2025 (1) TMI 1581 - AT - Income Tax

Assessment u/s 153A - Invalid approval accorded u/s 153D - HELD THAT - Addl. CIT has granted approval under section 153D of the Act in respect of seven cases by a single Letter which included multiple assessment years on the same day. There is no reference to examination of any assessment record and incriminating material and any objective reasoning leading to his conclusion. Hence the approval u/s 153D has been granted in mechanical manner without application of mind. Assessment order on ground of erroneous approval accorded under section 153D of the Act deserves to be quashed and is set aside. Therefore ground is allowed.

Summary

The core legal issues considered in this judgment primarily revolve around the validity and legality of the assessment proceedings initiated under sections 143(3), 153A, and 153D of the Income Tax Act, 1961 ("the Act") following a search and seizure operation. The principal questions addressed include:

1. Whether the assessment order passed under section 153A read with section 143(3) is valid and within the jurisdiction of the Assessing Officer (AO).

2. Whether the search and seizure operation, which triggered the assessment, was lawful and valid.

3. Whether the assessment proceedings comply with the procedural and substantive requirements prescribed under sections 124, 153A, and 153D of the Act.

4. Whether the approval granted under section 153D of the Act was validly accorded with proper application of mind and in accordance with legal standards.

5. Legality of the additions made by the AO, particularly the addition under section 69A of the Act on account of cash found during the search.

6. Whether the assessment order violates the Circular No. 19/2019 of the CBDT regarding the requirement of a valid Document Identification Number (DIN) for passing orders.

7. Whether the interest charged under section 234B of the Act is justified.

Issue-wise Detailed Analysis:

Validity of Assessment Order and Jurisdiction of AO

The appellant challenged the jurisdiction of the AO to pass the assessment order under section 153A read with section 143(3), contending that the order was illegal and bad in law. The AO's jurisdiction was assumed following a search and seizure operation and subsequent transfer of jurisdiction under section 127 of the Act. The Tribunal noted that the AO had issued notices under sections 143(2) and 142(1) and had conducted assessment proceedings after disposing of objections regarding jurisdiction. The Court found no merit in the contention that the AO lacked jurisdiction, as the jurisdiction was legally assumed and validated by the procedural steps taken. The assessment proceedings were thus held to be within the AO's jurisdiction.

Lawfulness of Search and Seizure Operation

The appellant contended that the search was initiated under a wrong pretext and was unlawful, thus vitiating the consequential assessment. The Tribunal did not delve deeply into this issue in the present judgment since the appeal primarily focused on the approval under section 153D. No specific findings were recorded on the invalidity of the search; hence, this issue was not upheld.

Compliance with Procedural Requirements under Sections 124, 153A, and 153D

The appellant argued that the assessment proceedings were in violation of statutory conditions and procedural safeguards, including section 124 (which deals with the jurisdiction of the AO after search), and section 153D (which mandates prior approval before framing assessment under section 153A). The Tribunal's detailed scrutiny focused on section 153D approval, which is a mandatory prerequisite for framing assessment orders post-search.

Validity of Approval under Section 153D of the Act

This issue formed the crux of the appeal. The appellant submitted that the approval granted by the Additional Commissioner of Income Tax (Addl. CIT) under section 153D was mechanical, omnibus, and without application of mind. The approval letter covered seven assessment years and multiple cases in a single communication, without any reference to examination of draft assessment orders, seized materials, or incriminating evidence. The appellant relied on a coordinate bench decision that held similar approvals invalid for lack of independent application of mind.

The Revenue contended that the approval was an internal communication and not subject to judicial scrutiny.

The Tribunal examined the approval letter and found it to be a mere perfunctory exercise, lacking any indication of thoughtful consideration or examination of records. The approval was granted on the same day the draft assessment orders were submitted, covering multiple assessment years and numerous cases, making it practically impossible for the Addl. CIT to have applied independent mind as mandated by law.

The Tribunal relied extensively on judicial precedents, including decisions of the jurisdictional High Court and the Orissa High Court, which emphasized that:

• Approval under section 153D must be granted for each assessment year separately and with due application of mind.
• Mechanical or omnibus approvals without examination of draft orders and records vitiate the assessment proceedings.
• The approval cannot be a mere formality or rubber stamping but must reflect an independent and objective evaluation.

The Tribunal also noted that the Supreme Court had dismissed Special Leave Petitions challenging such precedents, thereby affirming the binding nature of these principles.

Applying these principles, the Tribunal held that the approval in the present case was illegal and invalid, thereby vitiating the assessment order passed under section 153A read with section 143(3).

Additions Under Section 69A and Other Grounds

The appellant challenged the additions made by the AO on account of cash found during the search, contending lack of incriminating material and misinterpretation of statements. However, since the Tribunal quashed the assessment order on the ground of invalid approval under section 153D, it refrained from adjudicating these factual and legal contentions. Similarly, challenges related to interest under section 234B and compliance with Circular No. 19/2019 were left open.

Conclusions

The Tribunal concluded that the assessment order was vitiated due to the invalid and mechanical approval granted under section 153D of the Act. The approval failed to meet the statutory requirement of independent application of mind for each assessment year and each assessee. The Tribunal held that such ritualistic or omnibus approvals undermine the legislative intent and the procedural safeguards embedded in the Act.

Consequently, the assessment order was quashed and set aside on this ground alone, without adjudicating other grounds raised by the appellant.

Significant Holdings:

"The approval under section 153D of the Act has to be granted for 'each assessment year' referred to in clause (b) of subsection (1) of section 153A of the Act. The approving authority shall have to apply independent mind to the material on record for each assessment year in respect of each assessee separately. The approval cannot be a mere formality and, in any case, cannot be a mechanical exercise of power."

"Where the Court finds that the approval is granted mechanically, it would vitiate the assessment order itself."

"The approval memo is totally silent on the issues involved and has granted omnibus approval without any thoughtful process being discernible. Applying the ratio of judgements delivered as noted above, the assessment order based on ritualistic approval stands vitiated and thus quashed."

"The powers under section 153D cannot be exercised mechanically. The grant of approval must reflect an appropriate application of mind and cannot be a ritualistic formality or rubber stamping."

Final determination: The assessment order dated 23.12.2019 passed under section 153A read with section 143(3) of the Act is quashed and set aside on the ground that the approval under section 153D was granted mechanically without application of mind, violating mandatory statutory requirements. Other grounds of appeal were left open as the quashing on this ground was dispositive.