Approval u/s 153D not empty formality and not valid in the eyes of law if granted without application of mind discernible from record
ABCAUS Case Law Citation:
ABCAUS 3164 (2019) (10) ITAT
Important case law relied upon by the parties:
Sahara India (firm) vs CIT (2008) 300 ITR 403; Space Wood Furnishers Private Limited ; CIT versus Ratanbai N. K. Dubash 230 ITR 495 : Ultratech Cement Ltd. ; Verma Roadways vs. ACIT, 75 ITD 183 ; Gopas S. Pandit v. CIT, 95 taxman. Com 246; Tata Celular vs. Union of India (1994) 6SCC 651; West Bengal Central School Service Commission vs. Abdul Halim, (2019) SCC online (SC) 902; RP Bhatt versus Union of India AIR 1986 SC 1040; Gopal S Pandit vs CIT 96 taxmann.com 233; PCIT vs Sunrise Finlease Limited 89 Taxmann.com 1(Gujrat); Smt Shreelekha Damani vs DCIT 173 TTJ 332; Pratibha Pipes & Structural Ltd vs DCIT; PCIT vs Smt Shreelekha Damani 307 CTR(Bom) 218; AAA PAPER MARKETING VS ACIT 2017(4) TMI 1371; Smt Indra Bansal vs ACIT 192 TTJ (JD) 968 ; Geeta Rani Panda vs ACIT 194 TTJ (CTK) 915 ; Akil Gulamali vs ITO 20 Taxman.com 380 ; Sun engineering (P) Ltd 198 ITR 297
Approval u/s 153D without application of mind invalid
In the instant case, bunch of appeals and cross objections had been filed by Revenue and the assessee against the order passed by the CIT(A)
The assessee had moved an application for additional ground challenging the approval granted by the Additional Commissioner of Income Tax under section 153D for passing impugned assessment order under section 153A of the ‘Act’. It was alleged that it was not an approval in the eye of law, having been granted without application of mind and such a mechanically granted approval had rendered the assessment order liable to be held illegal and void ab-initio.
The approval granted by the CIT had clearly mentioned that prior to submission by the Assessing Officer of the draft assessment orders, no discussion had been made at any stage. Therefore, the approval was accorded in more than 50 cases, solely relying on the undertaking of the AO as there was hardly any time left for any discussion or any further enquiries / investigation.
The assessee on the basis of the above, submitted that the additional CIT before granting approval had not applied his mind and approved the draft assessment order etc. without himself examining the record of the assessment.
The assessee submitted that the approval envisaged under section 153D, is not merely an administrative approval but there is a statutory duty on the higher authorities to apply its mind before granting the approval. It was submitted that this duty was not required to be mechanically discharged by the officers as there is inbuilt purpose to safeguard the interest of the citizen’s.
It was also submitted that the plain reading of the additional CIT observation clearly showed the total nonapplication of mind by the additional CIT and he had even not bother to look into the draft and the documents and close thereto. It was submitted that the additional CIT was required to independently applied mind before according the approval, though there may not be set formula for inferring the application of mind but nonetheless in the present case the facts were so glaring that additional CIT himself had recorded that he has not applied the mind before according the request for approval was put up before him at the 11th hour.
On the other hand, the Revenue relying on the decision of Hon’ble Bombay High Court submitted that the legal grounds raised by the assessee was not born out on record. Further, it was submitted that the order passed u/s. 153D by JCIT was merely an administrative order and no civil or penalty consequences would flow against the assessee on account of the approval granted by the Addl. CIT.
Further, it was submitted that there is no requirement of law for granting the hearing to the assessee by the Addl. CIT/JCIT prior to give approval u/s. 153D for assessment or reassessment u/s. 153A.
It was submitted that the approval of additional CIT is distinct from the assessment order and is not required to be communicated, hence it is not challenge before the court of law. It was further submitted that once the reason for administrative approval are not required to be communicated to the assessee then it is not permissible in law to permit the assessee to agitate the reasons for passing the administrative approval. It was submitted the approval granted by the additional CIT is not justiciable in law. It was submitted that the subject matter of the proceeding before the tribunal is the assessment order for which the existence of approval is necessary and therefore the approval cannot be formed basis of challenging the assessment order.
Relying on the decision of the Hon’ble Supreme Court It was further submitted that administrative approval granted by the supervisory authority is not justifiable. The Revenue also placed reliance on the judgment of the Bombay High Court in which it was held that the power to determine the income vest in the authority exercising the quasi judicial function, and it is in violation of principle of quasi-judicial function that can render the assessment invalid. The act of administrative approval by additional CIT does not take away the quasi-judicial powers which still vests in AO and therefore administrative act cannot invalidate the assessment.
