2025 (7) TMI 1039 - AT - Income Tax

Validity of assessment u/s 153C - as alleged approval u/153D granted in the mechanical manner - HELD THAT - As evident on record that the ACIT has granted approval under Section 153D of the Act in respect of several cases by a single letter which included multiple assessment years on the same day. The assessment order on ground of erroneous approval accorded under section 153D of the Act deserves to be quashed and is set aside. Assessee appeal allowed.

Summary

The core legal issues 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 assessments initiated under Section 153C. Specifically, the Tribunal examined whether the approval by the Additional Commissioner of Income Tax (Addl. CIT) was granted after due application of mind or was merely mechanical and whether such approval complied with the mandatory provisions of Section 153D for each assessment year separately. The judgment also considered the implications of a single approval covering multiple assessment years and multiple cases granted on the same day, and the effect of such approval on the validity of the assessment orders passed under Section 153C.

Issue-wise detailed analysis:

1. Validity of Approval under Section 153D of the Income-Tax Act

The legal framework mandates that no order of assessment or reassessment under Section 153A or 153C shall be passed without prior approval of the Joint Commissioner or higher authority as per Section 153D. This approval must be granted after due application of mind, separately for each assessment year, and cannot be a mere formality or mechanical exercise.

Precedents relied upon include decisions by the ITAT Delhi in cases such as Skylark Hatcheries Pvt. Ltd., Pawan Kumar Midha, Confident Distributors Pvt Ltd., and Inder Chand Bajaj, as well as judgments from the Delhi High Court (Pr. Commissioner of Income Tax vs. Shiv Kumar Nayyar) and the Orissa High Court (Serajjudin & Co.), all emphasizing that the approval under Section 153D must reflect independent and judicial application of mind to each case and assessment year.

The Court interpreted these precedents to underline that a mechanical or rubber-stamp approval, especially when a single approval covers multiple assessment years and multiple cases simultaneously, violates the statutory mandate and vitiates the assessment proceedings.

Evidence showed that the Addl. CIT granted approval for multiple assessment years and multiple cases on the same day, including the instant case where approval and assessment orders were dated identically (28.03.2013). The Tribunal noted that such blanket approval without specific mention of perusal or independent consideration of draft orders or seized materials raised serious doubts about the genuineness of the application of mind.

The Revenue argued that the Addl. CIT had concurrent jurisdiction, was well-acquainted with the case facts due to ongoing coordination and appraisal reports, and that the approval was an administrative act not necessarily requiring written reasons at each stage. However, the Tribunal found this insufficient to dispel the presumption of mechanical approval, especially given the volume of cases approved on the same day and the lack of any indication of independent scrutiny.

Competing arguments from the Revenue that the approval was valid due to practical considerations and prior knowledge were rejected in light of the statutory requirement for distinct approval per assessment year and the need for an explicit application of mind.

Conclusion: The approval under Section 153D in this case was held to be mechanical and without due application of mind, rendering the assessment orders passed under Section 153C invalid.

2. Effect of Single Approval for Multiple Assessment Years and Multiple Cases

The statutory language of Section 153D requires approval to be granted for each assessment year separately. The Tribunal examined whether a single approval covering multiple years and multiple cases could satisfy this requirement.

Judicial pronouncements, including those by the Delhi High Court and the Orissa High Court, have clarified that approval must be specific to each assessment year and cannot be generalized. The Tribunal cited the case of Ram Narayan Bajaj vs. DCIT, where a similar issue was considered, and the approval was found to be mechanical when granted en masse for multiple years and cases on the same day.

The Tribunal noted that the Addl. CIT's approval letter in the present case did not contain any mention of separate consideration of each assessment year or case, nor any indication of examination of draft orders or seized documents. This was held to be inconsistent with the statutory mandate.

The Revenue's contention that the approving authority's prior knowledge and the administrative nature of approval justified the single approval was found to be insufficient to meet the legal requirement.

Conclusion: The single approval covering multiple assessment years and cases was invalid and contrary to the statutory requirement of Section 153D.

3. Consequences of Mechanical Approval on Assessment Proceedings

The Tribunal considered whether non-compliance with the mandatory provisions of Section 153D, specifically mechanical approval, would vitiate the assessment order passed under Section 153C.

The Orissa High Court in Serajjudin & Co. held that mechanical approval without application of mind would vitiate the assessment order. This position was upheld by the Supreme Court by dismissing the Special Leave Petition against that judgment.

The Tribunal also referred to other authoritative decisions emphasizing that the approval under Section 153D is not a mere procedural formality but a substantive requirement, and failure to comply with it affects the validity of the assessment order.

The Tribunal rejected the Revenue's argument that the absence of written reasons or the administrative nature of the approval should not invalidate the assessment, relying on the principle that statutory mandates must be strictly complied with.

Conclusion: Mechanical or invalid approval under Section 153D results in the quashing of the assessment order passed under Section 153C.

4. Admission of Additional Grounds and Procedural Considerations

The assessee raised additional grounds challenging the assessment orders on the basis of non-compliance with Section 153D. The Tribunal allowed the admission of these additional grounds, reinforcing the principle that matters affecting the legality of assessment orders should be decided on merits rather than technicalities, as supported by judgments from the Madras High Court and the Supreme Court emphasizing justice on merits over procedural defaults.

Conclusion: The Tribunal admitted the additional grounds and allowed the appeals on the basis of non-compliance with Section 153D.

Significant holdings:

"The approval granted under Section 153D of the Act must not be a mere formality; it must be granted after due application of mind to each assessment year separately, based on examination of the material and draft orders placed before the approving authority."

"A single approval covering multiple assessment years and multiple cases on the same day without any indication of independent consideration amounts to mechanical approval and is illegal."

"The absence of application of mind by the approving authority under Section 153D vitiates the assessment order passed under Section 153C of the Act."

"The statutory approval under Section 153D is a substantive requirement and cannot be treated as a procedural formality."

"In the present case, the approval dated 28.03.2013 granted by the Additional Commissioner of Income Tax for multiple assessment years and multiple cases on the same day without any indication of perusal or independent application of mind is invalid."

"Accordingly, the assessment orders passed under Section 153C of the Act are quashed and set aside."

"All other grounds of appeal are left open."

In conclusion, the Tribunal allowed the appeals filed by the assessee, holding that the assessment orders were invalid due to the mechanical and invalid approval granted under Section 153D, and set aside the impugned assessment orders accordingly.