2025 (9) TMI 1052 - AT - Income Tax

Assessment orders quashed where single mechanical approval under s.153D for 49 assessees rendered assessments invalid

Melody Enterprises Private Limited Versus ACIT Central Circle-13, New Delhi

ITAT DELHI - AT held the assessment order vitiated and quashed where a single mechanical approval under s.153D was granted for 49 assessees across ... Transgression of requirement of approval u/s 153D - single approval for multiple assessee's - HELD THAT:-The ratio of judgment delivered in the case of Serajuddin & Co. [2023 (11) TMI 1254 - SC ORDER], Anuj Bansal [2023 (7) TMI 1214 - DELHI HIGH COURT], Shiv Kumar Nayyar [2024 (6) TMI 29 - DELHI HIGH COURT] and Subhash Dabas [2024 (5) TMI 1502 - DELHI HIGH COURT] has held in chorus that the approval granted under s. 153D of the Act, if granted mechanically, will vitiate the assessment order itself. In the instant case, a single approval u/s 153D has been accorded in respect of 49 Assessee involving several Assessment Years, there is no mentioning of seized material in the other material to show involvement of the superior authority in the approval granted by the ACIT. Applying the ratio of judgments delivered as noted above, the assessment order based on ritualistic approval stands vitiated and thus quashed by allowing Ground of appeal of the Assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether approval under Section 153D of the Income Tax Act can be granted as a single, omnibus approval covering multiple assessees and multiple assessment years without independent application of mind for each assessment year and each assessee. 2. Whether an approval under Section 153D that is mechanical, perfunctory or devoid of any indication of the approving authority's thought-process vitiates the assessment passed pursuant to that approval. 3. Consequential relief: If the approval under Section 153D is found to be invalid, whether the assessments framed pursuant to such approval must be quashed. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of omnibus approval under Section 153D for multiple assessees and multiple assessment years Legal framework: Section 153D requires that the approving authority grant approval to the draft assessment order in relation to each assessment year referred to in Section 153A(1)(b). The approval process contemplates review of draft orders by a superior authority before final assessments are passed under Section 153A. Precedent treatment: The Court relied on authoritative pronouncements holding that approval must be given for 'each assessment year' and that the approving authority must apply independent mind to the draft order for each assessee and each year. Decisions of various High Courts have been cited to emphasize the need for year-wise and assessee-wise consideration; decisions refusing to uphold mechanically-granted omnibus approvals were followed. Interpretation and reasoning: The approval impugned was a single letter granting approval in respect of 49 assessees and several assessment years, without any distinct reference to the substance of additions or indication that draft orders were perused. The Court reasoned that the legislative scheme and the express phrase 'each assessment year' indicate a requirement for separate consideration; a single omnibus approval defeats that statutory mandate and is inconsistent with the statutory scheme. Ratio vs. Obiter: Ratio - approval must be granted for each assessment year and each assessee with independent application of mind; omnibus approvals absent per-year/per-assessee consideration are invalid. Obiter - practical observations on human impossibility of meaningful perusal of dozens of cases in a single day (used to reinforce the ratio). Conclusion: Omnibus approval covering multiple assessees and multiple assessment years without individualized application of mind is impermissible and legally defective. Issue 2: Requirement of application of mind and form of approval under Section 153D - whether mechanical/rubber-stamp approvals vitiate assessments Legal framework: Section 153D contemplates a supervisory approval that is not merely formal; the approving authority must examine draft orders and be satisfied that relevant procedure has been followed. While elaborate reasons need not be recorded, there must be some indication that the draft orders were considered and that the approval is not a mere stamp. Precedent treatment: The Court extensively relied on High Court judgments and subsequent judicial treatment which hold that mechanical or perfunctory approvals (rubber-stamping) are contrary to Section 153D and will render the resultant assessment vulnerable. The line of authority was followed (and where noted, decisions upholding the requirement of non-mechanical approval were treated as binding on the issue). Interpretation and reasoning: The impugned approval contained no discussion of the issues or reference to seized material, merely stated approval for numerous draft orders. The approving officer did not indicate any thought-process or perusal; a single-day approval covering dozens of cases undermines the statutory requirement of independent scrutiny. The Court held that absence of any token indication of review converts the approval into a mechanical exercise incompatible with Section 153D. Ratio vs. Obiter: Ratio - approving authority must apply independent mind; there must be at least an indication that draft assessment orders were examined before approval is granted. Obiter - reference to administrative manuals and practicalities (e.g., timelines for submission of drafts) serve as interpretive aids but are not the central holding. Conclusion: The approval in question was mechanical and perfunctory; such an approval is invalid and may vitiate the ensuing assessment proceedings. Issue 3: Consequence of defective approval - vitiation and quashing of assessment orders passed pursuant to such approval Legal framework: Where a mandatory statutory precondition (here, valid approval under Section 153D) for issuance of a valid assessment is not complied with, the assessment may be held invalid. Approval under Section 153D is a pre-condition for passing assessments under Section 153A; compliance with the statutory mode of approval is integral to the validity of assessment. Precedent treatment: Authorities were followed which held that non-compliance with the requirements of Section 153D (including mechanical approval) is not a mere procedural irregularity but can vitiate the assessment itself. The Court relied on these precedents to treat defective approval as fatal to the assessment. Interpretation and reasoning: Applying the established ratio, the Court found that the ritualistic single approval for many assessees/years without application of mind meant that the statutory precondition for valid assessment was not met. Accordingly, the assessment framed pursuant to that approval could not stand. Ratio vs. Obiter: Ratio - where approval under Section 153D is granted mechanically or without application of mind, the resulting assessment is vitiated and liable to be quashed. Obiter - the Court did not adjudicate other substantive or factual grounds raised in the appeal, treating the defective approval as dispositive. Conclusion: The assessments founded on the defective approval were quashed; the appeal on the grounds challenging the validity of the approval was allowed. Other legal and factual contentions were not decided in view of the quashment on this ground.