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2025 (1) TMI 1570 - AT - Income TaxValidity of assessment u/s 153D - as argued approval accorded by the Addl. CIT was a mechanical exercise lacking application of mind - HELD THAT - Power of approval u/s 153D of the Act is statutory in nature granted pursuant to the specific provisions of Section 153D and is not a mere administrative exercise. The power of approval vested with JCIT under Section 153D of the Act entails an application of mind while perusing the assessment records seized records replies of assessee and issues raised by the AO and the procedure followed for framing of assessment order. The act of granting approval under Section 153D of the Act is not a mere internal process relating to administrative functioning but is a quasi-judicial function mandated by specific provisions of the Act with an underlying requirement of it being based on due application of mind. This being the situation the approval to be granted under Section 153D of the Act for passing of the assessment order by the JCIT is reflective of the Act of confirming rectifying sanctioning or convention to an act or thing done by another authority in exercise of the statutory mandate and is not an internal administrative process of the Department but the exercise of a quasi-judicial function. As in the present case the assessee filed set of assessment orders demand notice and the computation sheet issued by the same Assessing Officer and the approval granted by the JCIT under Section 153D of the Act which clearly remarks as 2. 153D 2016-2017 (Draft Assessment Order) 3. 1 volume ( ) From the above noting (which are in Hindi) means that implicatory approval of draft assessment order by the JCIT under Section 153D of the Act is clearly without application of mind as no verification of assessment records seized material or the replies of the assessee were considered by the JCIT while granting approval. Hence the approval is mechanical in nature and does not stand to the scrutiny of law. Hence we quash the assessment order framed in consequence to approval granted under Section 153D of the Act. Assessee appeal allowed.
The core legal issue considered by the Tribunal in these appeals concerns the validity and nature of the approval granted by the Additional Commissioner of Income Tax (Addl. CIT) under section 153D of the Income Tax Act, 1961 ("the Act") prior to passing assessment orders framed under section 143(3) read with section 153A following search and seizure operations. Specifically, the question is whether the approval granted by the Addl. CIT was a mechanical exercise lacking application of mind, thereby vitiating the assessment orders and rendering them liable to be quashed.
The appeals arise from assessments for six assessment years (2013-14 to 2018-19) following a search conducted under section 132 of the Act. The Assessing Officer (AO) framed assessments under section 143(3) read with section 153A after obtaining prior approval from the Addl. CIT under section 153D. The assessee challenged the validity of such approval contending that it was granted mechanically without independent application of mind or examination of the assessment records and seized material, and hence the assessments were invalid. The Tribunal considered the following key issues:
Issue-wise Detailed Analysis: 1. Nature of Approval under Section 153D of the Act The Tribunal examined the statutory provision of section 153D, which mandates that no assessment or reassessment order under section 153A or 153B can be passed by an AO below the rank of Joint Commissioner without prior approval of the Joint Commissioner (Addl. CIT). The provision was introduced by the Finance Act, 2007 to ensure supervisory oversight in assessments arising from search and seizure operations. The Tribunal emphasized that the approval under section 153D is not a mere internal or administrative process but a statutory requirement entailing a quasi-judicial function. This function requires the Addl. CIT to apply independent mind, peruse the draft assessment order, seized material, replies of the assessee, and issues raised by the AO before granting approval. The approval is thus a manifestation of legislative intent to incorporate checks and balances in search assessments. The assessee's counsel argued that the approval must be based on cogent reasoning and cannot be mechanical. The Tribunal agreed, noting that the approval is reflective of confirming, sanctioning, or ratifying the AO's action, and is not a mere formality. 