2025 (10) TMI 1061 - AT - Income Tax

Authority upholds sanction under s.153D and addition under s.69C; s.132(4) presumption sustained; s.115BBE rate not applied

ITAT DELHI upheld the approving authority's sanction under s.153D as valid and administrative, not appellate, finding no proven non-application of mind; ... Validity of approval u/s 153D - as contended that the approval had been given in mechanical manner and without application of mind - phrase “application of mind” which is at the core of the controversy here is a well-established expression in jurisprudence - HELD THAT:- The power to make assessment is confined to the AO only. Only directions issued under section 144A of the Act by the Range Head are binding. Therefore, while giving approval under section 153D of the Act, the Range Head does not enter the realm of appellate jurisdiction and hence cannot go into the legal merits of the additions proposed in the draft order or other jurisdictional issues. Hence, the application of mind by approving authority must be ascertained in the limited context only. The approval u/s 153D of the Act is mandatory as the Ld. Approving Authority has no option except to approve it within the statutory time available before the Ld. AO for completion of assessment. At best, the Ld. Approving Authority can only direct the AO to recheck on certain procedural aspects and due consideration of seized material, appraisal reports, etc., etc. The provisions of 153D of the Act are for maintaining the internal checks and balances only within the functioning of Income Tax Department and are not intended to provide any relief or adjudicate the rights of the assessee at that stage. The Office Procedure Manual is not an/a order/direction u/s 119 of the Act, but it is Standard Operating Procedure (‘SOP’). Non-proper follow-up of office procedure of the Income Tax Department by its lower authorities may be, at most, misconduct/insubordination. Hence, it may be irregular in office decorum but it will not invalidate any statutory function performed under the Act as it has no legal sanctity under the Act. Approving Authority under section 153D of the Act does not act as an Appellate Authority to reduce/enhance/allow/disallow any addition proposed in the draft assessment order while giving approval as the Addl. CIT is not empowered to do so u/s 153D of the Act Thus, approval u/s 153D of the Act is administrative in nature and any defect/error having crept therein is a curable one and not fatal. However, in the case in hand no such fact of any ‘non-application of mind’ and any error in approval under section 153D of the Act has been brought on the record by the Ld. AR. The involvement of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act is a continuous process and not a onetime activity. Hence, the claim that the approval was accorded in a very limited time, by itself does not indicate that the approval is given mechanically in haste without application of mind as no prejudice is caused on approving the draft assessment order in a limited time, once the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act is fully aware of the background material. Action of Range Head/Addl. CIT/Joint CIT justified while approving under section 153D of the Act. We are not inclined to interfere with the finding of the Ld. CIT(A) that the approval granted under section 153D of the Act is a valid in the eyes of the law. We therefore, dismiss the jurisdictional/technical ground raised by the appellant assessee. The ground no. 4 stands dismissed accordingly. Addition u/s 69C - unexplained expenditure - holding the diary of Mr. Rohit Sharma seized from the office of the assessee as belonging to the assessee by applying the presumption u/s 132(4) - No confirmation of third parties to whom the payment was done - HELD THAT:- From the perusal of the extracted contents of the diary in impugned order, it is evident that the expenses were made for the purpose of election. The said diary was admittedly authored by Shri Rohit Sharma. Whom the expenses mentioned in the diary incurred and belonged to? - The material available on the record and circumstantial evidence clearly pin-point that the expenses mentioned therein were not incurred for the election purpose and for the exclusive benefit of the appellant assessee. Owning of part expenses in absence of any corroboratory material by Shri Rohit Sharma the author of the diary in affidavit is prima-facie inadmissible as Shri Rohit Sharma is of meagre income and have not any source to meet such expenditure without any purpose. In the affidavit, Shri Rohit Sharma stated that only an amount of Rs. 10,95,700/- was incurred for promotion of AAM ADMI PARTY and its candidates in west Delhi constituencies; however, the AAM ADMI PARTY has not admitted so to have source it and have accounted for. In the said diary, we notice that payments have been actually done as evident from the narration therein. There are instances of payment by cheque/banking channels also. Hence, the said expenses cannot be claimed estimates of expenses. We notice that the affidavit Shri Rohit Sharma does not contain and own all the details mentioned in the seized diary. In the affidavit, the only a selective portion has been owned up by Shri Rohit Sharma. AR failed to contradict the above finding by submitting the confirmation of third parties to whom the payment was done. Section 292C is clearly attracted here to draw the inference that the material belonged to the appellant assessee in whose possession the same was seized proved unless otherwise. Shri Rohit Sharma in his affidavit has not explained the entire contents, source of money received and purpose of expenditure. In the