TaxTMI 
TaxTMI 
2022 (6) TMI 25
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.... raised the following grounds: 1. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of Rs.4,00,00,000/- made by the Ld. AO u/s 68 of the Income Tax Act,1961, on account of alleged share capital amounting to Rs.80,00,000/- and alleged share premium amounting to Rs.3,20,00,000/-, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the course of search, therefore, firstly, the impugned assessment made u/s 153A of the Income Tax Act, 1961 and secondly the addition for alleged unexplained share capital are illegal, void-ab-initio, bad in law and liable to be quashed/deleted. 2. That the Ld. Commissioner of Income Tax (Appeals)-IV, Kanpur has erred in law and on facts in sustaining the addition of Rs.10,00,000/- made by the Ld. AO u/s 69C of the Income Tax Act,1961 on account of alleged unexplained expenditure @ 2.5%, in respect of share capital and share premium, without appreciating that no incriminating material, document(s)/evidence was found from the premises of the appellant (searched person) during the cou....
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....Ld. Commissioner of Income Tax(Appeals) has failed to appreciate that in the Show cause Notice dated 12.12.2018, the Ld. A.O. has prejudged and predecided the following issues : i)Treatment of Gross Profit from the business of wholesale trading in cloth amounting to Rs.10,67,37,470/- as deemed income u/s 68 of the Income Tax Act,1961. ii)Addition of commission @ 2% on the Gross profit from the business of wholesale trading in cloth, amounting to Rs.21,34,759/-. iii)Addition on account of subscription to Share Capital amounting to Rs.80,00,000/- & share premium amounting to Rs.3,20,00,000/-. iv) Addition of commission @ 2.5% paid on the Share Capital amounting to Rs.80,00,000/- & share premium amounting to Rs.3,20,00,000/-, amounting to Rs.10,00,000/. Therefore, the said Show cause Notice is unsustainable in law and consequential treatment of Gross Profit as deemed income u/s 68 of the Income Tax Act,1961 and additions mentioned hereinabove are unsustainable in law. 8. That the Ld. CIT(A) -4, Kanpur has erred in law and on facts in sustaining the impugned additions made by the Ld. AO and ignoring the fact that the Ld. AO has neit....
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.... the assessees were required to file income tax returns under section 153A of the Act. In response to the notices, the assessees filed returns under section 153A of the Act for the years other than the search year under section 153A and for the year of search, the regular returns were filed. 6. The assessments in these cases were completed under sections 153A/143(3) of the Act by the Dy. CIT, Central Circle-2, Kanpur vide order dated 30.12.2018 and various additions were made. It was submitted before us that as per the provisions of law, in search cases, the Assessing Officer, before passing assessment order framed under sections 153A, 153C and 143(3) is required to take the approval from the Jt. CIT under section 153D of the Act if the Assessing Officer is below the rank of Jt. CIT and in this respect our attention was invited to the provisions of section 153D of the Act. It was submitted that the Jt. CIT, that is, the approving authority, before granting approval, is required to see all search material including incriminating material, seized documents, appraisal report, enquiries made by the Investigation Wing, the various enquiries made by the Assessing Officer during the as....
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....ure that the subordinate authority has followed due process of law and has not taken arbitrary decisions; and that the obligation of the approving authority is of two fold, i.e., on the one hand, he has to apply his mind to ensure the interest of the Revenue being watched against any omission or negligence by the Assessing Officer in taxing the right income in the hands of the right person, and in right Assessment Year and, on the other hand, the superior authority is also responsible and duty-bound to do justice with the tax payer by granting protection against arbitrariness or creation of baseless tax liability on the assessee. Inviting our attention to the meaning of the word 'approval' as defined in Black Law Dictionary, the ld. Counsel for the assessee has submitted that the word 'approval' means an act of confirming, rectifying, sanctioning or consenting to some act or thing done by another. 8. The ld. Counsel for the assessee has further invited our attention to the judgment of the Supreme Court South Carolina in State vs. Duckett', 133 S.C. 85 (S.C. 1925) 130.S.E. 340 (copy filed), where the word 'approval' has been held to be having knowledge and then exercise of discre....
