2025 (10) TMI 143 - AT - Income Tax

Mechanical omnibus approvals under s.153D invalid where memo lacks material and application of mind; common sanction set aside

ITAT held that approval under s.153D granted mechanically and omnibus-wise for multiple assessment years and multiple assessees is invalid. The approval ... Validity of approval granted u/s 153D - Mechanical approval - common approval for multiple assessment years - absence of application of mind the approving authority - HELD THAT:- The approval letter simply grants approval. In other words, even the bare minimum requirement of approving authority having to indicate what thought process involved leading to the aforementioned approval has not been provided. As explained, the 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. The Hon'ble Court in Serajuddin & Co. [2023 (3) TMI 785 - ORISSA HIGH COURT] made reference to manual issued by the CBDT in the context of erstwhile section 158BG of the Act and observed that such manual serves as a guideline to the AOs. Since it was issued by CBDT, the powers of issuing such guidelines can be traced to section 119 of the Act. The Hon'ble High Court also held that 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. The SLP filed against the aforesaid judgement in the case of ACIT vs Serajuddin & Co. was dismissed as reported [2023 (11) TMI 1254 - SC ORDER]. The ratio of judgement delivered in the case of Serajuddin & Co. [2023 (3) TMI 785 - ORISSA HIGH COURT], Orrisa and in PCIT vs Anuj Bansal [2023 (7) TMI 1214 - DELHI HIGH COURT] has held in chorus that the approval granted u/s 153D of the Act, if granted mechanically, will vitiate the assessment order itself. Recently in the case of Dheeraj Chaudhary [2025 (9) TMI 1372 - ITAT DELHI (LB)] after considering all the judgements relied upon by the ld. CIT DR and further after detailed analyzing the provisions of section 153D, power and independence of assessing authority and the CBDT manual referred by the revenue has held that the common approval granted for various year and for various assessee without making any reference to the material seen is mechanical approval and cannot sustained in the eyes of law. 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 for three different assessee thus in total 21 (twenty one) approvals were granted through single order. There is no other material to show involvement of the superior authority in the course of assessment proceedings. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an approval under section 153D must be granted separately for each assessment year and for each assessee, with independent application of mind, or whether a common/omnibus approval for multiple years/assessees can be valid. 2. Whether an approval under section 153D granted mechanically (i.e., without any discernible perusal of draft assessment orders, seized material or application of mind) vitiates subsequent assessments made under sections 153C/153A. 3. Whether an additional ground of appeal challenging the validity of approval under section 153D (alleging mechanical approval) can be admitted at the Tribunal stage where it is a pure question of law going to the root of the matter. 4. Consequential issue: effect of allowing the challenge to section 153D approval on other grounds of appeal (i.e., whether further grounds require adjudication once approval is set aside). ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legal framework governing approval under section 153D and requirement to grant approval for each assessment year/each assessee Legal framework: Sections 153A-153D form a scheme for search-related assessments. Section 153D requires the prior approval of the Joint/Addl. CIT for passing assessment orders based on draft orders prepared by the Assessing Officer; the approval is a pre-condition for valid assessment under section 153C/153A. Precedent treatment: The Tribunal relies on recent High Court decisions (including decisions holding that approval must be for 'each assessment year' and 'each assessee' and that approval cannot be a mere formality) and on administrative guidance in the Search & Seizure Manual and CBDT circulars/manuals. Those authorities are followed to the extent they require year-wise and assessee-wise consideration. Interpretation and reasoning: The Tribunal reads the phrase 'each assessment year' in section 153D literally and in context of the statutory scheme; an approving authority must apply independent thought to the materials for each year and each assessee. Administrative guidance prescribes that draft orders, appraisal reports and seized material be placed before the approving authority and that the approval be recorded in writing with indication that material was considered. A single omnibus approval covering multiple years/assessees without any reference to draft orders or material fails that mandate. Ratio vs. Obiter: Ratio - approval under section 153D must reflect application of mind for each assessment year/each assessee; omnibus approvals are not compliant with statutory scheme and administrative SOPs. Observations about teamwork between AO and Jt./Addl. CIT and nature of 'approval' as administrative (not sanction) are explanatory and applied to facts. Conclusion: Approval given as a common order for multiple years and multiple assessees is inconsistent with the statutory requirement and relevant administrative guidelines unless the approving authority contemporaneously and demonstrably applies mind to each year/assessee. Issue 2 - Mechanical