2024 (6) TMI 29 - HC - Income Tax

Validity of assessment u/s 153A - specified authority granted approval in accordance with Section 153D or not? - HELD THAT - Approval u/s 153D of the Act has to be granted for each assessment year referred to in clause (b) of sub-section (1) of Section 153A of the Act. It is beneficial to refer to the decision of the High Court of Judicature at Allahabad in the case of PCIT v. Sapna Gupta 2022 (12) TMI 887 - ALLAHABAD HIGH COURT which captures with precision the scope of the concerned provision and more significantly the import of the phrase- each assessment year used in the language of Section 153D of the Act. It is observed that the Court in the case of Sapna Gupta (supra) refused to interdict the order of the ITAT which had held that the approval under Section 153D of the Act therein was granted without any independent application of mind. The Court took a view that the approving authority had wielded the power to accord approval mechanically inasmuch as it was humanly impossible for the said authority to have perused and appraised the records of 85 cases in a single day. It was explicitly held that the authority granting approval has to apply its mind for each assessment year for each assessee separately. Grant of approval under Section 153D of the Act cannot be merely a ritualistic formality or rubber stamping by the authority rather it must reflect an appropriate application of mind. Notably the order of approval dated 30.12.2020 which was produced before us by the learned counsel for the assessee clearly signifies that a single approval has been granted for AYs 2011-12 to 2017-18 in the case of the assessee. The said order also fails to make any mention of the fact that the draft assessment orders were perused at all much less perusal of the same with an independent application of mind. Also we cannot lose sight of the fact that in the instant case the concerned authority has granted approval for 43 cases in a single day which is evident from the findings of the ITAT succinctly encapsulated in the order extracted above. The court upheld the ITAT s decision emphasizing the necessity of thorough assessment and independent application of mind for each assessment year.

Summary

Issues:
Whether the approval granted under Section 153D of the Income Tax Act, 1961 was in accordance with the law.

Analysis:
The case involved an appeal by the Revenue against an order of the Income Tax Appellate Tribunal (ITAT) declaring the assessment order as illegal due to lack of appropriate approval under Section 153D of the Act. The dispute arose from a search and seizure operation conducted in the Nayyar Group of cases, leading to centralization of the assessee's case and subsequent scrutiny assessment. The assessing officer passed an assessment order under Section 153A read with Section 143(3) of the Act, which was challenged by the assessee before the Commissioner of Income Tax (Appeals) (CIT(A)). The CIT(A) partially allowed the appeal, prompting the Revenue to appeal to the ITAT, where the approval under Section 153D was found to be flawed and mechanical, rendering the search assessment illegal.

The main contention before the High Court was whether the approval granted by the competent authority under Section 153D was valid. The Revenue argued that the approval was not granted in a mechanical manner and that the authority had the right to approve on the same day as the draft assessment orders were sent. On the other hand, the assessee contended that the approval was mechanical, citing precedents and highlighting the requirement for independent application of mind by the approving authority for each assessment year.

The High Court analyzed the provision of Section 153D, emphasizing that approval must be granted for each assessment year separately with an independent application of mind. Referring to relevant case laws, including PCIT v. Sapna Gupta and Asst. CIT v. Serajuddin and Co., the Court reiterated that the approval under Section 153D cannot be a mere formality or rubber stamping exercise but must reflect a genuine application of mind by the approving authority.

The Court noted that the ITAT found the approval in the present case to be granted for multiple assessment years on the same day without individual consideration, which was not in compliance with the requirements of Section 153D. The approval lacked any indication of independent assessment of the draft orders, and the approving authority had granted approvals for numerous cases on a single day, raising doubts about the thoroughness of the process. Consequently, the High Court upheld the ITAT's decision, dismissing the appeal and emphasizing the necessity of a valid and well-considered approval process under Section 153D for each assessment year.