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.... with the prior approval of the Jt. CIT. The ld. Counsel for the assessee has submitted that it is trite law that for granting approval under section 153D of the Act, the approving authority has to apply his independent mind to the material on record for each assessment year in respect of each assessee separately. 12. It was submitted that the rationale of the word 'each', as specifically referred to in section 153D and section 153A of the I.T. Act deserves to be given effective/proper meaning so that the underlying legislative intent as per the scheme of assessment under sections 153A to 153D of the I.T. Act is fulfilled. It was submitted that the Addl. CIT, in the cases at hand granted approval for all the assessees for all the assessment years through a single approval letter, which is against the intent of law and therefore also, the approval given by the Addl. CIT is non-est and the consequential assessment made on the basis of such approval is illegal and deserves to be annulled. The ld. Counsel for the assessee, in this regard, relied on the judgment of the Hon'ble Allahabad High Court in the case of 'Mohd. Ayub vs. Income Tax Officer', 346 ITR 30 (Alld.) (copy filed)....
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....ssed and, therefore, clearly, the CBDT instructions have been violated. It was submitted that in view of these facts and circumstances, the approval has been given in a most mechanical manner without any application of mind and without any independent examination of the seized material and other material on record; that there is no mention about any incriminating material having been forwarded to the Jt. CIT, and there is no mention of the statements recorded at the time of search. It was submitted that the approval is granted in a hurried manner without looking into the serious lapses committed by the Assessing Officer and therefore, the approval under section 153D of the I.T. Act is invalid and bad in law and the consequent assessment orders need to be quashed. Reliance in this respect was placed on the order of the Delhi Bench of the Tribunal in the case of 'Sanjay Duggal and Others vs. ACIT', in I.T.A. No.1813/Del/2019 (copy filed), wherein, vide order dated 19.1.2021, the entire law relating to section 153D of the I.T. Act has been discussed and after relying on a number of case laws, the Tribunal has allowed the appeals of the assessees and has quashed the assessment orders. ....
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....pproval, the fact remains that he has granted approval to the draft assessment order and only after that, the Assessing Officer has passed the final assessment order and therefore, ground No. 6 of the appeals be dismissed and appeals be heard on merits. 15. We have heard the rival parties and have gone through the material placed on record. We find that in these cases, in view of a search carried out on the Sigma Group, the assessments of various assessees were reopened and various assessees were required to file income tax returns as required under the provisions of section 153A of the Act. The search was started on 23.8.2016 and it continued upto 25.8.2016, and therefore, the assessment year 2017-18 became the search year and the years preceding the search year became the subject matter of reopening under section 153A of the Act. The issue raised by the ld. Counsel for the assessee is that the approval granted by the Addl. CIT is bad in law, as it is humanly impossible to go through documents exceeding 17,800 in a single day and then to grant approval qua 67 assessment orders on the same day. Since the controversy involved herein is with regard to the approval under section 15....
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.... ratifying, assenting, sanctioning or consenting to some act or thing done by another. In the context of an administrative act, the word 'approval' in our opinion, does not mean anything more than either confirming, ratifying, assenting, sanctioning or consenting. It will be doing violence to the Scheme of the Act if we have to construe and accept the argument of learned counsel for the respondents that the word approval found in the proviso to Section 11(1) of the Act under the Scheme of the Act amounts to an appellate power." 18. The Supreme Court of South Carolina in 'State vs. Duckett', 133 S.C. 85 [S.C. 1925], 130 S.E. 340, decided on 5.11.1925, held that approval implies knowledge and, the exercise or discretion after knowledge. 19. Further, the Hon'ble Gauhati High Court, in the case of 'Dharampal Satyapal Ltd., vs., Union of India', [2019] 366 ELT 253 (Gau.), in para-28, has held as under: "When an Authority is required to give his approval, it is also to be understood that such Authority makes an application of mind as to whether the matter that is required to be approved satisfies all the requirements of Law or procedure to which it may be subje....