approval: effect on validity of subsequent assessment orders Legal framework: Section 153D is a mandatory statutory requirement; compliance safeguards against arbitrary exercise of AO's powers in search matters. Administrative manuals and SOPs set out minimum procedural expectations for the approving authority. Precedent treatment: The Tribunal follows High Court jurisprudence (including decisions finding mechanical approvals vitiate assessments) and decisions of coordinate Benches/Tribunals that require some indication of thought process or perusal of records by the approving authority. Prior decisions distinguishing routine administrative involvement from required independent consideration are considered and applied. Interpretation and reasoning: Where the approval letter contains no reference to perusal of draft orders/seized material, and where a single approval covers numerous cases and years (e.g., dozens of approvals on the same day), it is not reasonably possible that the approving authority applied mind to each matter. The statutory purpose of section 153D (as an inbuilt safeguard) would be defeated by treating such omnibus approvals as valid. Authorities holding that mere recital of statutory words or rubrical 'approved' without indicia of perusal is insufficient are applied. Conversely, where contemporaneous records show case-by-case perusal and the approving authority's independent consideration, approval will not be vitiated; the Tribunal examined the record and found absence of such indicia here. Ratio vs. Obiter: Ratio - mechanical or omnibus approvals absent demonstrable application of mind render the approval defective and vitiate assessment orders predicated on that approval. Observations about hierarchy of 'satisfaction/approval/sanction' and administrative practice are supportive ratio and not mere obiter in context. Conclusion: The approval under section 153D in the present facts was mechanical (common approval for seven assessment years across multiple assessees without reference to material) and therefore invalid; assessments founded on that approval are vitiated and must be quashed. Issue 3 - Admission of additional ground challenging section 153D approval at Tribunal stage Legal framework: Rules of appellate procedure permit admission of grounds that are purely legal and go to the root of the matter; Supreme Court precedent permits admission where independent adjudication is appropriate and no further factual investigation is necessary. Precedent treatment: The Tribunal cited authoritative precedent accepting admission of late-raised pure legal grounds (e.g., where additional ground questions legality of approval). The Tribunal also considered the Revenue's objection but applied the test of whether the ground required further factual verification. Interpretation and reasoning: The additional ground challenged the legality of the approval under section 153D as being mechanical - a pure question of law turning on contents of the approval letter and statutory/administrative requirements. No additional fact-finding was necessary; admission served interest of justice. Reliance on binding precedent about admission of legal grounds and on the Court's duty to decide issues that go to jurisdiction and validity supported admission. Ratio vs. Obiter: Ratio - tribunal will admit and decide additional pure legal grounds that go to the root of jurisdiction/validity even if not raised before lower authority, where no further factual inquiry is required. Observations regarding procedural delay and objections are discussed but are ancillary. Conclusion: The additional ground attacking the section 153D approval was rightly admitted and adjudicated first because it is a pure legal issue needing no further factual enquiry and goes to jurisdiction of the assessment. Issue 4 - Consequential effect: whether other grounds require adjudication if section 153D approval is set aside Legal framework: If a mandatory pre-condition for assessment is found vitiated, consequent assessment orders are void ab initio or require fresh exercise; appellate tribunals may refrain from deciding other grounds if outcome on jurisdictional defect disposes the appeal. Precedent treatment: The Tribunal relied on established practice of deciding threshold jurisdictional issues first and, if resolved in favour of the appellant, leaving other grounds undecided as academic or consequential. Interpretation and reasoning: Having found the approval under section 153D vitiated, assessments made under sections 153C/153A based upon that approval are annullable; therefore, other grounds raising substantive additions/disallowances need not be adjudicated in present proceedings because the foundational approval is defective. Ratio vs. Obiter: Ratio - setting aside approval under section 153D obviates the need to adjudicate further grounds which are consequential on the impugned assessment; treatment of remaining grounds is therefore properly left undecided. Conclusion: The Tribunal quashed the assessments by allowing the additional ground; consequentially, all other grounds were not adjudicated. Overall Disposition The Tribunal admitted and decided the additional legal ground challenging the section 153D approval, held that a common/omnibus approval covering multiple assessment years and assessees without demonstrable perusal/application of mind was mechanical and therefore invalid, and quashed the assessment orders founded on that approval; other grounds were not adjudicated as consequential.