2025 (11) TMI 1831 - AT - Income Tax

Blanket composite approval under section 153D held invalid; mechanical sanction vitiates assessments for multiple years

ITAT Delhi held that the approval granted u/s 153D was invalid as it was accorded through a single composite order covering 51 cases for multiple ... Validity of approval granted u/s. 153D - single order had granted approval in 51 cases including approval in the case of assessee for AYs 2011-12 to 2017-18 along with seven other assessees for multiple assessment years - HELD THAT:- As in MDLR Hotels (P) Ltd. [2024 (8) TMI 1138 - DELHI HIGH COURT] held in a case where single approval u/s. 153D was accorded by the Competent Authority in as many as 246 proposed assessments in a mechanical manner quashed the assessment. Thus, where single approval u/s. 153D is granted for multiple assessment years, the same is invalid. Though, in the instant case while granting approval the Addl. CIT has mentioned that the approval has been granted after perusal of relevant assessment records but is absolutely silent as to which assessment records/seized material or any other document has been examined by him. Further, it is not possible to examine 51 assessment records in a single day. Therefore, the manner in which approval has been granted in the case of assessee is held to be without proper application of mind, hence, the same is held to be invalid. Consequently, assessment orders passed by the AO on the basis of such mechanical approval are vitiated. The assessee succeeds on ground no. 2 of appeal. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the approval purportedly granted under section 153D of the Income-tax Act, 1961, by a single composite order covering multiple assessees and multiple assessment years, and accorded in one day in respect of 51 cases, satisfies the statutory requirement of prior approval 'in respect of each assessment year'. 1.2 Whether such approval, granted in a mechanical manner without demonstrable independent application of mind to each case, vitiates the consequent assessment orders passed under sections 143(3)/153A and 143(3). 1.3 Consequentially, whether the appeals of the Revenue for the corresponding assessment years, including an assessment year where only the Revenue is in appeal, survive once the approval under section 153D is held invalid on the same reasoning. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of approval under section 153D and its effect on the assessments Legal framework (as discussed) 2.1 The Tribunal noted that under section 153D, no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in section 153A(1)(b) or section 153B(1)(b) except with the prior approval of the Joint Commissioner. 2.2 The Tribunal relied upon the judicial exposition of section 153D by the High Courts, particularly: (a) The interpretation that approval under section 153D must be granted for 'each assessment year' and 'each assessee' separately, with independent application of mind, and cannot be a mere ritualistic or mechanical exercise. (b) The principle that where a very large number of cases are approved on a single day, it may be 'humanly impossible' to have undertaken the necessary appraisal, leading to an inference of mechanical approval. (c) The requirement that the approving authority must indicate, at least in substance, that the draft assessment orders and records have been examined, and that mere repetition of statutory phrases or bare assertions of perusal is insufficient. Interpretation and reasoning 2.3 In the present batch, a search under section 132 had led to issuance of notices under section 153A, and assessments for several years were framed under sections 143(3)/153A and 143(3). Prior to passing these assessments, the Assessing Officer, by letter dated 27.12.2018, forwarded 51 cases of various assessees for multiple assessment years, including the assessee's cases, to the Additional Commissioner for approval under section 153D. 2.4 The Additional Commissioner, by a single order dated 28.12.2018, accorded approval in all 51 cases. The assessee contended that: (a) A single authorization was issued in respect of 8 assessees for multiple assessment years, covering in all 51 cases, which does not satisfy the statutory mandate that approval be granted for each assessment year separately. (b) It was not possible to properly examine seized material and draft assessment orders in 51 cases in a single day; hence, the approval was mechanical and without proper application of mind. (c) The endorsement 'Recd A/W All Records, Signed 29/12/18' indicated that the assessment order was passed on 28.12.2018 whereas the approval with all records was received by the Assessing Officer only on 29.12.2018, implying that the assessment was passed without actual receipt of valid prior approval. 2.5 The Department argued that the approval had been granted after examining the draft assessment orders and assessment records, as recorded in paragraph 3 of the approval, and that the allegation of mechanical exercise was unfounded. 2.6 The Tribunal, after examining the approval and the surrounding facts, applied the principles laid down by the High Courts in decisions where: (a) Approvals granted in bulk (e.g., 43, 85, 246 cases) on a single day were held to be mechanical and invalid when there was no indication of independent application of mind to each case and each assessment year. (b) It was emphasized that the approving authority must consider the draft orders and material for 'each assessment year' and 'each assessee' separately, and that rubber-stamping or mere formal approval defeats the legislative intent behind section 153D. 2.7 In the present matter, the Tribunal found: (a) A single approval order was issued by the Additional Commissioner covering multiple assessees and multiple assessment years, including 51 cases forwarded on the immediately preceding day. (b) Although the approval recited that it was granted after perusal of relevant assessment records, it was completely silent as to which assessment records, seized material or other documents were examined. (c) Having regard to the volume of 51 assessment records and the one-day time-frame between forwarding the cases and issuance of approval, it was not realistically possible to have conducted a meaningful and judicious examination of all records and draft assessment orders. (d) Consequently, the approval under section 153D was held to have been granted in a mechanical manner, without proper, independent application of mind as required by the statute and judicial precedents. Conclusions 2.8 The Tribunal held that the approval granted under section 153D in the assessee's group of cases is invalid for the following reasons: (a) A single composite approval was issued in respect of multiple assessees and multiple assessment years instead of separate, case-wise and year-wise approvals mandated by section 153D. (b) The approval was accorded in one day for 51 cases, making it impossible to meaningfully examine each case and assessment year. (c) The approval order lacked any specific indication of examination of particular assessment records or seized materials, evidencing mechanical exercise of power. 2.9 As a direct consequence, the assessments framed on the basis of such invalid and mechanical approval under section 153D were held to be vitiated and invalid. The assessee's legal ground challenging the validity of approval under section 153D was allowed, and all other grounds were treated as academic and not adjudicated. Issue 3: Effect on Revenue's appeals, including year with no assessee appeal Interpretation and reasoning 2.10 Having held that the assessment orders themselves were invalid due to absence of a valid approval under section 153D, the Tribunal considered the fate of the Revenue's appeals for the corresponding assessment years. 2.11 For those assessment years where both the assessee and the Revenue were in appeal, the Tribunal held that since the very foundation-the assessment orders-stood vitiated, the Revenue's appeals could not survive and were liable to be dismissed. 2.12 For the assessment year 2014-15, where only the Revenue had preferred an appeal and the assessee had not filed any appeal, the Tribunal noted that the approval under section 153D for that year was also granted in the same manner as in the other years, i.e., through the same kind of composite, bulk approval. 2.13 Applying the same reasoning and parity of treatment, the Tribunal held that the invalidity of approval under section 153D extended to that assessment year as well, thereby vitiating the assessment order for that year, even though the assessee had not independently challenged it in appeal. Conclusions 2.14 The Tribunal concluded that: (a) Appeals of the assessee for assessment years 2012-13, 2013-14 and 2015-16 to 2017-18 are allowed on the legal ground that the assessments are invalid for want of a valid approval under section 153D. (b) The Revenue's appeals for the corresponding assessment years are dismissed as the underlying assessments are invalid. (c) The Revenue's appeal for assessment year 2014-15 is also dismissed, as the approval under section 153D for that year suffers from the same defect and, on parity of reasoning, the assessment order is likewise vitiated.