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....al and the material, on the basis of which approval has been granted, can be challenged by the assessee. The scope and issue agitated by the assessee by way of the legal ground in the present cases is not that of granting of approval. Rather, the main grievance of the assessee is that the approving authority has granted approval in a mechanical manner, without application of mind and without looking into the seized material. We are inclined to hold that if an approval has been granted by the approving authority in a mechanical manner without application of mind, then the very purpose of obtaining approval under section 153D of the Act and the mandate of the enactment by the Legislature will be defeated. It is trite law that for granting approval under section 153D of the Act, the approving authority shall have to apply his independent mind to the material on record for each assessment year in respect of each assessee separately. The rationale of word "each" as specifically referred to in Section 153D and Section 153A, deserves to be given effective/proper meaning to, so that the underlying legislative intent as per the scheme of assessment, as contained in Section 153A to 153D is f....
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....and consciously used in Section 153D, so that assessee-wise and year-wise application of mind on the part of the approving authority is ensured, which is in accordance with the overall scheme of assessment under sections 153A to 153D of the I.T. Act. The Hon'ble Allahabad High Court, in the case of 'Shri Mohd. Ayub vs. ITO', [2012] 346 ITR 30 (Alld), dealt with non-issuance of separate notices under section 148 of the I.T. Act and held such non-issuance to be illegal, because each assessment year was to be taken as an independent unit of assessment. Now, in the context of Section 153D of the I.T. Act (where the word "each" is expressly used and which is a year-centric special scheme of assessment with the concept of abated/un-abated assessments), there is, without the shadow of a doubt, absolute necessity of separate approval for each year and for each assessee. In the present cases, the Jt. CIT has given joint approval under section 153D of the Act for all the years involved in search and the approving authority has granted the approval in a mechanical manner and a mere idle formality. In one line, the approving authority has given a blank go ahead, a carte blanche, to pass th....
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....eized documents and any other material forming the foundation of the assessment. It is an elementary law that whenever any statutory obligation is cast upon any statutory authority, such authority is required to discharge its obligation not mechanically, not even formally, but after due application of mind. The approval granted under section 153D of the Act should necessarily reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending. 22. In the above background of law and in the light of the order dated 30.12.2018 passed under section 153D of the Act, which gives legality to the impugned assessment orders, the question which arises for our consideration is whether the approval granted by the Additional CIT, Central, Kanpur vide his order dated 30.12.2018 can be held to be granted after due application of mind and can be held to be valid in the eye of law. The ld. Counsel for the assessee, during the proceedings before us, had filed a chart showing a number of documents seized during search, belonging to the Group, totaling 17,800 pages. Beside the above documents, the replies filed by assessees belo....
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....re applicable in the case of assessees. According to Section 153A of the I.T. Act, there should be a search initiated under section 132 of the I.T. Act and panchanama drawn, the A.O. shall have to issue notice to the assessee requiring him to furnish the return of income within the specified time in respect of each assessment year falling within six assessment years. The A.O. shall assess or re-assess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made. Provided that the A.O. shall assess or re-assess the total income in respect of each assessment year falling within such six assessment years. It is further provided that assessment or re-assessment, if any, relevant to any assessment year falling within the period of six assessment years referred to in this Section pending on the date of initiation of the search under section 132 or making of requisition under section 132A as the case may be, shall abated. Thus, when provisions of Section 153A are applicable in a case of assessee, A.O. shall have to give separate notice of each assessment year and assessee shall hav....
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.... section 153A have been framed by ACIT, Central Circle, New Delhi, therefore, prior approval of the JCIT in respect of each assessment year referred to under section 153A or 153B shall have to be obtained. Thus, no order of assessment or re-assessment shall be passed by the A.O. in the present cases in respect of each assessment years under section 153A/153B of the I.T. Act, 1961, except with the prior approval of the Joint Commissioner. Learned Counsel for the Assessee has argued that the approval under section 153D have been granted by the JCIT without going through the seized material, appraisal report and other material on record. Thus, the approval is granted in a most mechanical manner and without application of mind. Therefore, same is invalid, bad in Law and void ab initio and as such all assessments under section 153A got vitiated and as such A.O. was not having jurisdiction to pass the assessment orders under section 153A of the I.T. Act, 1961. 11.2. The meaning of the word "Approval" as defined in Black Law Dictionary is - "The Act of confirming, rectifying, sanctioning or consenting to some act or thing done by another. To approve means to be satisfied....
