Blanket mechanical s.153D approval renders search assessments invalid; assessments quashed and assessees' appeals allowed in full

ITAT (Agra) held that the search assessments were invalid as the mandatory prior approval under s.153D of the Income-tax Act was granted in a mechanical manner through a common, omnibus approval for different assessees and different assessment years. The Tribunal held that such blanket approval, without individualized consideration of each draft assessment order, violates the legislative intent and statutory requirement of due application of mind under s.153D. Following binding precedent of the jurisdictional HC, as affirmed by SC, ITAT quashed the assessments framed pursuant to the defective approval and allowed the assessees' appeals in entirety.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether the prior approval granted under Section 153D for search assessments was mechanical and without application of mind, thereby vitiating the assessments framed under Section 153A read with Section 143(3).

1.2 Consequentially, whether the search assessments for the years under consideration were liable to be quashed on account of invalid approval under Section 153D.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of approval under Section 153D and its effect on the search assessments

Legal framework (as discussed in the judgment)

2.1 The Court noted that under the scheme of the Act, search assessments under Sections 153A/153C can be passed only after prior approval of the draft assessment order by the Additional Commissioner/Joint Commissioner in terms of Section 153D. This requirement is treated as a mandatory safeguard against arbitrary or unjust exercise of power by the Assessing Officer.

2.2 The Court referred to and relied upon the Third Member decision of the Delhi Tribunal in the case dealing with Section 153D approval, wherein it was held that:

(a) An order of approval is not to be mechanically granted; it must be based on material on record and reflect application of mind, as elucidated by the Supreme Court in decisions interpreting similar approval requirements.

(b) CBDT's Manual of Office Procedure (February 2003, Chapter 3, para 9 of Volume II - Technical), issued under Section 119, prescribes that the draft assessment order in search/block cases should be submitted well in time, docketed, and that the supervisory officer should give due opportunity of being heard to the assessee and grant written approval only after due examination of records and making proper entries in the order-sheet.

2.3 The Court also noticed High Court decisions (including Orissa, Delhi, Allahabad and Punjab & Haryana High Courts) to the effect that:

(a) "Approval" is an inbuilt protection and must not become an empty ritual; the approving authority must have before it the relevant material and must apply its mind to the facts.

(b) Proceedings leading to tax assessment, even if termed administrative in part, entail civil consequences and therefore require adherence to principles of natural justice and non-mechanical exercise of statutory powers.

2.4 The Court further noted jurisprudence emphasizing that the Assessing Officer performs a quasi-judicial function in framing assessment and must act independently; higher administrative authorities (including Additional CIT/JCIT) cannot direct or dictate the outcome of such assessment, save as permitted under specific provisions like Section 144A and instructions under Section 119.

Interpretation and reasoning

2.5 On facts, the Court found that the Assessing Officer, stationed at Agra, forwarded the draft assessment orders for multiple assessees and years to the Additional CIT at Kanpur on 29.09.2021 and that the Additional CIT granted approval under Section 153D on the same date by a common/ consolidated approval letter for 13 assessees for different assessment years.

2.6 The Court reasoned that, considering the geographical locations (Agra and Kanpur) and normal office working constraints, it was humanly impossible for the physical files to be transmitted, examined in depth, and returned along with a reasoned approval on the same day for such a large number of cases and years.

2.7 It was observed that the approval so issued was consolidated for multiple assessees and assessment years and did not demonstrate any case-specific analysis or consideration of seized material, assessment records, questionnaires, replies of the assessee, or the conclusions drawn by the Assessing Officer.

2.8 The Court rejected the Revenue's contention that the Additional CIT's continuous involvement in the search assessment process and guidance to the Assessing Officer made it easy to approve all draft orders in a single day and that the approval was merely administrative in nature. Relying on the Third Member decision and High Court precedents, the Court held:

(a) The approval under Section 153D is a quasi-judicial safeguard and not a mere internal/administrative formality.

(b) Even if the Additional CIT is involved from the stage of appraisal report and during assessment proceedings, at the approval stage he must independently and freshly apply his mind to the draft assessment, the seized material, and the assessee's explanations, without merely endorsing prior views.

(c) The mere fact of involvement in earlier stages cannot replace or satisfy the statutory requirement of a considered, non-mechanical approval at the stage of Section 153D.

2.9 The Court further drew support from decisions where:

(a) Common or batch approvals under Section 153D for several assessees and years on the same date, unaccompanied by demonstrated examination of records, were held to be mechanical and invalid.

(b) It was emphasized that the Additional CIT must independently scrutinize assessment records and search material and that failure to do so vitiates the approval and thereby the assessments.

2.10 The Court also referred to the principle, as highlighted by the Punjab and Haryana High Court, that while CBDT may provide for approval mechanisms and supervisory checks, the Assessing Officer must not abdicate his quasi-judicial function to superior officers, nor can the superior officer's deep involvement replace or override the statutory scheme that requires independent discretion and separate roles for the Assessing Officer and the approving authority.

2.11 In the instant case, the Court concluded that the procedure laid down in the CBDT Manual and the legal standards enunciated in the cited judgments were not followed. The approval was found to be:

(a) Granted on the very day the draft orders were sent,

(b) Common for multiple assessees and assessment years, and

(c) Unsupported by any indication of record-based scrutiny or individualized application of mind by the Additional CIT.

2.12 On these cumulative facts and legal principles, the Court held that the approval under Section 153D was given in a mechanical manner and without due application of mind, rendering it invalid in law.

Conclusions

2.13 The statutory precondition of a valid prior approval under Section 153D for framing search assessments under Section 153A read with Section 143(3) was not satisfied, as the approval was mechanical and devoid of independent application of mind.

2.14 An invalid or mechanical approval under Section 153D vitiates the entire assessment proceedings founded upon such approval.

2.15 Accordingly, the search assessments for all years under consideration were quashed as void for want of valid approval under Section 153D.

2.16 In view of the quashing of the assessments on this preliminary legal ground, the Court did not examine or adjudicate upon the remaining grounds on law or on merits, which were left open.

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