2025 (6) TMI 467 - AT - Income Tax

Assessment u/s 153A - Invalid approval granted u/s 153D - HELD THAT -CIT(A) through common order dated 28.06.2023 upheld assessment order dated 22.06.2021 the assessment orders of Ld. AO were in pursuance to search conducted on 19.11.2018 at various premises of Mainee Group of Cases. The approval deserves to be held in nature of a technical approval in symbolic exercise of powers u/s 153D of the Act. Hence the assessment orders are bad in law. The other grounds are left open.

Summary

The core legal issues considered in this judgment revolve around the validity and propriety of the approval granted under Section 153D of the Income-Tax Act, 1961, in the context of assessment orders passed following a search operation. Specifically, the Tribunal examined whether the approval accorded by the Additional Commissioner of Income Tax (Addl. CIT) was a substantive application of mind or merely a mechanical, technical approval, and the consequent impact of such approval on the validity of the assessment orders framed under Sections 153A and 153D of the Act for multiple assessment years. The issues also touched upon the adequacy of the assessment proceedings, the presence or absence of incriminating material from the search, and the procedural compliance with statutory mandates governing search assessments.

First, the Tribunal considered the legal framework governing assessments following search operations, particularly the requirement under Section 153D that the draft assessment order prepared by the Assessing Officer (AO) must receive prior approval from the designated superior authority (Addl. or Joint Commissioner). This approval is not a mere formality but a mandatory safeguard to ensure that the assessment is fair, balanced, and grounded on proper application of mind. The Tribunal referred extensively to the CBDT guidelines and a plethora of judicial precedents that have consistently emphasized the supervisory role of the approving authority and condemned mechanical or omnibus approvals lacking independent scrutiny.

In the instant case, the AO forwarded draft assessment orders for several assessment years spanning from 2013-14 to 2019-20 to the Addl. CIT for approval under Section 153D. The Addl. CIT granted a consolidated approval based on the AO's assurances that proper opportunities were given to the assessee, all issues were examined, and relevant seized documents were verified before passing the draft orders. However, the Addl. CIT admitted to not independently verifying or scrutinizing the underlying material or the assessment orders themselves, effectively relying on the AO's submissions without applying his own mind.

The Tribunal's detailed analysis revealed multiple glaring deficiencies in the draft assessment orders, such as repeated references to statements and replies purportedly reproduced in the orders but nowhere actually included, chronological inconsistencies like issuance of summons prior to the search date, and failure to attach or reproduce critical evidentiary material. The order sheets maintained during the assessment proceedings did not record any correspondence or file movement between the AO and Addl. CIT, undermining the claim of any meaningful supervisory involvement by the approving authority.

The Tribunal examined the competing arguments presented by the Revenue and the assessee. The Revenue contended that once statutory approval under Section 153D is granted, a presumption arises that all procedural requirements were duly complied with and due application of mind was exercised. It also pointed to correspondence from the AO to the Addl. CIT highlighting corrections in the draft orders as evidence of the Addl. CIT's involvement. Conversely, the assessee challenged the approval as a mere 'technical approval' or 'symbolic exercise' devoid of independent scrutiny, thus vitiating the entire assessment process. The assessee also highlighted the incomplete and flawed nature of the assessment orders, which the Addl. CIT failed to detect or address.

Applying the law to the facts, the Tribunal found the approval memo under Section 153D to be conclusively indicative of a mechanical and ritualistic approval. The approving authority had abdicated his statutory duty by relying solely on the AO's assurances without personally verifying the material or the draft orders. This conduct was held to be contrary to the legislative intent behind Section 153D, which mandates that the superior officer must apply independent mind to safeguard against arbitrary or unjust assessments. The Tribunal underscored that such 'technical approvals' defeat the very purpose of the statutory provision and render the assessment orders bad in law.

The Tribunal further relied on a series of authoritative judicial pronouncements that have invalidated assessments where the approval under Section 153D was granted perfunctorily without due application of mind. These precedents reinforce the principle that the approval authority must engage in a substantive review of the draft assessment order and the underlying materials before granting approval. The absence of such scrutiny transforms the approval into a mere formality, which is legally impermissible.

Given the above, the Tribunal concluded that the assessment orders passed pursuant to the impugned approvals were invalid. The lapses in the assessment orders, the lack of independent application of mind by the Addl. CIT, and the mechanical nature of the approval collectively undermined the integrity of the assessments. The Tribunal held that the objections raised on the validity of the approval under Section 153D went to the root of the assessments and rendered them unsustainable in law. Consequently, the Tribunal allowed the appeals filed by the assessee for all the assessment years under consideration, quashing the additions and disallowances made by the AO.

In respect of other grounds such as jurisdictional issues and merits of the additions/disallowances, the Tribunal found that these did not require separate adjudication in view of the decisive finding on the approval issue.

Significant holdings from the judgment include the following verbatim extract capturing the essence of the Tribunal's reasoning on the approval under Section 153D:

"The Addl. CIT has granted approval on the basis of submission of the AO that proper opportunity has been provided to the Assessee; all the issues have been examined by him i.e. the AO and relevant copies of seized documents have been verified by him i.e. the AO before passing the draft order. The Addl. CIT thus effectively claimed that he has not pursued the relevant underlying material and proceeded on dotted line. Such an act cannot be regarded as effective discharge of duty of supervisory nature... The approach of the Addl. CIT has ipso facto rendered the impugned approval to be a mere ritual or an empty formality to meet the statutory requirement and is thus incapable of being sustainable in law."

The Tribunal reaffirmed the core principle that the approval under Section 153D is a substantive statutory safeguard requiring independent application of mind by the approving authority. The approval cannot be accorded mechanically or based solely on the AO's assurances. The judgment thus establishes that failure to comply with this requirement invalidates the assessment orders passed under such approval.

In conclusion, the Tribunal's final determination was that the combined and omnibus approval granted under Section 153D for multiple assessment years was legally flawed and rendered the assessment orders bad in law. The appeals were allowed accordingly, setting aside the additions and disallowances made in the assessments arising from the search operations.