2025 (6) TMI 1614 - AT - Income Tax

Validity of approval granted u/s 153D by Add CIT - HELD THAT - The word/phrase written approval is not mentioned in the section 153D of the Income tax Act 1961. The only phrase used is the prior approval . Therefore the contents of the written order of the JCIT/AddI. CIT are legally not required to be examined or considered for meeting the legal or factual requirements of the approval under section 153D. The order by the Addl. CIT/JCIT under section 153D is an Administrative Order by the higher authority i.e. JCIT/AddI. CIT to the lower authority i.e. AO. Such an order is not a quasi-judicial or judicial order. Therefore the legal requirements and benchmarks regarding the principles of the application of mind and the speaking order are not as strict or high as they are in the case of quasi-judicial or judicial order. As relying on Anuj Bansal s case 2023 (7) TMI 1214 - DELHI HIGH COURT approval u/s 153D dated 13.05.2016 is declared as illegal. Consequently the impugned assessment orders of Ld. AO and Ld. CIT(A) are unsustainable and are set aside. Assessee appeal allowed.

Summary

Issues Presented and Considered:

1. Whether the assessment order passed under Sections 153A and 144 of the Income Tax Act, 1961, is valid in the absence of proper approval under Section 153D of the Act.

2. Whether the approval granted under Section 153D of the Act was given with proper application of mind or was a mechanical, rubber-stamp exercise.

3. Whether penalty orders under Sections 271(1)(c) and 271AAB of the Act, consequent to the assessment, are sustainable in law.

4. Whether additional legal grounds raised under Rule 11 of the Income Tax Appellate Rules regarding the validity of approval under Section 153D can be entertained at the appellate stage.

Issue-wise Detailed Analysis:

Issue 1: Validity of Assessment Order under Sections 153A and 144 in Absence of Proper Approval under Section 153D

Legal Framework and Precedents: Section 153D mandates prior approval of the Joint Commissioner or Additional Commissioner before an assessment or reassessment order under Section 153A or 153B can be passed by an Assessing Officer below the rank of Joint Commissioner. The approval must be granted for each assessment year separately. The High Court decisions in PCIT v. Sapna Gupta and the Orissa High Court in Asst. CIT v. Serajuddin emphasize that the approval cannot be a mere formality or mechanical act but must involve an independent application of mind.

Court's Interpretation and Reasoning: The Court examined the approval dated 13.05.2016, which was challenged as being mechanically granted without proper scrutiny. The approval was given on the same day the draft assessment order was submitted, with no record of detailed discussion or examination of the draft order or search materials. The Court relied on authoritative pronouncements holding that approval under Section 153D must be a considered act, involving verification of the draft assessment order and application of mind to the issues raised therein.

Key Evidence and Findings: The approval letter and related correspondence showed that the Additional Commissioner granted approval for multiple cases on the same day, including the present case, without any indication of perusal or independent thought process. The approval covered multiple assessment years in a single order, contrary to the statutory requirement for separate approval for each year.

Application of Law to Facts: The Court applied the principle that approval must be given with due consideration and not as a rubber stamp. The absence of any note or record of examination, coupled with the simultaneous approval of numerous cases, indicated a lack of genuine application of mind.

Treatment of Competing Arguments: The Department contended that Section 153D does not explicitly require "written" approval or detailed reasons, and that the approval is an administrative order, not quasi-judicial, thus demanding less stringent standards. The Court distinguished administrative orders from quasi-judicial ones but held that the statutory scheme and judicial precedents require at least some indication of application of mind, which was missing here.

Conclusion: The approval under Section 153D dated 13.05.2016 was held invalid for want of proper application of mind, rendering the assessment order passed under Sections 153A and 144 void ab initio.

Issue 2: Legality and Validity of Approval under Section 153D - Application of Mind

Legal Framework and Precedents: The Court relied heavily on the decisions of the Delhi High Court in PCIT v. Anuj Bansal and the Orissa High Court in Asst. CIT v. Serajuddin, which mandate that the approving authority must apply independent mind to the draft assessment order and related materials before granting approval under Section 153D. Mere rubber stamping or mechanical approval is impermissible.

Court's Interpretation and Reasoning: The Court noted that the approval in the present case was granted on the same day as the draft order was submitted, covering multiple cases and assessment years without any record of examination. The Court observed that it is humanly impossible for the Additional Commissioner to have applied mind to 43 cases on a single day.