diary there are clear cut narration of the appellant assessee, Shri Kallash Gahlot (referred as KG Sir) on various pages for various issues like speak with KG Sir for buses arrangement, Mail sent to KG sir w.r.t 14th February buses schedule; speak with KG Sir for Manjeev expense on election date; speak with KG Sir on pending payment of vendors etc. etc. In the first page of the diary, the phone number (011-25873455) belonging to the appellant is mentioned. The website is written as www.kailashgahlot.in. The organization where the author Shri Rohit Sharma is working is written as Shri Ram Chander Gahlot Charitable Trust (in father name of the appellant assessee) with address at A Block, Prem Nursery, Gopal Nagar, Najafgarh, New Delhi. Shri Rohit Sharma is a person basically working for the appellant and his concerns. We are not inclined to interfere with the finding of the Ld. CIT(A) that the expenditure is unexplained expenditure of the appellant assessee u/s 69C Applicability of tax rate of 60% in accordance with section 115BBE - applicability of tax rate of 60% was not in the Act in the relevant AY. Therefore, the old provisions of section 115BBE of the Act wef 01.04.2013 is held applicable here. The tax should be charged as per the law applicable in the relevant year. Hence this issue is decided in favour of the assessee to the extent of applicability of tax rate of 60% only. ISSUES PRESENTED AND CONSIDERED 1. Whether the approval accorded by the Range Head under section 153D of the Act was a mechanical act without application of mind and vitiated the assessment. 2. Whether seized diary entries recovered from assessee's office premises can be presumed to belong to the assessee under sections 132(4A)/292C and, if so, whether entries recording election-related expenditure can be treated as unexplained expenditure chargeable to the assessee under section 69C. 3. Whether the affidavit of the diary's author amounted to satisfactory rebuttal of the statutory presumption and whether independent corroboration was required. 4. Whether duplicate/triplicate entries in the seized diary should be aggregated for computing unexplained expenditure under section 69C. 5. Whether the rate of tax under section 115BBE (60%) applied to the unexplained expenditure addition for the relevant assessment year. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of approval under section 153D: application of mind Legal framework: Section 153D provides for prior approval by a supervisory authority (Range Head/Additional Commissioner) for assessments under sections 153A/153C; the statutory language uses the term 'approval' (not 'sanction'). Section 144A directions and CBDT SOPs provide internal procedures for search assessments. Evidence Act, s.114(e) creates a statutory presumption that official acts are regularly performed. Precedent treatment: The Court considered authorities distinguishing 'approval' from 'sanction' and treating approval under s.153D as supervisory/administrative, not adjudicatory. Decisions holding administrative approval need not carry elaborate reasons were followed; cases concerning sanction orders conferring jurisdiction (e.g., under sections 142(2A)/151(2)/147) were distinguished as inapposite. Interpretation and reasoning: The Tribunal held that the approving authority's role under s.153D is limited and supervisory - confined to checking procedural compliance and whether the AO has fulfilled Chapter XIV-B requirements. The approving authority is not to decide rights/obligations or re-adjudicate merits. Given the statutory presumption under s.114(e) and the practice of endorsement of appraisal reports and seized material to the Range Head, mere absence of detailed recitals in the approval letter does not, without corroboratory evidence, establish non-application of mind. The petitioner's reliance on SOP breach and some coordinate bench orders was rejected because SOP is administrative guidance without statutory sanctity and the cases relied upon were distinguishable in context. The Tribunal required the assessee to demonstrate non-application of mind and prejudice caused; mere allegation was insufficient. Ratio vs. Obiter: Ratio - approval under s.153D is administrative in nature; statutory presumption of regularity applies and burden lies on challenger to prove non-application of mind. Distinguishing of sanction jurisprudence is ratio. Observations on SOP's non-statutory force and on common practice of appraisal-report endorsement are reasons tied to decision (ratio). Comments on SLP dismissal and binding force were explanatory (obiter to the extent they summarize jurisprudential principle). Conclusion: The approval under section 153D was not shown to be a mechanical act without application of mind; the technical ground attacking the approval was dismissed. Issue 2 - Attribution of seized diary to assessee and taxation under section 69C Legal framework: Sections 132 and 132(4A) concerning seizure, section 292C regarding presumptive inferences from incriminating material found in premises, and section 69C treating unexplained expenditure as income if source not explained. General principles require the person in possession/controlling premises to explain seized incriminating material; evidentiary burden of explanation lies on person asserting otherwise. Precedent treatment: The Tribunal relied on established authority that incriminating material found in a person's premises can be presumed to belong to that person unless satisfactorily rebutted; it treated precedent requiring corroboration before attributing seized material to a third party as applicable. Interpretation and reasoning: The Tribunal examined circumstantial and documentary links