2025 (6) TMI 1619 - AT - Income Tax

Validity of Approval u/s 153D - single composite order covering multiple assessment years - HELD THAT - As relying on JSS Buildcon Private Limited 2025 (6) TMI 479 - ITAT DELHI proceedings initiated u/s 153 A/143(3) of the Act in the absence of a valid approval granted by the Addl Commissioner of Income Tax Central Range Lucknow. Appeal of the assessee is allowed.

Summary

The core legal questions considered in this appeal revolve around the validity and legality of the approval granted under Section 153D of the Income Tax Act, 1961, which is a prerequisite for passing assessment orders under Section 153A following search and seizure operations. Specifically, the issues include:

1. Whether the approval granted under Section 153D was valid, given that it was a single composite approval covering multiple assessment years rather than separate approvals for each assessment year as mandated by law.

2. Whether the approval under Section 153D was a mechanical or rubber-stamp exercise lacking independent application of mind, thereby invalidating the assessment orders passed thereafter.

3. Whether the assessment orders passed without valid approval under Section 153D are jurisdictionally flawed and liable to be quashed.

4. Ancillary issues raised by the assessee regarding additions made on an extrapolation basis without incriminating material, treatment of certain expenses, and procedural fairness including opportunity of hearing.

Issue-wise Detailed Analysis:

Validity of Approval under Section 153D of the Income Tax Act:

The legal framework requires that before passing an assessment order under Section 153A (which deals with assessments following search and seizure under Section 132), prior approval must be obtained from a Joint Commissioner or higher authority under Section 153D for each assessment year concerned. This approval is intended as a safeguard against arbitrary or unjust exercise of power by the Assessing Officer, ensuring that the draft assessment order is scrutinized with an independent application of mind.

Precedents cited include the jurisdictional High Court decision in PCIT Central vs. Siddharth Gupta, upheld by the Supreme Court, which emphasized that the approval must not be a mere formality or mechanical exercise but must reflect consideration of the material on record and application of mind to the facts and law. Similarly, the Delhi High Court in PCTT vs. Shiv Kumar Nayyar reiterated that the approval under Section 153D cannot be rubber-stamped and must involve substantive scrutiny.

The Tribunal relied on decisions of coordinate benches, including JSS Buildcon Private Limited vs. DCIT and M/s Millenium Vinimay (P) Ltd. vs. ACIT, which held that mechanical or routine approvals without examination of draft orders are legally invalid. In Shreelekha Damani vs. DCIT, the Bombay High Court upheld the Tribunal's finding that approval granted without adequate time or application of mind, explicitly stating that the Additional Commissioner approved the draft order "as is" due to time constraints, rendering the approval invalid.

In the instant case, the approval was granted by a single composite order covering multiple assessment years instead of separate approvals for each year, as required by Section 153D. The approval was also granted on the same day for numerous cases, raising serious doubts about the feasibility of genuine scrutiny. There was no indication that the approving authority examined each draft assessment order independently or applied their mind to the issues involved.

The Tribunal found this to be a clear non-application of mind and a mechanical exercise, thus violating the statutory mandate. This procedural lapse goes to the root of jurisdiction, rendering the assessment orders passed under such approval void ab initio.

Jurisdictional Validity and Consequences:

The Tribunal held that the absence of valid approval under Section 153D vitiates the entire proceedings under Section 153A and Section 143(3) of the Act. The assessments are thus non-est and nullities. This conclusion is supported by recent authoritative pronouncements, including the Supreme Court's dismissal of Revenue's appeal in ACIT vs. Serajuddin and Co., where the High Court quashed assessment orders due to inadequacy in the approval procedure under Section 153D.

Given the primacy of this legal issue, the Tribunal declined to examine the merits of the additions or other grounds raised by the assessee, as these became infructuous once the fundamental jurisdictional defect was established.

Other Grounds Raised by the Assessee:

The assessee contended that additions made on an extrapolation basis without incriminating material were erroneous, relying on the ratio laid down by the Apex Court in Abhisar Buildwell (P.) Ltd. The assessee also challenged additions related to expenses on the first floor of the clinic used by partners who are doctors, asserting such additions were bad in law.

However, since the Tribunal quashed the assessment orders on the jurisdictional ground of invalid approval, these factual and substantive issues were not adjudicated upon. The Tribunal noted that the legal objections raised went to the root of the matter and thus rendered other grounds moot.

Treatment of Competing Arguments:

The Revenue argued that the matter should be decided on merits and cited Supreme Court authority advocating disposal of cases on substantive grounds rather than technicalities. However, the Tribunal distinguished this approach by emphasizing that the validity of approval under Section 153D is a jurisdictional and procedural requirement. Without such valid approval, the Assessing Officer lacks authority to pass assessment orders, making the orders void and non-est. This procedural infirmity cannot be overlooked in favor of deciding merits.

Conclusions:

The Tribunal concluded that:

- The approval under Section 153D was granted in a mechanical, routine manner without application of independent mind.

- The approval was a composite order covering multiple assessment years, contrary to statutory requirements mandating separate approval for each year.

- Such defective approval vitiates the assessment proceedings under Section 153A and Section 143(3) of the Act, rendering them jurisdictionally invalid and liable to be quashed.

- Consequently, the impugned assessment orders and the appellate orders sustaining additions are set aside.

- Other grounds raised by the assessee do not require separate adjudication in view of the above findings.

Significant Holdings:

The Tribunal preserved crucial legal reasoning verbatim from authoritative precedents, including:

"The approval of draft assessment order being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise, without application of independent mind by the Approving Authority on the material placed before it and the reasoning given in the assessment order."

"The approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case."

"Granting approval in the absence of due application of independent mind to the material on record for each assessment year separately vitiates the entire proceedings; the same is found to be arbitrary and erroneous and therefore, liable to be quashed."

"Such perfunctory approval has no legal sanctity in the eyes of the law."

"The question of validity of the approval goes to the root of the matter and could have been raised at any time."

The core principle established is that the statutory approval under Section 153D is a mandatory jurisdictional prerequisite for passing assessment orders under Section 153A, requiring separate, genuine, and reasoned approval for each assessment year. Mechanical or composite approvals covering multiple years without application of mind are invalid, rendering subsequent assessments void.

Accordingly, the Tribunal allowed the appeal, quashed the assessment orders, and set aside the appellate orders sustaining additions, without entering into the merits of the additions themselves.