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TMI Blog2025 (4) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... er related entities by the DDIT (Investigation), Unit-6(1), Mumbai. The case of the Assessee was also covered under such search and seizure operation and consequently notice u/s 153A of the Act dated 06.12.2019 was issued to the Assessee, in response to which the Assessee filed its return of income on dated 10.12.2019 declaring total income at Rs. "Nil". Thereafter, various statutory notices were issued, in response to which from time to time, the Assessee attended the proceedings and filed the details as called for. On verification of the details filed by the Assessee during the course of assessment proceedings and examining the return of income, it was observed by the Assessing Officer (AO) that following issue emerge: Addition u/s 56(2)(viia) of the Act. 4. The AO observed that the Assessee had purchased 73,000 shares of M/s. Utility Supply Pvt. Ltd. at Rs. 10/- per share. However, fair market value of the same appears to be more than the face value, on which the shares were purchased and therefore he asked the Assessee to furnish the valuation of shares of such company. The Assessee furnished valuation report, on perusing the same the AO observed that fair market value per sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the operation is either nil or meager which shows that the Assessee has not carried out any business activities over the years, the shares of M/s. Utility Supply Pvt. Ltd. are not listed, just because in the balance sheet the Assessee has classified/shown the shares as stock in trade, the real intent of the transactions will not alter as entries in the books of accounts are not determinative or conclusive. For brevity and ready reference, the analyzation made and conclusion drawn by the Ld. Commissioner, is reproduced herein below: "8. GROUND NO 1 AND ADDITIONAL GOUND- A search u/s 132 of the I.T. Act was conducted on 22.03.2018 by DDIT (Inv). Unit-6(1) Mumbai in case of Aachman Group and other related entities including assessee. Consequent to the search, notice u/s 153(A) was issued on 06.12.2019. During the course of assessment proceedings, the A.O noted that the assessee has purchased 73,000/- shares of M/s Utility Supply Pvt. Ltd. at Rs. 10 per share. The A.O found from perusal of the financials of M/s Utility Supply Pvt. Ltd., that fair market value of its share is more than the face value for which the shares were purchased. Therefore, the A.O asked the assessee to fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchased for the purpose of trading and not as an investment. In the Balance sheet also, these shares are shown as stock in trade and not as an investment. The provisions of section 56(2)(viia) are applicable for investment in capital assets and not for the regular business/trading activities. The appellant has further submitted that, on the similar facts in case of related concerns namely Muktamani Distributors Pvt. Ltd and Alishan Distributors Pvt. Ltd, the Ld CIT (A) has allowed the appeal by holding that, the purchase of shares was for the trading purpose. 10. I have considered the assessment order, submission of appellant and report received from the A.O. The appellant contended that the alleged shares have been purchased for trading activity and for the same it has relied on entries made in the balance sheet showing the same as stock in trade. Thus, the sole contention of the appellant is that the shares were purchased as a part of regular trading activity of the appellant and hence the provision of section 56(2)(vila) are not applicable. The appellant has also submitted that the Id. CIT(A) on the same fact in the appellant sister concerns namely Muktamani Distributors Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d hence are not available for trading on public platform. All these companies are related concerns of the appellant and are closely held companies. 10.7 From the above discussion, it is evident that the appellant and the concerned company are related entities which are closely held. The shares of M/s Utility Supply Pvt. Ltd are not available for the trading purpose. From the financials of the same it is evident that, that M/s Utility Supply Pvt. ltd is a paper companies and not doing any business activities. In the backdrop of these facts, the contention of the appellant that the purchase of the shares is for the trading purpose, is contradictory to the facts on record. It is also evident that no such trading activity has been carried out by the appellant. These shares are still held by the appellant. 10.8 Thus the whole facts demonstrate that, the acquisition of shares of the paper company by the appellant is not for the purpose of business but for the purpose of acquiring stakes in the same. Thus, the purchase is for investment purpose and not for the trading purpose. Just because, in the balance sheet the appellant has classified/shown the same as stock in trade, the real in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant, however I defer with the decision of my predecessor Ld. CIT(A). The appellant has not contested the valuation of shares (FMV). Accordingly, the addition made by the A.O of Rs. 61,45,870/- is confirmed. The appeal on this ground no 1 and additional ground is thus DISMISSED." 8. The Assessee, being aggrieved, has challenged the decision of the Ld. Commissioner in affirming the aforesaid addition and by filling a petition has also raised the following legal grounds: "1. The Id. CIT(A) has erred in law and in facts in not appreciating that the assessment order passed u/s 153A r.w.s. 143(3) of the Act is bad and invalid in the eyes of law. 2. The Ld. CIT(A) has erred in law and in facts in not appreciating that the assessment order dated 27.12.2019 is issued without quoting mandatory Document Identification Number on the assessment order and hence the assessment order is invalid and nullity in the eyes of law. 3. The Ld. CIT(A) has erred in law and in facts in not appreciating that the approval taken u/s 153D of the Act is invalid and bad in the eyes of law. 4. The Ld. CIT(A) has erred in law and in facts in not appreciating that the assessment order is passed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Private Limited, 2013-14 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 6 M/s. Utility Supply Private Limited, 2014-15 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 7 M/s. Utility Supply Private Limited, 2015-16 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 8 M/s. Utility Supply Private Limited, 2016-17 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 9 M/s. Utility Supply Private Limited, 2017-18 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 10 M/s. Utility Supply Private Limited, 2018-19 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 11 Muktamani Distributors P Ltd. 2013-14 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 12 Muktamani Distributors P Ltd. 2017-18 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 13 Alishan Distributors P Ltd. 2017-18 27-12-2019 27-12-2019 Addl. CIT (CR)-8 Mumbai 11. The Assessee further submitted that the Ld. Addl. Commissioner has given approval in a mechanical manner and without application of mind. Even otherwise the approval granted by the Ld. Commissioner was not substantive or final approval but the same was conditional, as the Ld. Addl. Commissioner in the approval has given certain directions to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is mind to each of the draft assessment orders separately, while granting the requisite approvals. Even otherwise the Ld. Addl. Commissioner has granted common approval for three assessment years, instead of separate approval for each year as mandated in law and as clarified by the Hon'ble High Court of Allahabad in the case of PCIT vs. Sapna Gupta 147 taxmann.com 288 by holding that the approval for each assessment year is required to be given separately. 