2025 (9) TMI 1372 - AT - Income Tax

Single blanket approval under s.153D invalidated for six years for lack of separate reasoned application of mind

Shri Dheeraj Chaudhary Versus Assistant Commissioner of Income Tax, CC-8, Delhi

ITAT (Third Member) held that approval under s.153D was unsustainable and allowed the assessee's appeal. The tribunal found a single approval had been ... Validity of approval u/s 153D - independent application of mind for approval u/s 153D or not? - difference of opinion among members of ITAT - Order as per JM:- Approval since granted mechanically, without application of mind by the Additional Commissioner that too without assigning any reason, in our considered view, is invalid and thus deserves to be quashed. Order as per AM:- Approval granted under section 153D of the Act is not invalid and therefore, the additional ground of the appellant/assessee stands dismissed. Further, these appeals, on merit, are required to be heard as these cases were not heard on any other issue other than the issue of the approval granted under section 153D of the Act. Thus, the above draft order allowing the appeal of assessee, according to me, is not justified. Therefore,Appeal of assessee should be kept alive as of now in the interest of justice and to be heard on merit and to be decided accordingly. Matter referred to third member - Admitted facts are that for all the relevant six assessment years, only one approval is granted by the Additional CIT as is available on record. The provisions of Section 153D of the Act where prior approval is made necessary for assessments in search and seizure cases is introduced by the legislature by the Finance Act, 2007 with effect from 1st June, 2007. Keeping in view the basic fundamental features of search assessments i.e., Section 153A of the Act, if the provisions of Section 153D is scrutinized, it would become manifest that an important phrase is employed in the text of Section 153D, which is “each assessment year”. The bare reading of Section 153D of the Act makes it clear that separate approval of draft assessment order in each year is to be obtained. The Hon’ble Allahabad High Court in the case of PCIT Vs. Sapna Gupta [2022 (12) TMI 887 - ALLAHABAD HIGH COURT] while adjudicating this issue, has considered the important concept of each assessment year for the purpose of approval to be granted under Section 153D - Approval granted by the Additional CIT is bad in law and consequent assessment order passed in all these six assessment years is bad in law. Also before granting approval, the Additional CIT/Joint CIT, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer and the approval must reflect the application of mind to the facts of the case. The CBDT itself recognized the importance of this provision and the above laid down principle and hence issued Manual of Office Procedure in February, 2023 in exercise of powers under Section 119 of the Act. Vide Para 9 of Chapter 3 of Volume-II (Technical), a clear procedure is devised i.e., how an approval is to be granted for draft assessment for passing of assessment order in search cases. According to the Manual, the Assessing Officer should submit the draft assessment order for such approval well in time along with docketed in the order sheet, a copy of the draft assessment order, covering letter filed in the relevant miscellaneous records folder. Even, it is noted that due opportunity of being heard should be given to the assessee by the supervisory officer giving approval to the proposed block assessment, at least one month before the time barring date. It is further noted that once such approval is granted, it must be in writing and filed in the relevant folder indicating above after making due entry in the order sheet. This is the mandate provided in the office manual of the Department. Approval’, as mandated u/s 153D of the Act, signifies a product of human thoughts based on the given set of facts and interpretation of the applicable law. It provides equality in treatment and thus prevents bias, prejudice and arbitrariness. It also prevents and avoids inconsistent and divergent views. The power of approval to the specified authority i.e., Superior authority has been envisaged with the objectives that no illegality or biasness, to either of the sides i.e., the assessee or the Revenue, remains. Order as per third member:- Approval granted by Additional CIT u/s 153D of the Act is not sustainable in the eyes of law. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an approval under Section 153D of the Income-tax Act granted by the superior authority is vitiated where the approving order shows no indication of perusal of draft orders, no reasons, and is granted mechanically on the same day the draft orders were placed for approval. 2. Whether a single consolidated approval covering multiple assessment years satisfies the statutory requirement of 'prior approval' for 'each assessment year' under Section 153D. 3. Whether compliance with administrative guidelines (CBDT Circular/Manual of Office Procedure and Search & Seizure SOPs) and recital of approval in the assessment order are mandatory elements for a valid Section 153D approval. 