between the diary and the assessee: possession/control of office premises, contact details and website references in the diary corresponding to the assessee, organizational links (trust and school address), entries naming relatives and persons associated with the assessee, and narrative references directing actions to the assessee (e.g., instructions referencing 'KG Sir', vendor payments, arrangements). The author's affidavit admitting only selective/estimated expenses and failing to explain many entries and sources of funds was held inadequate. Instances of payments by cheque and banking channels in the diary rebut the contention that entries were mere estimates. On these facts, the Tribunal concluded that the diary's entries related to election expenditures for the assessee and that the assessee failed to explain the source of funds; therefore section 69C invocation was justified. Ratio vs. Obiter: Ratio - where incriminating diary is seized from assessee's controlled premises and exhibits direct contextual links to the assessee, and the author's explanation is incomplete or uncorroborated, entries can be attributed to the assessee and added as unexplained expenditure under section 69C. Observations about the quality of the affidavit and credibility of the author are factual findings (ratio as applied to facts); general statements about need for corroboration where third-party ownership is asserted are restatements of established law (ratio). Conclusion: The Tribunal upheld the addition of Rs. 42,98,086 as unexplained expenditure under section 69C, finding the diary attributable to the assessee and the author's affidavit inadequate to rebut presumptions. Issue 3 - Weight of affidavit of diary's author and requirement of corroboration Legal framework: Burden to rebut statutory presumptions; principles of admissibility and weight of self-serving affidavits; requirement of corroboration where necessary to displace presumptions as per Evidence Act and judicial gloss. Precedent treatment: The Tribunal applied the principle that statutory presumption of regularity and possession may be rebutted by cogent, corroborative evidence; but mere affidavit without supporting documentary/independent corroboration is insufficient. Interpretation and reasoning: The author's affidavit admitted only selective amounts and characterized most entries as estimates without explaining cheque/banking payments or sources of receipts; no independent confirmations from third parties (party records, beneficiaries, banking proof) were produced. Given the context and the author's meagre means, the Tribunal treated the affidavit as inadequate. The Tribunal emphasized that the burden to establish non-ownership or party-incurred expenses rested on the claimant and was not discharged by the affidavit alone. Ratio vs. Obiter: Ratio - affidavit of author insufficient to rebut presumption unless supported by corroborative evidence and full explanation of entries; applicant must produce third-party confirmations or documentary evidence to displace inference. Conclusion: The affidavit did not rebut the presumption; corroboration was required and absent, so the author's statements were rejected for the purpose of displacing the addition. Issue 4 - Aggregation of duplicate/triplicate entries in diary Legal framework: Section 69C computes unexplained expenditure based on amounts attributable and unexplained; duplication in records may affect quantum if entries represent repeats rather than distinct payments; ordinary principles require examination of ledger/entries to avoid double counting. Precedent treatment: The Tribunal noted the ground raising duplicate/triplicate aggregation but found no material produced by assessee to demonstrate duplication or that amounts were not distinct payments; it treated absence of such material as fatal to the contention. Interpretation and reasoning: The assessee bore onus to demonstrate that certain entries were duplicates and should not be aggregated. No bank reconciliations, vouchers, or third-party confirmations were furnished to show duplication or that amounts were otherwise accounted for. The Tribunal therefore accepted aggregation as done by AO/CIT(A) for the purposes of s.69C on the available record. Ratio vs. Obiter: Ratio - where duplication is alleged, assessee must produce material proof to disaggregate entries; mere assertion without documentary support cannot lead to reduction in aggregated quantum. Conclusion: The objection to aggregation of duplicate/triplicate entries failed for want of evidence; aggregation and quantum of addition were sustained. Issue 5 - Applicability of tax rate under section 115BBE Legal framework: Section 115BBE prescribes special tax rates on certain incomes; applicability depends on the statutory position in the relevant assessment year. Precedent treatment: The Tribunal applied law on temporal application of tax provisions and assessed which provision was in force for the relevant AY. Interpretation and reasoning: The Tribunal found that the enhanced 60% tax rate under the later amendments was not in force for the relevant assessment year; therefore the rate applicable was the pre-amendment provision as subsisting in that year. Accordingly, tax treatment was adjusted in favour of the assessee to the extent of the tax rate applied. Ratio vs. Obiter: Ratio - tax rate under section 115BBE to be applied as per law in force in the relevant assessment year; retrospective application of later enhanced rates cannot be made. Conclusion: The Tribunal allowed relief on the point of tax rate - the 60% rate under the later amendment did not apply to the relevant AY; tax to be charged as per law applicable in that year.