2025 (9) TMI 950 - AT - Income Tax

Approval under s.153D must be year-specific; omnibus approval for multiple assessment years invalid due to mere rubber-stamping

ITAT (Del) held that approval under s.153D must be granted separately for each assessment year; a mechanical, omnibus approval covering multiple years is ... Validity of approval granted u/s 153D in mechanical manner - HELD THAT:- The Hon’ble Jurisdictional High Court in the case of Shiv Kumar Nayyar [2024 (6) TMI 29 - DELHI HIGH COURT] has held that the approval u/s 153D of the Act has to be granted for each Assessment year independently. As decided in M/S. SERAJUDDIN & CO. KOLKATA [2023 (3) TMI 785 - ORISSA HIGH] approval under s. 153D of the Act being mandatory, while elaborate reasons need not be given, there has to be some indication that approving authority has examined draft orders and finds that it meets the requirement of law. Mere repeating of words of the Statue or mere rubber stamping of the communication seeking sanction by using similar words like 'approval' will not, by itself, meet the requirement of law. Non-compliance of requirement of section 153D of the Act is not a mere procedural irregularity and lapse committed by Revenue may vitiate the assessment order. Such mechanical approval cannot be sustainable in law in the light of judicial dicta available. The approval memo is totally silent on the issues involved and has granted omnibus approval without any thoughtful process being discernible. A single approval u/s 153D has been accorded in respect of Seven assessment years and there is no other material to show involvement of the superior authority in the course of assessment proceedings. ISSUES PRESENTED AND CONSIDERED 1. Whether approval under section 153D must be granted separately for each assessment year and require independent application of mind, and whether an omnibus or mechanically granted approval vitiates assessments framed under section 153A read with section 153D. 2. Whether an approving authority's failure to indicate any perusal or thought process in the approval letter constitutes mechanical approval for purposes of section 153D. 3. Whether judicial decisions permitting or upholding approvals are distinguishable where there is evidence of (a) contemporaneous perusal, (b) modifications carried out after suggestions by the approving authority, or (c) affidavits explaining the approval process. 4. Consequence of quashing assessment orders (for lack of valid approval under section 153D) on consequential proceedings, specifically penalty proceedings under section 270A. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework: Requirement of approval under section 153D for assessments under section 153A Legal framework: Section 153A mandates assessments arising out of search and seizure; section 153D requires that draft assessment orders under section 153A be submitted to the approving authority and approved before final assessment is passed. The approval is a mandatory pre-condition for valid completion of assessment under the scheme of sections 153A-153D. Precedent treatment: The Court relied on authoritative decisions (including jurisdictional High Court decisions) holding that approval under section 153D must be granted for 'each assessment year' and cannot be a mere formality. The ratio of Sapna Gupta / related High Court decisions (as relied upon) and Serajuddin was followed for the proposition that approval must reflect application of mind. Interpretation and reasoning: A plain reading of the statutory scheme compels year-wise approval. The approving authority must examine material relevant to each assessment year and apply independent mind; otherwise, the statutory purpose-scrutiny and checks on departmental power in search cases-would be defeated. The approval cannot be a single omnibus approval covering multiple years/assessees because the statute requires approval 'for each assessment year' (and, in practice, for each assessee-year combination). Ratio vs. Obiter: Ratio - approval under section 153D must be specific to each assessment year and involve independent application of mind; mechanical/omnibus approval vitiates the assessment under section 153A. Obiter - general administrative observations about coordination under CBDT circulars, insofar as they do not displace the statutory requirement. Conclusions: Approval under section 153D granted in an omnibus manner for multiple assessment years without evidence of perusal or independent application of mind is invalid and vitiates the corresponding assessment orders framed under section 153A. Issue 2 - Minimum content/manifestation of application of mind in the approval Legal framework: While elaborate reasons are not mandated, the approval must indicate that the approving authority has examined the draft orders/material and applied mind to the issues raised therein; mere use of formulaic words ('seen', 'approved') or rubber-stamping will not suffice. Precedent treatment: Decisions of the Orissa High Court (Serajuddin) and the jurisdictional High Court (Shiv Kumar Nayyar) were followed and applied. Those authorities state that while full-length reasons are unnecessary, there must be some indication of perusal and mental application; mechanical approvals are impermissible. Interpretation and reasoning: The approval letter in the present proceedings (single approval for seven assessment years, silence as to perusal of records, and evidence of many approvals granted on the same day) shows no discernible thought process. Given the realistic impossibility of the approving authority perusing voluminous records for dozens of cases on the same day, the tribunal inferred lack of independent application of mind. Ratio vs. Obiter: Ratio - an approval memo silent on perusal/thought process and granted omnibus for multiple years is mechanical and invalid. Obiter - reference to the CBDT Technical Manual and practical time pressures as explanatory context. Conclusions: The approval letters lacked the minimal indicia that the approving authority applied independent mind; therefore, the approvals were mechanical and invalid for statutory purposes. Issue 3 - Distinguishing authorities that upheld approvals Legal framework: Comparative evaluation of facts controls whether precedent where approval was upheld applies. If the approving authority (a) suggested modifications adopted by AO, (b) contemporaneously perused drafts, or (c) filed unchallenged affidavit explaining the process, the outcome differs. Precedent treatment: The tribunal distinguished a coordinate bench decision (Usha Satish Salvi) where the approving authority actively engaged (suggested modifications, affidavits explaining the process). The tribunal treated decisive High Court authorities (Shiv Kumar Nayyar, Serajuddin) as binding or persuasive and controlling, because they emphasize year-wise application of mind. Interpretation and reasoning: The tribunal found the present facts materially different from cases where approval was upheld: here there was a single omnibus approval; no documentary indication of perusal; and contemporaneous approvals for dozens of cases on the same day. The presence of post-facto affidavits or demonstrable modifications in other cases was absent here, rendering those decisions distinguishable. Ratio vs. Obiter: Ratio - factual distinction matters; approvals upheld in other cases do not validate an otherwise mechanical approval. Obiter - reference to administrative practice does not displace statutory mandates. Conclusions: Decisions upholding approvals where approving authority engaged with the draft orders are distinguishable and do not legitimize omnibus/rubber-stamp approvals lacking any indication of application of mind. Issue 4 - Consequence for penalty proceedings dependent on quashed assessments Legal framework: Penalty proceedings under section 270A are consequential on valid assessment findings. If the foundational assessment order is quashed for want of mandatory approval, consequential orders based on that assessment lack a sustainable foundation. Precedent treatment: Applied the general legal principle that penalty cannot survive when the assessment on which it is predicated is vitiated. Interpretation and reasoning: The penalty order under section 270A was founded upon an assessment order which has been quashed for invalid approval under section 153D. Because the basis for the penalty has been nullified, the penalty order has no independent legs to stand. Ratio vs. Obiter: Ratio - quashing the assessment for invalid approval necessarily compels quashing of the consequential penalty order premised on that assessment. Obiter - none significant. Conclusions: Penalty order under section 270A tied to an assessment vitiated for lack of valid approval is quashed. OVERALL CONCLUSION (CROSS-REFERENCES) Applying the statutory scheme of sections 153A-153D and binding/paradigmatic High Court authorities, the approval under section 153D must be year-specific and demonstrate application of mind. An omnibus or mechanical approval, silent as to perusal or consideration of draft orders and seized material, vitiates assessments under section 153A; consequent penalty proceedings based on such vitiated assessments must also be set aside. Authorities upholding approvals are distinguishable where there is documentary or contemporaneous evidence of active scrutiny or adopted modifications; they do not govern where the approval is demonstrably mechanical.