4. Whether an approval under Section 153D is purely administrative (non-justiciable) or is amenable to judicial scrutiny when it produces civil consequences affecting assessed tax. 5. Whether evidential inferences drawn from documents obtained under RTI (showing only a covering letter and an approval) sufficed to rebut the statutory presumption of regularity of official acts under Section 114(e) of the Evidence Act. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of approval under Section 153D where approval appears mechanical Legal framework: Section 153D requires prior approval of Joint/Additional Commissioner before an AO below that rank passes assessment/reassessment in search cases; CBDT Circular No.3/2008, Manual of Office Procedure (para 9, Ch.3 Vol.II Technical) and Search & Seizure SOPs articulate procedural requirements (submission of draft order well in time, filing in order-sheet, written approval, mention of approval in assessment order, opportunity to be heard). Precedent Treatment: The Court relied on Supreme Court authority emphasizing that administrative approvals are not to be granted mechanically (Rajesh Kumar) and that prior approvals with civil consequences must reflect application of mind (Sahara). High Court and Tribunal authorities (including the Orissa High Court decision upheld on SLP dismissal, and recent High Court findings in Anuj Bansal) treating 'rubber stamp' approvals as vitiating assessment orders were followed; Spacewood was distinguished. Interpretation and reasoning: The majority held that an approval which (a) contains no indication of perusal of draft orders or assessment/search material, (b) gives no reasons or separate consideration for each year, and (c) is granted on the same day with draft orders submitted that day, manifests non-application of mind and is therefore mechanical. The Manual and CBDT guidance were treated as binding instructions to ensure supervisory check is meaningful; mere use of approval words without documentary indicia of thought-process does not satisfy Section 153D. Where an approval does not reflect any appreciative exercise of material and results in civil consequences (alteration of assessed income), it is justiciable and vitiates the assessment. Ratio vs. Obiter: Ratio - An approval under Section 153D that is demonstrably mechanical (no perusal, no reasons, same-day rubber-stamp of multiple draft orders) is invalid and vitiates consequent assessment orders. Obiter - Observations on how much detail a valid approval must contain beyond a token indication; procedural steps in CBDT manuals elaborated as mandatory safeguards. Conclusion: Majority concluded the approval in the record was mechanical and invalid; corresponding assessments were quashed. Dissenting member disagreed (see Issue 5 discussion). Issue 2 - Requirement of separate approval 'for each assessment year' Legal framework: Text of Section 153D uses phrase 'each assessment year' and Section 153A contemplates assessment for each year within specified period arising from a search. Precedent Treatment: The majority relied on High Court reasoning (e.g., Allahabad, Orissa, Delhi High Court authorities) that statutory language requires separate appraisal/approval per assessment year; holding consolidated blanket approvals for many years on same day are inconsistent with legislative intent and administrative feasibility. Interpretation and reasoning: The Tribunal majority reasoned that it is 'humanly impossible' for the approving officer to apply independent mind to numerous assessment years at once and that statutory wording mandates per-year consideration so that supervisory check achieves its protective purpose. The consolidated approval that does not indicate per-year scrutiny evidences mechanical exercise. Ratio vs. Obiter: Ratio - A single undifferentiated approval covering multiple assessment years without discrete consideration for each year is inconsistent with Section 153D and liable to be set aside where the record shows no per-year application of mind. Obiter - Practicalities of how much time or form such per-year scrutiny must take were discussed but not prescribed exhaustively. Conclusion: Majority held single consolidated approval for multiple years on the face of the record to be invalid; assessments quashed. Dissent considered this distinguishable on facts where departmental practice and supervisory involvement could exist even if not reflected in the limited RTI-produced documents. Issue 3 - Role of departmental guidelines and recital in assessment order Legal framework: CBDT Circular No.3/2008, Manual of Office Procedure (issued under Section 119) and Search & Seizure SOPs provide procedural norms for submission, approval, filing, noting, and mentioning approval in the assessment order. Precedent Treatment: The majority treated these instructions as binding on the department (citing precedents holding Board circulars/instructions binding on Revenue operations) and accepted that the Manual's procedural safeguards are relevant to determine validity of the approval. Decisions holding that absence of mention of approval in the assessment order and failure to follow related procedural steps undermine validity were followed. Interpretation and reasoning: Though the