2025 (11) TMI 1911 - HC - Income Tax

Invalid Section 153D approval sinks Section 153A assessments, jurisdiction fails and Revenue's appeal on merits cannot proceed

Pr Commissioner of Income Tax Central 4 Versus Citron Infraprojects Limited, SVP Global Textiles Limited, Helios Mercantile Limited, Shri Vallabh Pittie South West Industries Limited.

HC upheld the ITAT's decision quashing assessments made u/s 153A on the ground that the approval u/s 153D was vitiated by total non-application of mind. ... Validity of proceedings u/s 153A based upon an approval u/s 153D which was vitiated by total non-application of mind - HELD THAT:- AO regarded this requirement of obtaining prior approval as merely a formality, and the Additional Commissioner who granted the approvals, likewise, was entirely in agreement with such an approach. These are sufficient grounds for the ITAT to quash the approvals. In the absence of valid approvals, the action under Section 153A cannot be justified and was rightly not upheld by the ITAT. The ITAT cannot be faulted for not adverting to the merits of the matter because in the absence of fulfilment of the jurisdictional requirement of a valid and prior approval under Section 153D, the action under Section 153A would be legally vulnerable. As noted earlier, in an Appeal under Section 260A of the IT Act, it is not for this Court to sit in appeal over factual findings unless a case of perversity is made out. No case of perversity has been made out because the basic facts are not even disputed. What is sought to be disputed are the inferences drawn by the ITAT based on such facts. The inferences, in this case, cannot be said to be vitiated by any legal infirmity or perversity. The inferences drawn are quite reasonable, given the facts of record relating to the rush to approve and the several discrepancies highlighted by the ITAT. We are satisfied that the question now proposed by Mr Suresh Kumar cannot qualify to be regarded as a substantial question of law. In any event, such a question would have to be answered against the Revenue. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether delay in filing the appeals, ranging from 1 to 51 days, was liable to be condoned on showing 'sufficient cause'. 1.2 Whether the prior approvals under Section 153D of the Income-tax Act, 1961, for assessments under Section 153A, were vitiated by total non-application of mind and consequently rendered the assessments invalid. 1.3 Whether the challenge to the Income Tax Appellate Tribunal's finding of invalidity of Section 153D approvals raised any 'substantial question of law' so as to warrant interference under Section 260A of the Income-tax Act, 1961. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeals Interpretation and reasoning 2.1 The Court noted that the delay in the set of appeals in question ranged between 1 and 51 days. The appellants had filed Interim Applications explaining the reasons for delay. 2.2 Upon perusal of the Interim Applications, the Court was satisfied that 'sufficient cause' had been shown and that the delay was 'not even inordinate'. Conclusions 2.3 All Interim Applications for condonation of delay were allowed and the delay in filing the appeals was condoned. Issue 2 - Validity of prior approvals under Section 153D and consequential assessments under Section 153A Legal framework (as discussed) 2.4 The Court considered Section 153D as mandating prior approval of a superior authority (Additional Commissioner) before finalising assessments under Section 153A pursuant to search actions. 2.5 The Court noted the Tribunal's reliance on the binding nature of departmental manuals and CBDT instructions traceable to Section 119, governing the process and safeguards in granting such approvals. 2.6 The Court considered and applied jurisprudence holding that statutory approvals/sanctions (including under Sections 153D and 151) must not be mechanical or ritualistic, but must reflect at least minimal, discernible application of mind, failing which the consequential assessments or reassessments stand vitiated. Interpretation and reasoning 2.7 The common ITAT order had held that the prior approvals under Section 153D were vitiated by total non-application of mind and that the consequential assessments under Section 153A were therefore incompetent, and had quashed them solely on this jurisdictional ground. 2.8 The Revenue contended that the Tribunal had cited only four to five instances of infirmity but applied its conclusions across all appeals, and that the approvals, though granted quickly (often within 24 hours), followed ongoing discussions between the assessing and approving authorities. It was also argued that elaborate reasons are not required in approvals and that the Tribunal had entertained a mere technical plea without examining merits. 2.9 The Court rejected the contention that infirmities were confined to four or five cases, holding that those instances were illustrative and covered several matters. The ITAT had considered a detailed chart of discrepancies across the cases, which the Departmental representative did not controvert. 2.10 The Court endorsed the ITAT's finding that: (i) proposals for approval under Section 153D, often accompanied by voluminous and factually diverse draft assessment orders, were received as late as 5:02 p.m., yet more than 30 approvals were issued within minutes or at best a couple of hours; (ii) the practical impossibility of meaningful examination within such timeframes supported an inference of purely mechanical approval. 2.11 The Court treated as a 'glaring inconsistency' that many draft assessment orders, submitted for approval, already contained the date and number of the approval order that had not yet been issued. This demonstrated that the grant of approval was a foregone conclusion or that the requirement of prior approval had been reduced to a trivial, ritualistic formality, undermining the statutory safeguard. 