Approval u/s 153D granted to 21 cases by a single letter was mechanical – ITAT

Approval granted u/s 153D by Additional Commissioner to 21 cases by way of a single letter of approval was mechanical – ITAT

In a recent judgment, ITAT Mumbai has quashed the assessments orders holding that approval granted u/s 153D by Additional Commissioner to 21 cases by way of a single letter of approval in the same day was a mechanical approval.

ABCAUS Case Law Citation:
4343 (2024) (12) abcaus.in ITAT Mumbai

In the instant case, the appellant assessee had challenged the order passed by the CIT(A) in upholding the validity of the approval accorded in terms of Section 153D of the Income Tax Act, 1961 (the Act).

A search/survey action u/s 132/133A of the Act was carried out in case of a Business Group and other entities at their offices, branches and residences of main persons. The residential premises of the directors of the group companies were also covered under the search action u/s 132 of the Act.

During the course of search action at the premises of one of the entities, documentary evidences were found unearthing an undisclosed activity of money lending in unaccounted cash being operated at the said premises. Subsequent to the search, notices u/s 153A of the Act has been issued and served on the assessee and in response to the notices, the assessee filed his return of income and the assessment was framed.

Before the CIT(A), the assessee challenged the validity of notice issued u/s 153A on the ground that the approval u/s 153D given by the Additional Commissioner was mechanical one. Howver, the CIT(A) rejected the contention.

The Tribunal observed that the competent authority had chosen to accord approval to as many as 21 proposed assessments, by way of a single letter of approval. Further, the approval was given by the Addl. Commissioner of Income-tax on the same date letter was sent by the Assessing Officer (AO) seeking approval in 21 cases of different assesses.

The Tribunal observed that the legislative intent behind introduction of section 153D can be gathered from the CBDT Circular No. 3 of 2008 dated 12/03/2008 as, prior to the insertion of Section 153D of the Act, there was no provision for taking approval in cases of assessment and reassessment in cases where search has been conducted.

The Tribunal noted that the legislature wanted the assessments/reassessments of search and seizure cases should be made with the prior approval of superior authorities which also means that the superior authorities should apply their minds on the material on the basis of which the officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authorities have to approve the assessment order.

The Tribunal found that there was no whisper of any seized material sent by the AO with his proposal requesting the approval u/s 153D of the Act. Even the approval granted by the Addl. Commissioner of Income-tax, did not refer to any seized material/assessment records or any other documents which could suggest that the Addl. Commissioner of Income-tax had duly applied his mind before granting approvals.

Before the Tribunal, the Revenue explained the procedure of approval to justify that the approval granted was not mechanical and explained argued that though approval is given on one particular date, however, consultation and guidance have been regularly provided by the Range head to the AO concerned on regular basis.

Tribunal observed that the Hon’ble High Court of Orissa had the occasion to consider a similar argument and it held that 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. 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. The Tribunal noted that the SLP preferred by the revenue against the aforementioned decision came to be dismissed by the Hon’ble Supreme Court.

The Tribunal opined that i an approval of superior officer cannot be a mechanical exercise and this has been emphasised in several decision. A reference can be made in the context of Section 142(2A) of the Act which empowers the AO to direct a special audit. The obtaining of the prior approval was held to be mandatory when the Hon’ble Supreme Court observed that an order of approval is also not to be mechanically granted.

The Tribunal further observed that similar issue arose in a bunch of cases considered by the Hon’ble High Court of Delhi with respect to the manner of recording the approval granted by the prescribed authority under Section 151 of the Act. The High Court held that the satisfaction of the prescribed authority is a sine qua non for a valid approval. The High Court relying on several judgments held that simply penning down “Yes” would not suffice requisite satisfaction.

As a result, the Tribunal held that the approval granted by the Addl. Commissioner of Income-tax was not only mechanical but against the ratio laid down by the Hon’ble High Court. Accordingly, the resultant assessment orders were quashed.

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