Key Evidence and Findings: The Right to Information disclosures revealed that the Additional Commissioner granted approval for 43 cases on the same date, including 14 cases related to the assessee and an associated party. The approval letter lacked any mention of perusal or independent evaluation.

Application of Law to Facts: The Court applied the principle that approval must be specific to each assessment year and each assessee, with the approving authority verifying the draft order and applying mind to the facts and law. The mechanical approval violated this requirement.

Treatment of Competing Arguments: The Department argued that the approval is an administrative act not requiring detailed reasons or written order. The Court acknowledged the administrative nature but emphasized that the statutory scheme and judicial precedents impose a minimum threshold of application of mind to prevent abuse of power.

Conclusion: The approval under Section 153D was invalid as it was granted mechanically without application of mind, leading to the invalidation of the assessment order dependent on such approval.

Issue 3: Sustainability of Penalty Orders under Sections 271(1)(c) and 271AAB Consequent to the Invalid Assessment

Legal Framework and Precedents: Penalty proceedings under Sections 271(1)(c) and 271AAB are consequential upon valid assessment orders. If the assessment order is invalidated, penalty orders based thereon generally cannot be sustained.

Court's Interpretation and Reasoning: Since the assessment order was set aside due to invalid approval, the penalty orders arising from the said assessment were also set aside as they lacked a valid foundation.

Key Evidence and Findings: The penalty orders dated 25.11.2016 were challenged alongside the assessment order. The Court found that the penalty proceedings were initiated based on additions and findings in the invalid assessment order.

Application of Law to Facts: The Court applied the principle that penalty orders cannot survive independently if the assessment order on which they are based is quashed for jurisdictional or procedural defects.

Treatment of Competing Arguments: The Department did not advance a substantive defense of penalty orders independent of the assessment validity.

Conclusion: The penalty orders under Sections 271(1)(c) and 271AAB were set aside along with the assessment order.

Issue 4: Admission of Additional Legal Grounds under Rule 11 of ITAT Rules

Legal Framework and Precedents: Rule 11 of the Income Tax Appellate Tribunal Rules permits the Tribunal to allow additional grounds of appeal if they are relevant and not prejudicial to the other party. However, grounds not raised before the Commissioner of Income Tax (Appeals) are generally not admitted unless exceptional circumstances exist.

Court's Interpretation and Reasoning: The additional ground challenging the validity of approval under Section 153D was raised after a considerable delay (six years) and was not adjudicated by the CIT(A). The Court noted the delay but admitted the ground in view of the overriding importance of the issue and settled legal position.

Key Evidence and Findings: The additional ground was supported by recent judicial pronouncements highlighting the necessity of proper approval under Section 153D.

Application of Law to Facts: The Court balanced procedural propriety against substantive justice, allowing the additional ground to be considered to prevent miscarriage of justice.

Treatment of Competing Arguments: The Department objected to the admission of the additional ground due to delay and non-adjudication by the CIT(A). The Court acknowledged the objection but prioritized the legal correctness of the assessment process.

Conclusion: The additional ground challenging the validity of approval under Section 153D was admitted and formed the basis for setting aside the assessment and penalty orders.

Significant Holdings:

"A plain reading of the aforesaid provision evinces an uncontrived position of law that the approval under Section 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."

"The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power."

"The mere repeating of the words of the statute, or mere 'rubber stamping' of the letter seeking sanction by using similar words like 'seen' or 'approved' will not satisfy the requirement of the law."

"It is humanly impossible for the said authority to have perused and appraised the records of 85 cases in a single day."

"The order passed under Section 153A read with Section 43(3) has to be quashed where approval under Section 153D is granted mechanically and without application of mind."

"Penalty orders being consequential to the invalid assessment order are unsustainable and set aside."

"The approval under Section 153D is an administrative order but must reflect an appropriate application of mind and cannot be a ritualistic formality."

"The absence of application of mind by the Additional Commissioner before granting approval under Section 153D renders the approval invalid and vitiates the assessment order."

"No substantial question of law arises for consideration where the Tribunal's findings of fact establish absence of application of mind in granting approval under Section 153D."

Final determinations:

1. The approval under Section 153D dated 13.05.2016 is declared illegal and invalid for lack of application of mind.

2. The assessment order passed under Sections 153A and 144 of the Income Tax Act, 1961, based on such approval, is set aside.

3. The penalty orders under Sections 271(1)(c) and 271AAB consequent to the invalid assessment order are also set aside.

4. The additional legal ground challenging the approval under Section 153D is admitted and allowed.

5. All three appeals of the assessee are allowed.