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Smt. Shreelekha Damani Versus The DCIT (OSD-1) CR-7, Mumbai

Validity of assessment made u/s. 153A - need of fulfilling the mandate of the provisions of Sec. 153D - Held that:- Addl. Commissioner has showed his inability to analyze the issues of draft order on merit clearly stating that no much time is left, inasmuch as the draft order was placed before him on 31.12.2010 and the approval was granted on the very same day. Considering the factual matrix of the approval letter, we have no hesitation to hold that the approval granted by the Addl. Commissioner .....

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ed to observe that in the present case, there has been no application of mind by the Addl. Commissioner before granting the approval. Therefore, we have no hesitation to hold that the assessment order made u/s. 143(3) of the Act r.w. Sec. 153A of the Act is bad in law and deserves to be annulled. The additional ground of appeal is allowed. - Decided in favour of assessee - I.T.A. No.4061/Mum/2012 - Dated:- 19-8-2015 - SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER .....

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tax (Appeals)-40 erred in upholding the disallowance of rent paid to Tobaccowala of ₹ 60,23,2701- on the ground that it was personal in nature. 2. Brokerage paid to HDFC Realty ₹ 2,20,500/( Para 9 of the Assessment Order): On the facts and in the circumstances of the case and in law, the Hon'ble Commissioner of Income tax (Appeals )-40 erred in upholding the disallowance of brokerage paid for arranging new premises of ₹ 2,20,500/- on the ground that the expenditure was for .....

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the facts and in the circumstances of the case and in law, the Hon,ble CIT (Appeals)-40 erred in not adjudicating the ground that the order passed U/s 143(3) read with Section 153 A with the prior approval of the Addl. CIT as required U/s 153D is bad in law, as it was against the principles of natural justice in so far as the opportunity of being heard personally in the matter was not given by the Addl. CIT despite requests by your appellant. 3. By an application dated 4.7.2013, the assessee sou .....

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n the circumstance of the case and in law the CIT(A) ought to have held the assessment order u/s. 153A is non est and not in accordance with law and ought to have set aside the assessment. 4. A perusal of the additional ground of appeal show that it does not require any verification of fact hence the additional ground of appeal are admitted as they go to the root of the issue. We decide to proceed with the additional ground first. 5. Briefly stated the facts of the case are that a search and sei .....

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s per the endorsement on page-11 of the assessment order this order is passed with the prior approval of the Addl. Commissioner of Income Tax, Central Range-7, Mumbai. 6. The additional ground raised before us is against this endorsement in the assessment order as the claim is that the Assessing Officer has not complied with the provisions of Sec. 153D and hence the assessment made u/s. 153A of the Act is bad in law. 7. At the very outset, the Ld. Departmental Representative furnished the copy o .....

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f application of mind and by any stretch of imagination the order made u/s. 143(3) r.w. Sec. 153A of the Act cannot be said to be made after receiving the approval as per the provisions of Sec. 153D of the Act. The entire arguments/submissions of Ld. Shri Mistry revolved around this approval letter dated 31.12.2010. 9. Per contra, defending the assessment order, the Ld. Departmental Representative stated that the AO has made the assessment order after getting the approval from the Range Addl. CI .....

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ly. The said approval read as under: No. Addl CIT/Cent. Rg-7/Approval 153D/2010-11/366 Dt. 31.12.2010 To: The DCIT (OSD)-1, Mumbai Sub: Approval u/s. 153D of draft order u/s. 143(3) r.w.s. 153A in the case of Smt. Shreelekha Nandan Damani for A.Y. 2007-08 reg. Ref: No. DCIT (OSD)-1/CR-7/Appr/2010-11 dt. 31.212.2010 …………. As per this office letter dated 20.12.2010, the Assessing Officers were asked to submit the draft orders for approval u/s. 153D on or before 24.12.20 .....

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e was no much time left to analyze the issue of draft order on merit, therefore, the said order is approved as it is. The approval is also dated 31.12.2010. 11.1. The issue which we have to decide is can this approval be treated as fulfilling the mandate of the provisions of Sec. 153D of the Act vis-àvis the legislative intent of inserting the said section in the statute. Sec. 153D read as under: No order of assessment or reassessment shall be passed by an Assessing Officer below the rank .....

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. 11.2. The Legislative intent can be gathered from the CBDT Circular No. 3 of 2008 dated 12.3.2008 which read as under: 50. Assessment of search cases Orders of assessment and reassessment to be approved by the Joint Commissioner. 50.1 The existing provisions of making assessment and reassessment in cases where search has been conducted under section 132 or requisition is made under section 132A. does not provide for any approval for such assessment. 50.2 A new section 153D has been inserted to .....

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or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisitioned is made under section 132A. 50.3 Applicability- These amendments will take effect from the 1st day of June, 2007. 11.3. The Legislative intent is clear inasmuch as prior to the insertion of Sec.153D, there was no provisi .....