2.12 The Court noted that the approval orders themselves were identically worded and contained nothing to indicate even minimal consideration of the draft assessment orders or the diverse factual situations involved; there was no contemporaneous record showing any reasoning or application of mind. 2.13 The Court highlighted multiple specific instances, as recorded by the ITAT, evidencing non-application of mind by the approving authority, including: (a) Assessments passed after receipt of new investigation information at 5:02 p.m. on the same day, with corresponding approvals also granted, indicating that both assessment and approval processes occurred post-5:02 p.m. on the same date. (b) Invocation of Section 115BBE for Assessment Year 2012-13, though the provision was inserted with effect from 1 April 2013, and application of 60% tax rate under that section for later years where such invocation was inapplicable, all approved by the Additional Commissioner. (c) Approvals in cases where the assessee-company was not in existence or not incorporated during the relevant assessment years, yet draft assessment orders in the names of such non-existent entities were approved (including Helios Exports Limited and Shri Vallabh Pittie Industries Ltd for assessment years when they were not incorporated). 2.14 The Court agreed that, even if frequent 'discussions' between officers occurred, they could not substitute for statutory approval that shows some independent consideration of material. The numerous and serious discrepancies demonstrated that such discussions did not translate into lawful application of mind. 2.15 The Court endorsed the ITAT's reliance on the Departmental Manual/office procedure, treating it as equivalent to instructions under Section 119 and thus binding on departmental officers. The consistent breach of such procedures, alongside the other factual features, further supported the inference of mechanical approval. 2.16 The Court applied and aligned its reasoning with several precedents (including decisions concerning Section 153D and Section 151 approvals), which uniformly hold that: (a) prior approval is a mandatory safeguard to protect both the Revenue's interest and taxpayers against arbitrary action; (b) such approval cannot be a mere formality or rubber stamp and must reflect some discernible satisfaction based on consideration of the draft order and material; (c) mechanical or hasty 'en masse' approvals, especially where a large number of cases are approved in a single day without indication of perusal or reasoning, vitiate the resulting assessment orders. 2.17 In particular, the Court referred to precedent where approvals granted in extreme haste or with bare endorsements such as 'I am satisfied', or approvals granted despite explicit admission of lack of time to analyse issues, were held invalid, and where instructions under Section 119 and procedural manuals were treated as binding safeguards. 2.18 Applying this jurisprudence, the Court concluded that in the present batch of cases the Assessing Officer and the Additional Commissioner had treated the statutory requirement of prior approval under Section 153D as an empty ritual. The approvals were held to be products of total non-application of mind. 2.19 The Court held that, in the absence of valid prior approvals under Section 153D, the very jurisdiction to complete assessments under Section 153A failed. Consequently, the ITAT correctly quashed the approvals and the resultant assessments without entering into the merits of the additions. Conclusions 2.20 The Court affirmed the ITAT's finding that the Section 153D approvals were vitiated by total non-application of mind, being granted in a rushed, mechanical and en masse manner, contrary to the statutory scheme and binding instructions. 2.21 The resultant assessments under Section 153A, being founded on invalid approvals, were incompetent and were rightly quashed by the ITAT on this jurisdictional ground alone. Issue 3 - Existence of a 'substantial question of law' under Section 260A Legal framework (as discussed) 2.22 The Court reiterated that appeals under Section 260A lie only where a 'substantial question of law' arises. Factual findings of the Tribunal are not to be interfered with unless shown to be perverse or vitiated by legal error. Interpretation and reasoning 2.23 The Revenue framed the substantial question as whether the ITAT was justified, on the facts, in holding that the prior approvals under Section 153D were vitiated by non-application of mind. 2.24 The Court declined to examine whether certain appeals with tax effect below the CBDT monetary threshold were saved by exceptions under CBDT circulars, proceeding instead directly to consider the merits and the existence of any substantial question of law. 2.25 The Court held that the basic facts concerning the timing, volume, pattern and wording of approvals, and the specific discrepancies highlighted by the ITAT, were not in dispute. What was challenged was only the inference drawn from these undisputed facts. 2.26 The Court found that the ITAT's inference of total non-application of mind was a reasonable and legally sustainable conclusion drawn from the factual matrix, supported by established jurisprudence. No perversity or legal infirmity in the ITAT's appreciation of facts or application of law was demonstrated. 2.27 The Court emphasised that once the ITAT found, on facts, that a mandatory jurisdictional precondition (valid prior approval) was not satisfied, it was not required to go into the merits of additions. The question raised was essentially factual and did not give rise to a substantial question of law. Conclusions 2.28 The proposed question regarding the validity of Section 153D approvals did not qualify as a 'substantial question of law' under Section 260A. Even on merits, it would have to be answered against the Revenue. 2.29 Accordingly, while condoning the delay, the Court dismissed all appeals, holding that no substantial question of law arose and that the ITAT's conclusions on invalidity of approvals and consequent assessments warranted no interference. There was no order as to costs.