2025 (9) TMI 939 - AT - Income Tax

Assessment invalidated for lack of mandatory prior approval under s.153D; Revenue failed to produce approval evidence

ITAT held the assessment invalid for want of a valid prior approval under s.153D, noting the Revenue failed to produce the approval documents or evidence ... Validity of assessment for want of valid approval u/s 153D - HELD THAT:- From examination of record in light of aforesaid rival contentions, it is crystal clear that despite direction the Department of Revenue is failed to place on record approval papers u/s 153D of the Act regarding the assessment order. As per letter dated 14.11.2024, the copy of approval under section 153D of the Act along with satisfaction note is being traced as it is approximately 8 years old. According to ratio of judgment in the case of Rajsheela Growth Fund (P) Ltd. [2024 (5) TMI 506 - DELHI HIGH COURT] it is well settled that a prior approval of competent authority under section 153D of the Act is mandatory and same is required to pass rigor of the law, to show that the approval was granted after due consideration of the assessment record and it was not a mechanical approval. In view of non-production of copy or other evidence of existence of approval and well settled principle of law, the additional ground is allowed. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment completed pursuant to search and seizure proceedings is valid in the absence of a prior approval by the competent authority under section 153D of the Income Tax Act, 1961. 2. Whether non-production of the approval papers and satisfaction note by the Revenue gives rise to a presumption that no valid approval under section 153D was ever granted. 3. Whether an approval under section 153D must reflect application of mind (i.e., be supported by a satisfaction note) and cannot be a mechanical or common approval for multiple assessments without individual consideration. 4. What remedy is available where the Department fails to place on record the section 153D approval during appellate proceedings, and whether the appellate order can be recalled if the Department later produces evidence of such approval. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: mandatory nature of approval under section 153D Legal framework: Section 153D requires prior approval of the competent authority (Joint Commissioner) before an assessment or reassessment can be completed where the case arises out of search and seizure operations. The approval must precede finalization of assessment and is a condition precedent to the validity of the assessment order. Precedent treatment: The Tribunal followed the established line of authority holding that prior approval under section 153D is mandatory and integral to the validity of assessments arising from search proceedings. Interpretation and reasoning: The Tribunal examined the assessment record and found no approval papers produced by the Department despite directions. In absence of such approval on record, the Tribunal concluded the statutory requirement under section 153D was not complied with, rendering the assessment invalid. Ratio vs. Obiter: Ratio - the requirement of prior approval under section 153D is mandatory and non-compliance vitiates the assessment. Conclusion: Assessment completed without producing the prior section 153D approval is invalid. Issue 2 - Evidentiary consequence of non-production: presumption of non-existence Legal framework: Parties who rely on the existence of an approval bear the onus to place the approval and related documents on record when challenged. Administrative records that are not produced cannot be presumed to exist for the purposes of validating an assessment. Precedent treatment: The Tribunal relied on prior decisions which held that prolonged inability or failure by the Department to produce approval documents after directions gives rise to a permissible presumption that such approval was not granted. Interpretation and reasoning: The Department informed the Tribunal (via an RTI-related communication) that the approval papers were being traced and that certain draft/communication documents were internal and not disclosable. Given the passage of years and repeated directions to place the approval on record, the Tribunal found the Department's inability to produce the approval constituted sufficient basis to infer absence of valid approval. Ratio vs. Obiter: Ratio - where the Department fails to produce approval documents despite directions and opportunity, a presumption may be drawn that no approval was granted. Conclusion: Non-production of the approval papers justified drawing a presumption that requisite approval under section 153D did not exist; thus the assessment could not stand. Issue 3 - Content and quality of approval: requirement of application of mind and satisfaction note Legal framework: Approval under section 153D must reflect that the competent authority applied its mind to the assessment record; mere formal or blanket approvals without satisfaction note or individual consideration do not meet statutory purpose. Precedent treatment: The Tribunal followed decisions holding that prior approval must not be a mechanical or common communication covering multiple cases without individualized satisfaction; approval must 'pass the rigor of the law' and be supported by material showing considered satisfaction. Interpretation and reasoning: The Tribunal noted the legal principle that approval must be accompanied by a satisfaction note evidencing consideration, and that the Department's inability to produce any such material prevented any conclusion that the approval (if it existed) was not mechanical. The Tribunal treated precedents as binding on the point that absence of such supporting material invalidates the purported approval or at least precludes reliance on an unproduced approval. Ratio vs. Obiter: Ratio - approval under section 153D must demonstrate application of mind; mere issuance of a common approval without contemporaneous satisfaction evidence is inadequate. Conclusion: Approval must be supported by evidence showing application of mind; absence of such evidence undermines the validity of the approval and hence the assessment based on it. Issue 4 - Remedy and procedural consequences: allowance of additional ground and recall safeguard Legal framework: When a mandatory statutory requirement for assessment validity is not satisfied or its compliance cannot be established, the appellate forum may allow grounds attacking validity. However, where the Department can subsequently produce evidence proving compliance, appellate orders may be open to recall or review to enable fresh adjudication on merits. Precedent treatment: The Tribunal followed coordinate-bench authority which allowed appeals on similar grounds but provided a caveat permitting the Department to seek recall if it later produced evidence of the approval's existence and content. Interpretation and reasoning: Given the Department's failure to produce the approval despite directions, the Tribunal allowed the additional ground challenging the validity of the assessment and allowed the appeal. Simultaneously, the Tribunal recognized that if the Department later locates and places on record credible evidence of a valid section 153D approval (showing consideration of the assessment record), it may apply to recall the appellate order to re-open the issue on merits. Ratio vs. Obiter: Ratio - appellate allowance of challenge to assessment validity is appropriate where mandatory approval is not produced; Obiter - procedural safeguard permitting recall if the Department later produces proof of approval (practical judicial guidance adopted from coordinate decisions). Conclusion: The additional ground was allowed and the appeal was decided in favour of the assessee; the Tribunal also left open the procedural remedy for the Department to seek recall of the order upon production of evidence of lawful approval under section 153D. Cross-references Where the Department claims existence of a statutory approval as a precondition for assessment validity, the appellate forum may direct production of the approval and satisfaction note; failure to produce permits drawing a presumption of non-existence and requires allowing a challenge to the assessment. If the Department later produces such evidence, the appellate order may be recalled to decide the issue afresh.