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have to approve the assessment order. 11.4. The question before us is has this been done in the present case . The language of the approval letter says no . Let us now consider some analogous provision in the Act. Sec. 142(2A): 142(2A) If, at any stage of the proceedings before him, the Assessing Officer, having regard to the nature and complexity of the accounts, volume of the accounts, doubts about the correctness of the accounts, multiplicity of transactions in the accounts or specialised nat .....

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countant and setting forth such particulars as may be prescribed and such other particulars as the Assessing Officer may require. In this section also the AO may direct the assessee to get the accounts audited by an Accountant with the previous approval of the Principal Chief Commissioner or Chief Commissioner. This provision has been elaborately considered by the Hon ble Supreme Court in the case of Sahara India Vs CIT 169 Taxman 328 wherein at para-6, the Hon ble Supreme Court observed as unde .....

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and "the interests of the revenue" are the prerequisites for exercise of power under section 142(2A) of the Act. Undoubtedly, the object behind enacting the said provision is to assist the Assessing Officer in framing a correct and proper assessment based on the accounts maintained by the assessee and when he finds the accounts of the assessee to be complex, in order to protect the interests of the revenue, recourse to the said provision can be had. The word "complexity" used .....

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to be complex on the face of it, may not be really so if one tries to understand it carefully." Thus, before dubbing the accounts to be complex or difficult to understand, there has to be a genuine and honest attempt on the part of the Assessing Officer to understand accounts maintained by the assessee; appreciate the entries made therein and in the event of any doubt, seek explanation from the assessee. But opinion required to be formed by the Assessing Officer for exercise of power under .....

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y or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflec .....

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as made on March 10, 1998, and no prior approval therefore was granted by the Chief Commissioner of Incometax but merely one G. P. Agarwal was nominated. An argument has been advanced to the effect that by making such a nomination, approval will be deemed to have been granted. The answer to the said contention must be rendered in the negative. The Chief Commissioner of Incometax before granting such approval must have before him the materials on the basis whereof an opinion had been formed. A pr .....

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aterials had been placed before the Chief Commissioner of Income-tax. It further appears that even no previous approval was sought for but merely a proposal was placed for perusal of the Chief Commissioner of Income-tax and for appointment of a special auditor. The Chief Commissioner of Income-tax, therefore, did not apply his mind at all as regards the prerequisite for grant of previous approval and mechanically appointed Sri G. P. Agarwal, as a special auditor. The said order depicts a total n .....

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Commissioner or the Director, as the case may be, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, after the 30th day of June, 1995, but before the 1st day of January, 1997; (b) the Joint Commissioner or the Joint Director, as the case may be, in respect of search initiated under section 132 or books of account, other documents or any assets requisitioned under section 132A, on or after the 1st day of January, .....

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e have recorded elsewhere above, the draft assessment orders of the block period in all these cases were made on 31-3-1997 and on the very same day, i.e., on 31-3- 1997 the Commissioner grants approval and that too without giving or recording any reasons whatsoever. The approval order does not disclose the points which were considered by the Commissioner and the reasons for accepting them. In our view, this is totally an unsatisfactory method of granting approval in exercise of judicial power ve .....

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nd application of mind. In the case of Kirtilal Kalidas & Co. (supra), the I.T.A.T Madras Bench A has observed that the function to be performed by the Commissioner in granting previous approval requires an enquiry and judicial approach on the entire facts, materials and evidence. It has been further observed that in law where any act or function requires application of mind and judicial dikscretion or approach by any authority, it partakes and assumes the character and status of a judicial .....

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n ITA No. 611/M/2004 wherein at para-8, the Tribunal has considered the decision of the Hon ble High Court of Delhi Bench in the case of United Electrical Co. 258 ITR 317 which read as under: Hon ble Delhi High Court in the case of United Electrical Co. Pvt. Ltd. Vs CIT 258 ITR 317 has held that the proviso to sub-section (1) of section151of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under section 148 shall not be issued unless the C .....

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under section 147 mechanically. We feel that if the Additional Commissioner had cared to go through the statement of the said parties, perhaps he would not have granted his approval, which was mandatory in terms of the proviso to sub-section (1) of section 151 of the Act as the action under section 147 was being initiated after the expiry of four years from the end of the relevant assessment year. The power vested in the Commissioner to grant or not to grant approval is coupled with a duty. The .....

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e, the Addl. Commissioner has showed his inability to analyze the issues of draft order on merit clearly stating that no much time is left, inasmuch as the draft order was placed before him on 31.12.2010 and the approval was granted on the very same day. Considering the factual matrix of the approval letter, we have no hesitation to hold that the approval granted by the Addl. Commissioner is devoid of any application of mind, is mechanical and without considering the materials on record. In our .....

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e granting the approval. Therefore, we have no hesitation to hold that the assessment order made u/s. 143(3) of the Act r.w. Sec. 153A of the Act is bad in law and deserves to be annulled. The additional ground of appeal is allowed. 13. The ld. Departmental Representative has strongly relied upon the decision of the Tribunal Mumbai Bench in the case of Rafique Abdul Hamid Kokani Vs DCIT 113 Taxman 37, Hon ble High Court of Karnataka in the case of Rishabchand Bhansali Vs DCIT 136 Taxman 579 and .....

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