2025 (7) TMI 173 - AT - Income Tax

Validity of assessment u/s 153A - mechanical approval given by Addl CIT u/s 153D - consolidated approval covering multiple assessees - DR stated that merely because the approvals were granted by one letter does not mean that it was not granted for each assessment year - HELD THAT - We find that if a consolidated approval given by the Learned Addl. CIT for various assessee s for various assessment years is to be considered as an approval given for each assessment year then it would render the requirement of passing an order for each assessment year with prior approval under section 153D of the Act nugatory. Therefore the obligation on the approving authority is to verify the draft assessment order of each assessment year together with the related seized document to ascertain whether it complies with law as well as the procedure laid down. Hence it is established that the action of the Learned Additional CIT in granting common approval for all the assessment years for various assessee s in a mechanical manner without application of mind is writ large. No hesitation in holding that the approval under section 153D of the Act has not been granted for each of the assessment year which is in violation of provisions of Section 153D of the Act itself thereby making the approval being granted in a mechanical manner without due application of mind. Assessee appeal allowed.

Summary

The core legal questions considered by the Tribunal in these appeals pertain primarily to the validity of the approval granted under section 153D of the Income-tax Act, 1961 ("the Act") in the context of assessments framed following a search and seizure operation under section 132. Specifically, the issues include:

• Whether the approval under section 153D of the Act granted by the Learned Additional Commissioner of Income Tax (Addl. CIT) was validly given with due application of mind, as mandated by law.
• Whether a consolidated approval covering multiple assessees and multiple assessment years in a single order satisfies the statutory requirement of obtaining approval for each assessee and each assessment year separately under section 153D.
• The legal effect of a mechanical or non-application of mind approval under section 153D on the validity of the assessment orders framed under section 153A read with section 144 of the Act.
• The binding nature of the jurisdictional High Court's decisions on the issue of approval under section 153D and the applicability of other High Court decisions relied upon by the Revenue.

Issue-wise Detailed Analysis

Validity of Approval under Section 153D of the Act

The legal framework under section 153D requires that before an assessment or reassessment order is passed under section 153A (which deals with assessments following search operations), the Assessing Officer must obtain prior approval from the Joint Commissioner (or Additional Commissioner) for "each assessment year" and for "each assessee" separately. This approval is intended as a safeguard against arbitrary or unjust exercise of power by the Assessing Officer and mandates application of independent mind by the approving authority on the material placed before it.

The Tribunal examined the approval letter dated 28.12.2019 issued by the Learned Additional CIT, which granted a consolidated approval for 11 assessees covering multiple assessment years in a single order. The Tribunal found this approach to be in direct violation of the statutory mandate under section 153D, which requires separate approval for each assessment year and each assessee.

The Tribunal relied heavily on the binding decision of the jurisdictional Allahabad High Court in the case of PCIT vs Siddharth Gupta, which held that:

"...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. The requirement of approval under section 153D is pre-requisite to pass an order of assessment or re-assessment... Section 153D requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of 'each assessment year'... 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..."

The Tribunal highlighted that the consolidated approval covering 123 cases in one day, as noted in the Allahabad High Court ruling, was deemed a mechanical exercise of power, lacking any real application of mind, and therefore invalid. The Tribunal found the facts in the instant case analogous, with the Learned Additional CIT granting a single approval for multiple assessees and years, rendering the approval void ab initio.

Application of Law to Facts and Treatment of Competing Arguments

The Revenue argued that the approval granted under section 153D is an administrative act and not quasi-judicial, and therefore cannot be challenged. They also invoked the presumption under section 114(e) of the Indian Evidence Act that official acts are regularly performed, urging the Tribunal to accept the validity of the approval despite its consolidated form.

The Tribunal rejected these contentions, emphasizing that the statutory language and judicial precedents require a distinct approval for each assessment year and each assessee. The consolidated approval clearly contravened this requirement. The Tribunal noted that accepting a consolidated approval would render the statutory requirement meaningless and undermine the safeguard intended by section 153D.

The Tribunal also declined to consider the decision of the Chhattisgarh High Court cited by the Revenue, holding that the binding precedent of the jurisdictional Allahabad High Court must prevail.

Effect of Invalid Approval on Assessment Orders

The Tribunal held that since the approval under section 153D was not validly granted with due application of mind for each assessment year, the entire assessment proceedings framed under section 153A read with section 144 of the Act were rendered void ab initio. Consequently, the assessments for AYs 2016-17 and 2018-19 were quashed.

The Tribunal further observed that since the assessments were quashed on this fundamental ground, it was unnecessary to adjudicate on the other grounds raised by the assessee.

Significant Holdings

The Tribunal's ruling preserves the following crucial legal reasoning verbatim from the jurisdictional Allahabad High Court decision, which forms the core principle of the judgment:

"...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. The requirement of approval under section 153D is pre-requisite to pass an order of assessment or re-assessment... Section 153D requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of 'each assessment year'... 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..."

The Tribunal established the core principle that the approval under section 153D is not a mere formality or administrative rubber stamp but a substantive safeguard requiring independent application of mind on the facts and material of each case and each assessment year.

Final determinations on each issue are as follows:

• The approval under section 153D granted as a consolidated approval for multiple assessees and multiple assessment years is invalid as it violates the statutory requirement of separate approval for each assessment year and each assessee.
• The mechanical approval without application of mind vitiates the assessment proceedings under section 153A read with section 144 of the Act.
• The binding decision of the jurisdictional Allahabad High Court on this issue must be followed, rendering other High Court decisions cited by the Revenue inapplicable.
• Consequently, the assessments for AYs 2016-17 and 2018-19 are quashed.