2025 (10) TMI 198 - AT - Income Tax

Assessments set aside where section 153D approval was omnibus, mechanical, lacked reasoning and failed to peruse draft orders

ITAT (DELHI - AT) set aside assessments where approval under s.153D was a single, omnibus, mechanical approval covering three anonymized assessees and 21 ... Validity of approval accorded u/s 153D - single approval accorded in respect of three different Assessees - as submitted that approval issued u/s 153D does not mention any seized document having been perused and a single approval has been granted in case of three Assessee’s containing 21 Assessment Years - HELD THAT:- Hon’ble Orissa High Court in the case of ACIT vs Serajuddin & Co. [2023 (3) TMI 785 - ORISSA HIGH COURT] had an occasion to examine substantial question of law on the propriety of approval granted under s. 153D observed that the approval u/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. The approving authority is expected to indicate his thought process while granting approval, held that it is not correct on the part of the Revenue to contend that the approval itself is not justiciable. Where the Court finds that the approval is granted mechanically, it would vitiate the assessment order itself. The Hon’ble High Court inter-alia observed that there is no even a token mention that draft order has been perused by the Ld. Addl. CIT. The approval letter simply grants approval. As noted in the instant case, in the first para of the approval memo, it is mentioned that draft assessment order dated 28/03/2014 has been received for approval and in the second para of the approval memo, it was stated that the draft assessment orders has been approved. 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 three different Assessees comprising out of 21 Assessment Years and there is no other material to show involvement of the superior authority in the course of assessment. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether approval under section 153D (approving authority's sanction of draft assessment orders arising from search/seizure) can be given mechanically or omnibus-wise for multiple assessees/assessment years without independent application of mind, and if such approval vitiates consequent assessments. 2. What are the minimum legal requirements for an approving authority under section 153D to satisfy statutory preconditions (e.g., perusal of draft orders, indication of thought process, separate approval for each assessment year and each assessee)? 3. Whether a finding of mechanical/ perfunctory approval under section 153D warrants quashing the assessment order and renders related appeals consequentially infructuous. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Legality of mechanical or omnibus approvals under section 153D Legal framework: Section 153D requires approval by the specified higher authority of draft assessment orders framed under section 153A; approval is to be obtained in respect of each assessment year referred to in section 153A(1). The approval is a precondition to validly pass an assessment under section 153A. Precedent treatment: The Court relied on and followed a line of High Court decisions and tribunal orders holding that approval under section 153D must not be a mere formality or rubber-stamp and that the approving authority must apply independent mind to the draft order for each assessee and each assessment year. Decisions cited include authorities emphasizing (i) perusal of draft orders, (ii) separate consideration for each assessment year, and (iii) that mechanical approval vitiates the assessment. Interpretation and reasoning: The Court examined the approval memo on record and found it confined to perfunctory language stating receipt and approval of draft orders without any mention of perusal, consideration of specific issues, or indication of reasons/thought process. A single approval was granted covering multiple assessees and many assessment years on the same day, suggesting impossibility of meaningful perusal. The Court held that such omnibus treatment is inconsistent with the statutory mandate that approval be given 'for each assessment year' and that the approving authority must verify issues raised by the AO and apply mind to procedural and substantive compliance. Ratio vs. Obiter: Ratio - Approval under section 153D, if given mechanically or omnibus-wise without application of mind to each assessment year/assessee, is invalid and vitiates the assessment under section 153A. Obiter - Observations on administrative impracticability (e.g., the human inability to peruse large numbers in one day) illustrate but do not expand statutory text. Conclusion: Mechanical or omnibus approvals under section 153D are unlawful; the approval on the record was mechanical and therefore invalid. Issue 2 - Minimum content and indicia of valid approval under section 153D Legal framework: The statutory scheme contemplates that the approving authority will examine the draft assessment order and satisfy itself regarding procedural compliance and the grounds of addition before granting written approval; approval must be for each assessment year referenced in section 153A(1). Precedent treatment: The Court treated earlier judicial pronouncements as authoritative that while elaborate reasons need not be furnished, there must be some indication that the approving authority perused and examined the draft order - at least a token indication of thought process or reference to the issues examined. Mere repetition of statutory words or plain 'approved' notation is inadequate. Interpretation and reasoning: The approval in the present record merely records receipt and blanket approval without indicating perusal or independent consideration of the draft orders or the issues raised. The Court relied on decisions holding that the approving authority should: (i) receive drafts sufficiently in advance to apply mind, (ii) record approval in writing, and (iii) ensure that approval for each assessment year appears in the assessment record. The Court also noted relevant administrative guidance/manuals cited in decisions as supportive of required procedural indicia. Ratio vs. Obiter: Ratio - A valid approval under section 153D requires some record/inference that the approving authority examined the draft and applied mind to issues for each assessment year; mere rubber-stamping is insufficient. Obiter - Reference to technical manual provisions and Office Procedure guidelines as helpful but non-exhaustive indicia. Conclusion: Minimum indicia of valid approval include written approval showing perusal/application of mind and separate consideration for each assessment year; absence of such indicia renders approval unsustainable. Issue 3 - Consequence of invalid approval: vitiation of assessment and impact on appeals Legal framework: Approval under section 153D is a statutory precondition to the validity of assessment orders under section 153A; therefore, defect in approval can affect the very substratum of the assessment and consequent appellate proceedings. Precedent treatment: The Court followed authorities holding that where approval is mechanically granted, the resultant assessment is vitiated and liable to be quashed; the invalidity is not a mere procedural irregularity but goes to jurisdiction/validity of the assessment. Interpretation and reasoning: Applying the principles to facts, the Court concluded the impugned assessment was based on a ritualistic approval and thus lacked the statutory sanction necessary under section 153D. Given that the approval was integral to the framing of assessment, the assessment order could not stand. Consequently, appeals predicated on that assessment become moot or infructuous to the extent they seek to uphold an assessment founded on invalid approval. Ratio vs. Obiter: Ratio - Invalid approval under section 153D vitiates the assessment order under section 153A and warrants quashing of that assessment. Obiter - The Court did not consider other grounds of challenge because quashing on the approval ground was dispositive. Conclusion: The assessment framed pursuant to an invalid/mechanical approval under section 153D is quashed; related departmental appeals become infructuous where based solely on that assessment. Overall Disposition The Court allowed the assessee's challenge to the assessment on the ground of erroneous (mechanical and omnibus) approval under section 153D, quashed the assessment order as vitiated by defective approval, and held the revenue appeal to be infructuous. The Court declined to decide other factual or legal contentions in view of the dispositive nature of the approval defect.