2025 (6) TMI 313 - AT - Income Tax

Validity of approval u/s 153D - as alleged approval is granted mechanically - HELD THAT - As relying on Rajesh Kumar Gupta 2025 (2) TMI 1192 - ITAT DELHI and Serajuddin and Company 2023 (3) TMI 785 - ORISSA HIGH COURT as held regarding approval u/s 153D of the Act the bare minimum requirement of the approving authority having to indicate what the thought process involved in approval in question and while elaborate reasons need not be given there has to be some indication that approving authority had examined draft orders and finds that it meets requirement of law and also that where approval is granted mechanically it would vitiate assessment order itself . We are in strong agreement that in this case approval u/s 153D granted by ACIT is quite mechanical in nature without due application of mind as it lacks the indication of any thought process in granting said approval order. it is also relevant that as 69 cases were approved in a single day and accordingly we inclined to quash the assessment by allowing the appeal of the assessee.

Summary

The core legal questions considered in this judgment revolve around the validity and legality of the approval granted under Section 153D of the Income Tax Act, 1961, in the context of search assessments. Specifically, the issues examined include:

1. Whether the assessment order and demand notice are sustainable in law in the absence of quoting the Document Identification Number (DIN) as mandated by CBDT Circular No. 19/2019.

2. Whether the approval granted under Section 153D by the Additional Commissioner of Income Tax (Addl. CIT) was valid, particularly whether it was given with due application of mind or was merely mechanical.

3. The implications of a mechanical or non-application of mind approval under Section 153D on the validity of the consequent assessment orders.

4. The correctness of the additions made under Section 69A for unexplained seized jewellery, including whether the appellate authority erred in sustaining such additions.

Regarding the first three issues related to procedural compliance and validity of approval under Section 153D, the assessee initially raised grounds challenging the absence of DIN in the assessment order, demand notice, and approval letter, contending non-compliance with CBDT Circular No. 19/2019, which mandates quoting DIN for authenticity and traceability. However, the assessee subsequently did not press these grounds, leading to their dismissal as not pressed.

The principal focus thus shifted to the validity of the approval under Section 153D, which is a statutory requirement for framing or completing assessments in search cases. The legal framework mandates that the approval authority must apply independent mind to the draft assessment order and relevant materials before granting approval. The approval is not a mere formality but a quasi-judicial act that must be exercised with due application of mind.

The Court examined the facts that the Addl. CIT granted approval for 69 cases in a single day by way of a single letter, without any indication that the draft orders or the seized material were perused or considered individually. The approval letter was generic, simply stating that approval was accorded without elaboration or indication of independent examination. The Court found it "hardly possible" that such approval could be granted after proper scrutiny on the same day for multiple cases.

The assessee relied heavily on judicial precedents to support the contention that such approval was mechanical and without application of mind, thus invalid. Key precedents included:

• A decision of the Hon'ble Delhi High Court in a case where approval was granted for 43 cases in a single day without mention of perusal or independent application of mind, leading to a conclusion that the approval was mechanical.
• The Hon'ble Orissa High Court's ruling emphasizing that the approving authority must indicate some thought process and examination of draft orders before granting approval; mechanical approvals vitiate the assessment.
• Tribunal decisions holding that mechanical approvals without application of mind render the entire search assessment proceedings invalid.

The Revenue contended that the approval was an administrative act and that the Addl. CIT was well aware of the issues involved, having access to seized material and assessment records, and that the onus was on the assessee to prove non-application of mind. However, the Court noted that mere administrative knowledge does not substitute for the statutory requirement of independent examination and application of mind as mandated by Section 153D.

In analyzing these competing arguments, the Court gave significant weight to the lack of any indication in the approval letter of perusal or thought process, the impracticality of genuine scrutiny of 69 cases in a single day, and the consistent judicial pronouncements condemning such mechanical approvals.

Consequently, the Court held that the approval under Section 153D was granted in a mechanical manner without due application of mind, rendering the approval and the consequent assessment orders invalid and bad in law. This invalidity vitiates the entire search assessment proceedings.

Regarding the addition under Section 69A for unexplained jewellery, the Court refrained from adjudicating on the merits since the invalidity of the approval under Section 153D rendered the entire assessment void. The Court observed that deciding on the merits would be academic and thus left those grounds open.

In conclusion, the Court allowed the appeals of the assessee and dismissed the revenue's appeal, quashing the assessment orders for want of valid approval under Section 153D.

Significant holdings include the following verbatim excerpts and core principles:

"In such cases, the assessment loses its validity. The case laws referred by the Ld. Counsel for the assessee are germane and supports the case of the assessee."

"The approval given u/s 153D has been granted in a mechanical manner and without application of mind and thus it is invalid and bad in law and consequently vitiated the assessment order for want of valid approval u/s 153D of the Act."

"The statutory approval given by a quasi-judicial authority without due application of mind as contemplated in section 153D of the Act would be fatal to the entire search assessment proceedings."

"Such an approval has neither been mandated by the provisions of the Act nor endorsed by the decisions of the Hon'ble Orissa High Court; Hon'ble Allahabad High Court and Hon'ble Jurisdictional High Court referred to supra."

The core principle established is that the approval under Section 153D is a mandatory quasi-judicial act requiring independent application of mind to the draft assessment and relevant materials. Mechanical approvals lacking any indication of scrutiny or thought process are invalid and vitiate the entire assessment proceeding under search and seizure provisions.

The final determination is that the approval under Section 153D granted mechanically for multiple cases in a single day without application of mind is invalid, and consequently, the assessment orders framed pursuant to such approval are quashed. Other grounds, including those on merits, are left undecided due to the fundamental illegality of the approval process.