Manual/guidelines do not create substantive rights, where they exist to ensure supervisory check they form part of the expectation that approval will reflect application of mind. The Tribunal majority observed that absence of recordal of approval in the assessment order and failure to show file movement or appraisal undermines confidence that supervisory check occurred. Ratio vs. Obiter: Ratio - Compliance with procedural safeguards (submission well in time, filing/docketing, written approval placed on file and recital in assessment order) is instrumental to validation of the supervisory approval under Section 153D; absence of such compliance supports inference of mechanical approval. Obiter - Degree to which each element must appear on face of approval letter was discussed contextually. Conclusion: Majority treated non-compliance with these procedural safeguards as supporting invalidation of the approval and consequent quashing of assessments. Issue 4 - Justiciability of Section 153D approvals and civil consequences Legal framework: Administrative approvals that produce civil consequences affecting assessed income attract scrutiny and must conform to principles such as audi alteram partem; relevant Supreme Court pronouncements equating civil consequences with need for procedural fairness were applied. Precedent Treatment: Decisions (Sahara, Rajesh Kumar) affirming that approvals which entail civil consequences must reflect application of mind and are justiciable were followed by the majority; the dissent relied on precedents emphasizing presumption of regularity (Kelvinator Full Bench) and on Spacewood for limited contexts. Interpretation and reasoning: Majority found the approval produced civil consequences (material change in assessed income) and therefore approval process could not be treated as non-justiciable administrative formality. Dissent stressed that an approval which is administrative in nature and culminates a supervisory, ongoing team process may not always require extensive material recitals and that the onus to rebut presumption of regularity lies with the assessee. Ratio vs. Obiter: Ratio - Where approval produces material civil consequences and the contemporaneous records show no evidentiary indicia of application of mind, judicial scrutiny will sustain setting aside such approval. Obiter - Delineation of limits of judicial review in routine supervisory approvals discussed. Conclusion: Majority: approvals amenable to review and set aside if mechanical; Dissent: more deferential standard where departmental routine and supervisory involvement are plausibly shown. Issue 5 - Sufficiency of RTI-produced documents to rebut presumption of regularity Legal framework: Section 114(e) Evidence Act creates presumption that official acts are regularly performed unless rebutted by evidence. Precedent Treatment: Dissent invoked presumption of regularity and authorities requiring the party challenging official regularity to produce corroborative evidence; majority treated the RTI document set and statutory/administrative requirements together as adequate to draw adverse inference on the particular facts. Interpretation and reasoning: Majority held that the limited documents (covering letter seeking approval enclosing draft orders and an approval letter with no recorded perusal/reasons and single approval for multiple years) were sufficient in the circumstances to infer mechanical approval, when read with statutory text and procedural manuals. Dissent held the RTI disclosure was selective and non-exhaustive; absence of more extensive correspondence from the RTI record does not prove non-application of mind where departmental practice of continuous supervisory involvement exists and the department offered to produce fuller files. Ratio vs. Obiter: Ratio - Targeted document production showing only a same-day covering letter and a bare approval, combined with statutory and procedural requirements, can sustain inference of mechanical approval in appropriate facts. Obiter - Extent to which an assessee must exhaust departmental records beyond RTI when challenging regularity. Conclusion: Majority accepted RTI material with statutory and manual context as sufficient to invalidate approval; dissent would have required more comprehensive proof and was not persuaded that approval was vitiated. OVERALL CONCLUSION Majority holding: The approval dated 27.12.2016 was given mechanically, without application of mind, and without separate per-assessment-year consideration or indicia of perusal and reasons as required by Section 153D and departmental guidelines; such approval is invalid and vitiates the consequent assessment orders, which are therefore quashed. The additional ground challenging maintainability was admitted as purely legal. Dissenting opinion (separate): The approving authority's involvement and routine supervisory oversight could not be ruled out on the limited RTI-produced documents; statutory presumption of regularity and authorities on administrative approvals and their non-justiciability in certain contexts were relied upon to distinguish precedents; on this basis the dissent would have kept appeals open for merit hearing rather than quash approvals on the present record.