2. Whether the Approval Granted was Mechanical and Without Application of Mind The Tribunal considered the facts that the draft assessment orders along with assessment records were sent by the AO to the Addl. CIT on 15.06.2021, and approval was granted on 19.06.2021. The assessee pointed out that the approval letters were brief, in Hindi, and did not indicate any detailed examination of voluminous seized material or replies, which ran into thousands of pages. The assessment orders themselves ranged from 103 to 419 pages, indicating complex and detailed assessments. The Tribunal noted the CIT(A)'s findings that the Addl. CIT was the Range Head supervising all search assessments, involved from the beginning, and that the AO prepared the draft assessment orders in consultation with the Addl. CIT. The CIT(A) held that the approval was not mechanical because the Addl. CIT was actively involved and had applied mind. However, the Tribunal distinguished this supervisory role from the statutory requirement of independent application of mind at the approval stage. It held that the Addl. CIT cannot substitute the AO's quasi-judicial role but must independently peruse the draft order and records before granting approval. The Tribunal cited a recent decision of the jurisdictional High Court which held that approval granted without examining the assessment record or search material and without independent application of mind is invalid and vitiates the assessment. The Tribunal observed that the approval letters in the present case merely approved the draft assessment orders without specific mention of perusal or examination of records or replies, indicating a mechanical exercise. The Tribunal concluded that the approval was granted without application of mind and was therefore invalid. 3. Effect of Invalid Approval on Validity of Assessment Orders The Tribunal noted that section 153D makes prior approval mandatory for passing assessment orders under section 153A. If the approval is invalid, the assessment order framed pursuant thereto is also invalid. The Tribunal relied on judicial precedents holding that non-application of mind in granting approval under section 153D is fatal to the assessment proceedings. Accordingly, the Tribunal quashed the assessment orders for all six assessment years on this ground. 4. Treatment of Competing Arguments and Procedural Instructions The Revenue relied on CBDT instructions (F. No. 286/161/2006-IT(Inv.II) dated 22.12.2006 and F. No. 286/57/2002-IT(Inv.II) dated 03.07.2002) which outline consultative procedures between the AO and Range Head in search assessments. The Revenue argued that the Addl. CIT's supervisory role and periodic involvement amounted to application of mind. The Tribunal acknowledged these instructions but held that they do not substitute the statutory mandate under section 153D requiring independent approval. The instructions guide procedural cooperation but cannot validate a mechanical approval. The Tribunal also considered the Revenue's contention that the Addl. CIT's approval is an administrative act and not adjudicatory. It rejected this, holding that the approval is quasi-judicial in nature and requires due application of mind. 5. Relevant Precedents The Tribunal referred to decisions including:
Significant Holdings: "The power of approval vested in the Addl Commissioner u/s 153D entails an application of mind while perusing the assessment record, the issues raised by the Assessing Officer and the procedure followed in making the assessment." "The act of granting approval u/s 153D of the Act is not a mere internal process related to the administrative functioning of the Department, but a quasi-judicial function mandated by specific provisions of the Act with an underlying requirement of it being based on due application of mind and cogent reasoning." "The approval granted u/s 153D being an official act provided under the statute, it is to be presumed that before according approval, the Range Head has looked into the records, applied his mind and he did not find any reason to disapprove the order passed by the Assessing Authority and thereafter he has accorded approval." "Where the order of approval u/s 153D for relevant assessment year was granted by Additional Commissioner who had granted approval for multiple cases on a single day without perusing the draft assessment orders at all and without an independent application of mind, impugned assessment order was rightly declared to be illegal by Tribunal." "The approval granted by the JCIT under Section 153D of the Act which clearly remarks as '... 1 volume ( ) ' (the assessment record is returned in one volume without pagination) means that implicatory approval of draft assessment order by the JCIT under Section 153D of the Act is clearly without application of mind as no verification of assessment records, seized material or the replies of the assessee were considered by the JCIT while granting approval." "In view of the above discussion, we hold that the order passed u/s 153A r.w.s. 143(3) has to be quashed." The Tribunal thus concluded that the approval under section 153D is a statutory requirement involving quasi-judicial scrutiny and independent application of mind. The approval in the present case was mechanical and without such application, rendering the assessments invalid. Consequently, all six appeals were allowed and the assessments quashed.
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