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....thority] is required to see that whether the additions have been made in the hands of assessee are based properly on incriminating material found during the course of search, observations/comments in the appraisal report, the seized documents and further enquiries made by the A.O. during the course of assessment proceedings. Therefore, necessarily at the time of grant of approval of the assessment made by the A.O, the Joint Commissioner is required to verify the above issues, apply his mind that whether they have been properly appreciated by the A.O. while framing the assessment orders or not. The JCIT is also required to verify whether the required procedure have been followed by the A.O. or not at the time of framing of the assessments. Thus, the approval cannot be a mere discretion or formality, but, is mandatory being Quasi Judicial function and it should be based on reasoning. In our view, when the legislature has enacted some provision to be exercised by the higher Revenue Authority enabling the A.O. to pass assessment order or re¬assessment order in search cases, then, it is the duty of the JCIT to exercise such powers by applying his judicious mind. We are of the view t....
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....Tax Appeal (L) No.1416 of 2012 order dated 15.1.2013 concurred with the view of the Tribunal that not following of the provisions of section 153D of the Act will render the related order of assessment void." 25. Further, we find that the I.T.A.T., Mumbai Bench, in the case of 'Shreelekha Dammani vs. DCIT' in I.T.A. No.4061/Mum/2012, vide order dated 19.8.2015 (copy filed), has decided the issue in favour of the assessee by holding as under: "12. Coming to the facts of the case in hand in the light of the analytical discussion hereinabove and as mentioned elsewhere, the Addl. Commissioner has showed his inability to analyze the issues of draft order on merit clearly stating that no much time is left, inasmuch as the draft order was placed before him on 31.12.2010 and the approval was granted on the very same day. Considering the factual matrix of the approval letter, we have no hesitation to hold that the approval granted by the Addl. Commissioner is devoid of any application of mind, is mechanical and without considering the materials on record. In our considered opinion, the power vested in the Joint Commissioner/Addl Commissioner to grant or not to grant approval is c....
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....ide judgment dated 27.11.2018 (copy filed). The findings of the Hon'ble Bombay High Court are reproduced below: "7. In plain terms, the Additional CIT recorded that the draft order for approval under Section 153D of the Act was submitted only on 31st 3 of 4 Uday S. Jagtap 668-16-ITXA- 15=.doc December, 2010. Hence, there was not enough time left to analyze the issues of draft order on merit. Therefore, the order was approved as it was submitted. Clearly, therefore, the Additional CIT for want of time could not examine the issues arising out of the draft order. His action of granting the approval was thus, a mere mechanical exercise accepting the draft order as it is without any independent application of mind on his part. The Tribunal is, therefore, perfectly justified in coming to the conclusion that the approval was invalid in eye of law. We are conscious that the statute does not provide for any format in which the approval must be granted or the approval granted must be recorded. Nevertheless, when the Additional CIT while granting the approval recorded that he did not have enough time to analyze the issues arising out of the draft order, clearly this was a case in....
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....nt records were handed over to the office of the Joint Commissioner on 31-3-2013 and as such it was physically impossible that all the case records along with the draft assessment order were received by the Joint Commissioner at Udaipur. Tribunal, Mumbai Bench in the case of Smt. Shreelekha Damani v. Dy. CIT (2015) 125 DTR (Mumbai)(Trib) 263 : (2015) 173 TTJ (Mumbai) 332 has held that the legislative intent behind the insertion of section 153D of the Act was that the assessments in search and seizure cases should be made with the prior approval of superior authority which means that the superior authorities should apply their mind to the material on the basis of which the assessing officer is making the assessment. In this case, the Addl. CIT had expressed his inability to analyze the issues of the draft order on merits clearly stating that not much time was left and granted the approval under section 153D of the Act on the same day and Tribunal, Mumbai Bench held that the approval granted by Addl. CIT was mechanical and had been passed without considering the material on record and was, therefore, devoid of any application of mind. The impugned assessment order was annull....
