders, satisfaction notes, seized materials or any contemporaneous endorsements showing what was reviewed. The Tribunal also refused to accept sealed 'confidential' documents that were not disclosed to the assessee (adversarial fairness), and criticized filing affidavits without this Bench having asked for them. Reliance on such after-the-fact attestations cannot cure the absence of a contemporaneous demonstrable application of mind. Ratio vs. Obiter: Ratio - post-hoc affidavits or undisclosed 'confidential' documents are not a substitute for contemporaneous evidence of application of mind and cannot validate a mechanical approval; admission of such materials is constrained by procedural rules and principles of natural justice. Obiter - cautionary remarks on circumstances in which extrinsic evidence may be accepted if properly sought and produced with full disclosure. Conclusions: The Department's affidavits and sealed/confidential documents were inadmissible and insufficient to cure the void produced by mechanical approvals; the lack of contemporaneous corroborative material was decisive. Issue 4: Admission of additional grounds first raised before the Tribunal (challenge to validity of 153D approval) Legal framework: Tribunal practice and judicial precedent permit admission of grounds of law arising from facts even if raised for the first time before the Tribunal; principles of justice and the nature of the question (question of law) guide admission. Precedent treatment: Authorities have held that questions of law emerging from facts may be entertained though raised first time before the Tribunal; where the point goes to the root of jurisdiction it can be admitted. Interpretation and reasoning: The Tribunal invoked precedent to admit additional grounds challenging the validity of 153D approvals on the basis that the question concerns a point of law going to the root of the assessments (jurisdictional and legal issue) and therefore should not be excluded merely because raised late. The Tribunal accordingly admitted grounds 1 and 2 (challenge to non-application of mind) and declined ground 3 as not pressed. Ratio vs. Obiter: Ratio - additional legal grounds challenging jurisdictional matters or questions of law may be admitted by the Tribunal even if raised for the first time. Obiter - procedural discretion in admission depending on prejudice and the nature of the ground. Conclusions: The Tribunal properly admitted additional grounds challenging application of mind in 153D approvals; such grounds were rightly entertained because they impugn jurisdictional validity and go to the root of the assessment. Overall Disposition and Legal Conclusions The Tribunal concluded that (a) approval under section 153D is a quasi-judicial, mandatory supervisory act requiring demonstrable application of mind; (b) the approvals before it were mechanical/template approvals lacking indication of independent consideration of draft orders or seized materials; (c) post-hoc affidavits and undisclosed 'confidential' materials could not cure the absence of contemporaneous application of mind and were not admissible for that purpose; (d) absent valid approval under section 153D the assessments framed under sections 153A/153C read with 143(3) were void ab initio and were quashed; and (e) additional grounds raising the 153D issue were properly admitted where they raise jurisdictional questions of law.