2025 (6) TMI 1997 - AT - Income Tax

Assessment u/s 153A - prior approval u/s 153D by the Joint Commissioner of Income Tax (JCIT) or Additional Commissioner of Income Tax (Addl. CIT) - HELD THAT - For making the assessment under section 153A of the Act the approval u/s 153D by the approving authority is mandatory and cannot be a mere formality and also should not suffer from lack of application of mind based on examination of the relevant material available on record. There should also be some indication of the material examined to show that order of the approval is not mechanically granted by the approving authority. It is also the duty of the AO to submit the draft assessment order well in advance so that the approving authority does not face any time constraints before granting of the approval. In the case on hand the approving authority on the very same date of submitting draft assessment orders on 29.09.2021 granted the approval and the assessment order was passed on 30.09.2021. The argument of DR could not be accepted that there were involvement between the Approving Authority and the AO and the approving authority has therefore applied his mind and has not granted approval in a mechanical manner. Whereas the facts based on the material available before us display a different scenario. We are therefore of the considered opinion that in view of the aforesaid discussion based on the facts and circumstances of the instant case the approval granted by the JCIT is not based on examination of the relevant documents and provisions of the Act and has been acted in time constrained pressure and therefore lacks application of mind and suffers from perversity and consequently cannot be sustained. Thus we are of the opinion that the approval cannot be considered as valid in the eyes of law which would entail the assessment order passed under section 143(3) r.w.s. 153A as invalid being void ab-initio. Accordingly ground raised by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in these appeals are:

• Whether the assessment orders passed under section 143(3) read with section 153A of the Income Tax Act, 1961 (the Act) are valid in law when the prior approval under section 153D of the Act by the Joint Commissioner of Income Tax (JCIT) or Additional Commissioner of Income Tax (Addl. CIT) is granted in a mechanical or hasty manner without application of mind.
• Whether the approval under section 153D of the Act must be preceded by examination of relevant material and independent application of mind by the approving authority.
• Whether the assessment orders passed without proper approval under section 153D are void ab initio.
• Consequentially, whether other grounds raised by the assessee challenging additions and disallowances in the assessment orders require adjudication if the assessment orders themselves are invalid.

2. ISSUE-WISE DETAILED ANALYSIS

Issue: Validity of assessment orders under section 143(3) read with section 153A of the Act in absence of proper approval under section 153D

Relevant legal framework and precedents:

The Income Tax Act mandates that no order of assessment or reassessment under section 153A shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the prior written approval of the JCIT under section 153D. This procedural safeguard was introduced to prevent arbitrary assessments in search or requisition cases.

The CBDT Circular No. 3 of 2008 explains that the approval under section 153D is mandatory and must be granted after due application of mind by the approving authority. The approval is not a mere formality but requires examination of the draft assessment order and relevant seized material.

Judicial precedents relied upon extensively by the assessee and considered by the Tribunal include:

• ACIT v. Serajuddin & Co. (Orissa High Court) - Holding that mechanical or hasty approval without application of mind vitiates the assessment order.
• Utility Supply (P) Limited v. DCIT (Mumbai ITAT) - Approval granted on the same day of submission of draft order without examination of material is invalid.
• Maheswari Coal Beneficiation & Infrastructure (Nagpur ITAT) - Approval lacking recording of satisfaction or examination of relevant documents is a mere mechanical exercise and invalid.
• PCIT v. Shrilekha Damani (Bombay High Court) - Approval must be preceded by application of mind and consideration of relevant factors; otherwise, it is invalid.

Court's interpretation and reasoning:

The Tribunal examined the approval letter dated 29.09.2021 granted by the JCIT for seven assessment years including the relevant years in these appeals. The approval was granted on the very same day the draft assessment orders were submitted by the Assessing Officer. The letter did not indicate any examination of evidence, documents, statements, or material facts by the approving authority. There was no recorded satisfaction or reasons given to show application of mind.

The Tribunal observed that the approving authority was under time constraints, having only one day to consider the draft orders before the assessment orders were passed. This circumstance strongly suggested that the approval was granted mechanically or in haste without independent evaluation.

The Tribunal relied on the ratio in Serajuddin & Co., where the Orissa High Court held that mere rubber stamping or use of words like "approved" without indication of thought process or examination of material is insufficient. The Tribunal also noted that the procedure requires the AO to submit draft orders well in advance so the JCIT can properly apply mind.

The Department's argument that periodic discussions between the Range Head and AO prior to submission of draft orders constituted application of mind by the JCIT was rejected. The Tribunal emphasized that the approving authority must independently assess the draft order and relevant material and not merely rely on prior discussions or investigations.

Key evidence and findings:

• Approval letter dated 29.09.2021 granting consolidated approval for multiple assessment years on the same day as submission of draft orders.
• Absence of any recorded reasons or indication that the JCIT examined the draft orders or relevant seized material.
• Time constraints allowing only one day for approval before assessment orders were passed.
• Judicial precedents establishing the necessity of application of mind and proper procedure for approval under section 153D.

Application of law to facts:

The Tribunal applied the legal principles from the cited precedents and the provisions of section 153D to the facts of the case. Since the approval was given mechanically on the same day of submission without any indication of examination or application of mind, the approval was held invalid. Consequently, the assessment orders passed relying on such approval were held void ab initio.

Treatment of competing arguments:

The Department contended that the approval was valid as the JCIT had adequate time and had participated in prior discussions with the AO. The Tribunal found this argument untenable, emphasizing the independent quasi-judicial role of the AO and the requirement that the approving authority must independently apply mind at the time of granting approval. Mere prior involvement or discussions do not substitute for proper approval under section 153D.

Conclusions:

The Tribunal concluded that the approval under section 153D granted in a mechanical, hasty manner without application of mind is invalid. Accordingly, the assessment orders passed under section 143(3) read with section 153A relying on such approval are void ab initio and unsustainable in law.

Since the invalidity of the assessment orders was established, the Tribunal treated the other grounds raised by the assessee relating to additions and disallowances as academic and did not adjudicate on their merits.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"The validity of the approval granted under section 153D of the Act could not be relied upon in the absence of application of mind by the JCIT while granting such approval."

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

"Granting of approval is not a technical or mechanical exercise or ritual formality but must demonstrate the examination of the relevant material and finding/reasoning, as to why the approval has been granted."

"The Approving Authority after submitting the draft order and relevant material, is required to assess the proposed assessment order independently in the context of material available on record and to give reasons for granting the approval."

"In the instant case, the approval granted by the JCIT is not based on examination of the relevant documents and provisions of the Act and has been acted in time constrained pressure and therefore lacks application of mind and suffers from perversity and consequently cannot be sustained."

"The approval cannot be considered as valid in the eyes of law which would entail the assessment order passed under section 143(3) r.w.s. 153A of the Act dated 30.09.2021 as invalid being void ab-initio."

"Since the legal ground raised by the assessee is adjudicated in favour of the assessee, the other grounds raised on merits which were also not argued by the Ld.AR are considered merely academic in nature and treated as infructuous."

These holdings establish the core principle that approval under section 153D must be a considered exercise based on examination of relevant material and cannot be granted mechanically or under time pressure. Failure to adhere to this procedural safeguard renders the assessment orders invalid.

Accordingly, the Tribunal allowed the appeals filed by the assessee for the assessment years 2017-18, 2018-19, and 2019-20 on this foundational legal ground.