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....he Joint Commissioner did not have adequate time to apply his mind to the material on the basis of which the assessing officer had made the draft assessment orders. Tribunal, Mumbai Bench and Tribunal, Allahabad Bench in their orders, as discussed in the preceding paragraphs, have laid down that the power to grant approval is not to be exercised casually and in routine manner and further the concerned authority, while granting approval, is expected to examine the entire material before approving the assessment order. It has also been laid down that whenever any statutory obligation is cast upon any authority, such authority is legally required to discharge the obligation by application of mind. In all the cases before us, the Department could not demonstrate, by cogent evidence, that the Joint Commissioner had adequate time with him so as to grant approval after duly examining the material prior to approving the assessment order. The circumstances indicate that this exercise was carried out by the Joint Commissioner in a mechanical manner without proper application of mind. Accordingly, respectfully following the ratio of the Co-ordinate Benches of Mumbai and Allahabad as afore-men....
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....recedents relied on by the ld. Counsel for the assessee, the grievance of the assessee by way of Ground no.6 is allowed and the assessment order is annulled. 32. The facts in IT(SS)A No.632/LKW/2019 and IT(SS)A No.635/LKW/2019, filed by the assessees for Assessment Years 2015-16 and 2016-17, are, as stated in para No.2 above, mutatis mutandis, exactly similar to those attending IT(SS)A No.636/LKW/2019 (supra). Therefore, our above observations and findings with regard to IT(SS)A No.636/LKW/2019 shall apply equally to IT(SS)A Nos.632 & 635/LKW/2019. Accordingly, the grievance of the assessees by way of Ground no.6 in IT(SS)A Nos.632 & 635/LKW/2019 is allowed and the assessment orders are annulled. 33. Nothing further survives for adjudication, nor was any other point argued. 34. In the result, the appeals of the assessees stand partly allowed, as indicated. Order pronounced in the open Court on 18/05/2022. ============= Document 1 Government of India Office of the Addl. Commissioner of Income Tax (Central Range), Kanpur. F.No.Addl. CIT (CR)/KNP/Approval u/s 153D/2018-19 The Dy. Commissioner of Income Tax, Central Circle-II, Kanpur. 550 7/81-B....
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....017-18 143(3) 153A 153A 29 Ajay Kr. Jain AEHPJ7818B 2015-16 ABSPJ4700D 2017-18 143)3) 30 M/s Sigma Castings Ltd. AAGCS8962C 2011-12 153A 31 M/s Sigma Castings Ltd. AAGCS8962C 2012-13 153A 32 M/s Sigma Castings Ltd. AAGCS8962C 2013-14 153A 33 M/s Sigma Castings Ltd. AAGCS8962C 2014-15 153A 34 M/s Sigma Castings Ltd. 35 M/s Sigma Castings Ltd. 36 M/s Sigma Castings Ltd. 37 38 39 40 41 M/s Kundan Casting Pvt. Ltd. M/s Kundan Casting Pvt. Ltd.. M/s Kundan Casting Pvt. Ltd. M/s Kundan Casting Pvt. Ltd. M/s Kundan Casting Pvt. Ltd. 42 43 M/s Kundan Casting Pvt. Ltd., M/s Kundan Casting Pvt. Ltd.. 44 45 46 47 48 49 50 51 52 53 M/s Shree Radhey Radhey Ispat Pvt. Ltd.. M/s Shree Radhey Radhey Ispat Pvt. Ltd. M/s Shree Radhey Radhey Ispat Pvt. Ltd. M/s Shree Radhey Radhey Ispat Pvt. Ltd. M/s Shree Radhey Radhey Ispat Pvt. Ltd. M/s Shree Radhey Radhey Ispat Pvt. Ltd. M/s Shree Radhey Radhey Ispat Pvt. Ltd. M/s Paras Casting & Alloys Pvt. Ltd. M/s Paras Casting & Alloys Pvt. Ltd. M/s Paras Casting & Alloys Pvt.....