The Revenue submitted that the subject matter of the challenge was assessment order for which the jurisdictional fact is the existence of approval, therefore the approval itself cannot be the subject matter of adjudication. It was submitted that once the superior authority is agreeing to the finding of the lower authority then it is not required to record the reasons for so agreeing.
It was further submitted that the recording of sanction or approval is not required to be made in a particular manner. The same is discernible from the reasons recorded in the assessment order. It was submitted that what could be challenged before the tribunal is want of sanction.
It was submitted by the Revenue that it is not within the spare of the direction of the tribunal to adjudicate the administrative approval granted by the additional CIT, it was submitted that the decision relied upon by the assessee was distinguishable as no question of law was framed by the high court. It was further submitted that grant of approval did not entail any civil consequences infection of property or personal right, civil liability the provision of material and the property or impinging the personal right and therefore it cannot be subject matter of any judicial scrutiny by the tribunal.
Personal hearing to the Assessee before according the approval under section 153D
The Tribunal observed that as per various decisions of the High Courts, it was categorically clear that the assessee is not entitled to have personal hearing from JCIT before granting approval u/s 153D, as the assessee had already been heard during the assessment/reassessment proceedings by the Assessing Officer and Therefore the assessee is not required to be given any hearing for the purpose of granting any approval. There is inbuilt purpose for seeking approval from an Officer below the rank of JCIT.
Whether approval granted by the officer under 153D is administrative order
The Tribunal examined the issue whether the order passed by the JCIT/Addl. CIT in the case u/s. 153D was an administrative order or an order having civil, criminal or penal consequences. It was noted that similar provision was examined by the various high courts pertaining to section 158 BG, and after examining the scheme of the Act had came to the conclusion that the prior approval provided under section 158 BG is administrative in nature.
The Tribunal observed that the language used in section 153D and section158BG, are similar in nature and both prohibits passing of the assessment order or reassessment /block assessment without the prior approval of the officers mentioned in the said sections. The language used in these sections are in the mandatory form which prohibits passing of the order by the assessing officer without prior approval. Meaning thereby if an order is passed without any approval from the authorities mentioned in the respective sections then the order shall be bad in law and would be liable to be declared void being passed in contradiction to these provisions. Moreover these two provisions were provided by the legislature for the same purposes i.e. to supervise the functioning of the lower authorities by the higher authorities.
In view of the above, the Tribunal opined that the approval granted by the Joint Commissioner in the present case was in the nature of administrative approval.
Whether an administrative order which entail civil consequences/penal consequences/civil liabilities can be challenged before the tribunal if assessment order is premised on such administrative prior approval
The Tribunal opined that the approval as envisaged under section 153D of the Act is not empty formality and there is a rational and reason for mandating the approval before passing the assessment order under the Act. If it was merely a formality and the superior authority is not required to apply its mind then there was no reason to incorporate even for approval of the superior authority and it would not have been worded in the mandatory manner. Because the language used in the provision is in the form of mandatory direction therefore it cannot be argued that even if the approval is granted without application of mind then also it is valid in the eyes of law. In our opinion, civil and penal consequences would flow from completion of assessment and therefore if the approval is denied then crystallize right will accrue in favour of the assessee and the assessee will have a right to assert that the assessment made is bad in law. Similarly if the approval is granted without application of mind which is discernible from the record then the said approval loses its character to be approval in the eyes of law.
The Tribunal clarified that though the assessee is not entitled to any personal hearing before passing of the approval order by the authority under section 153D of the Act. But, it does not dilute the right of the assessee to challenge the approval granted by the superior authority in violation of the basic fundamental principle that the authority while granting the approval should not grant the approval mechanically without even looking into the document and without applying its mind.
The Tribunal observed that in view the several decisions of the Hon’ble High Court and Coordinate Bench, if the approval is granted by the superior authorities for extraneous reasons, without application of mind or without looking into the record, then the approval loses its character of an approval in the eyes of law.
The Tribunal stated that there is a statutory duty on the additional Commissioner of income tax with a corresponding obligation on him to examine the record and thereafter accord the approval. The reason for granting the approval may not be subject matter of the proceedings but the manner and the material on the basis of which the approval was granted can always be examined by the tribunal and also by the other courts to come to the conclusion whether the approval was granted in a mechanical manner or after applying mind looking into the record. No evidences required to be appreciated as the approval is self-evident, i.e., that it was granted by the additional Commissioner of income tax without application of mind and without looking into the record.
Accordingly, in the instant case, the Tribunal held that the approval granted by the higher authorities was no approval in the eyes of law and accordingly the assessment made by the AO based on such an approval was also declared to be null and void.
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