15. The Ld. Counsel further claimed that most importantly, from the approval, it is clear that there is no reference or discussion of any documents found during search, statements recorded of various persons, submissions filed by the Assessee during search and post search proceedings etc. and therefore, in absence of any such discussion, it cannot be said that the approving authority has applied its mind to the facts of the case before according approval. There is not even bare minimum whisper or mentioning of any reasons, as to how the draft orders put before him were correct and legally valid. Mere mentioning that the draft orders have been perused and approved without even briefly stating how they are correct, cannot satisfy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nting the approval has only been an empty ritual on mechanical exercise. 20. The Ld. Counsel further submitted that in an identical case titled as Nilesh Shamji Bharani vs. DCIT, Mumbai ITA No.1786/M/2023 & ors. decided on 06.12.2024, the AO had sought for approval for many cases, in a single day and the approving authority also approved/accorded approval u/s 153D of the Act in various cases on a single day, by way of single approval letter and therefore the Hon'ble Tribunal quashed the approval, by holding the same as invalid. 21. The Ld. Counsel Mr. Dhaval Shah, further submitted that Hon'ble Jurisdictional Bombay High Court in the case of PCIT vs. Shrilekha Damani {ITA no. 668 of 2016, decision dated 27/11/2018} has also considered the identical situation, wherein the approval was granted on the last date, when there was no enough time left to analyze the issues of draft order on merits and therefore the Hon'ble High Court has held the approval granted, as a mere mechanical exercise and not valid in the eyes of law. 22. On the contrary, the Ld. D.R. refuted the claim of the Assessee by submitting that approval was duly accorded by the concerned Addl. Commissioner. The procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO should submit the draft order "well in time"} that are mandated for seeking the approval u/s 153D of the Act. For brevity and ready reference, the relevant part of the judgment is reproduced herein below: 22. As rightly pointed out by learned counsel for the Assessee there is not even a token mention of the draft orders having been perused by the Additional CIT. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained in the above cases, 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. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of Section 158BG of the Act, it would equally apply to Section 153D o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pressure, accorded the approval on the very same day of submitting of draft order or within 12 hours itself, in haste manner and without applying its mind due to paucity of reasonable time and therefore approval would entail as invalid and bad in the eyes of law. 27. The Hon'ble Jurisdictional High Court in the case of PCIT vs. Shrilekha Damani in ITA No.668 of 2016 decided on 27.11.2018, has also dealt with the issue, wherein the draft order for approval u/s 153D of the Act was submitted on 31.12.2010 and hence there was no enough time left to analyse the issue of draft order on merit. Thus, the draft order was approved without application of mind and therefore the same was declared as invalid approval in the eyes of law by the Tribunal. 28. The Hon'ble High Court, thus considering the aforesaid facts and circumstances affirmed the decision of Tribunal by holding that the Addl. CIT for want of time could not examine the issues arising out of the draft order. His action of granting the approval was thus a mere mechanical exercise accepting the draft order as it is, without any independent application of mind. The Tribunal is therefore justified in coming to the conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal in the case of Nilesh Shamji Bharani vs. DCIT, Mumbai ITA No.1786/M/2023 & ors. decided on 06.12.2024, has also dealt with the identical situation/issue, wherein approvals in 21 cases were accorded vide composite approval dated 27.12.2019, whereas the last date for completing the assessments was 31.12.2019. Coincidentally, in the instant case as well, the dates i.e. 27-12-2019 and 31-12-2019 are the same. The co-ordinate Bench found that there is no whisper of any seized material sent by the AO along with proposal requesting for approval u/s 153D of the Act. Even the approval does not refer to any seized material/assessment records or any other documents, which could suggest that the approving authority has duly applied his mind before granting approval. The Hon'ble Co-ordinate Bench while relying on the judgment in Serajuddin & Co. case (supra), ultimately held the approval granted on the very date of seeking approval on dated 27.12.2019, is invalid, being not only mechanical but against the ratio laid down by the Hon'ble High Courts. 34. The Assessing Officer is an independent quasi-judicial officer and therefore he is required to act or to pass the assessment order in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Though the statute has not provided any format for granting an approval but the approval must reflect the basis of the material and reasons, on which the approval is granted. 37. Coming to the instant case, finally this Court reiterate and order as under: That in the instant case, the approving authority on the very same date of submitting the draft order on 27-12-2019, granted the approval and it is a fact that 28th & 29th of December 2019 were holidays being Saturday and Sunday and 31st December 2019 was the last date for making the assessment order and therefore the approving authority has left with, only two working days i.e. 27th & 30th December 2019. However, the approving authority accorded the approval on the very same day (27-12-2019) of submitting the draft order and in less than 12 hours, which goes to show that the Approving Authority due to paucity of time could not examine relevant evidence or material etc. and therefore failed to apply his mind and granted the approval in mechanical and haste manner. It is also a fact that the AO on the very same day of getting the approval, completed the assessment proceedings and passed the assessment order dated 27.12.2019, w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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