A common and consolidated approval u/s 153D for all assessment years in complex matters of search showed non application of mind – ITAT
In a recent judgment, the ITAT Delhi has held that a common approval u/s 153D for all assessment years in complex matters of search without identifying or discussing any issue in relation to any assessment year showed non application of mind to any aspect of any assessment years.
ABCAUS Case Law Citation:
4415 (2025) (02) abcaus.in ITAT
Important Case Laws relied upon by Parties:
ACIT vs Serajuddin & Co.
PCIT vs Anuj Bansal
PCIT vs Shiv Kumar Nayyar
Chhugamal Rajpal vs. S.P. Chaliha & ors
In the instant case, the assessee had challenged the consolidated order of the Commissioner of Income Tax (Appeals) for a block of six years in a search case rejecting the legal objections to the validity of approval u/s 153D of the Income Tax Act, 1961 (the Act).
The assessee had raised a legal objection that the approval accorded by the competent authority i.e. Addl. CIT in the instant assessment orders did not meet the pre-requisites contemplated under section 153D of the Act and hence the assessment framed u/s 153A based on such non est approval was a nullity at the threshold.
The assessee was covered in a search and seizure operation under section 132. Consequent upon search, notices under s. 153A of the Act were issued to the assessee for relevant Assessment Year(s) under appeal. Pursuant thereto, the assessee filed return of income u/s 153A of the Act for assessment years concerned.
The assessments were framed u/s 143(3) r.w.s 153A of the Act for unabated and abated AYs in question. While framing search assessments noted above, the AO inter alia made additions and disallowances for different assessment years under appeal.
Before the CIT(A), the assessee challenged the additions and contended that the additions made by the AO were outside the ambit of legal framework inasmuch as no incriminating material was found during the course of search initiated against the assessee under section 132 of the Act and such assessments stood concluded and remained unabated at the time of initiation of search. It was further contended that third parties statements adverse to assessee in a different proceedings did not give rise to legally basis for making additions in respect of unabated assessments.
The assessee also simultaneously challenged the legitimacy of approval granted by the Competent Authority i.e. Addl. CIT alleging that such approval had been granted mechanically in a ritualistic manner without application of mind.
The CIT(A) however rejected legal objection of the assessee questioning scope and legality of additions under section 153A being outside the legal framework. Likewise, objections raised on approval granted under section 153D alleging such approval to be an omnibus approval without application of mind to the draft assessment order was also rejected. The CIT(A) did not find any substance in the contentions raised on the merits of the additions either.
Before the Tribunal, the assessee raised the legal objection and contended that the purported approvals of the Addl. CIT in a clubbed manner for all the AYs by a single order was mechanical and perfunctory and without application of mind having regard to the functions entrusted under section 153D of the Act. The assesseee also raised challenge on the grounds that (i) the addition made by the AO in the assessment framed u/s 153A unconnected to any incriminating material found in the course of search. (ii) As held by the Hon’ble Supreme Court, the scope of assessment under section 153A is restricted to the incriminating material found in the course of search in the case of the assessee in such unabated assessments and (iii) the material collected by the AO from third persons in post search or from other unconnected to search proceedings cannot be used for assessment under s. 153A in unabated cases.
It was contended that the Addl. CIT has accorded approval u/s 153D by a single order for all the seven AYs in question and according to the assessee, the combined approval granted for various AYs u/s 153D suffered with substantive infirmities revealing gross nonapplication of mind and the assessment orders have been granted an omnibus approval on dotted line in a cursory manner.
It was submitted that the AO forwarded the draft assessment orders for various AYs under appeal to the Addl. CIT to seek approval under s. 153D of the Act. The approval sought was accorded very nect day in complex search cases of multiple years. The approvals were given in a consolidated manner to the assessment orders spanning over seven years.
It was further submitted that it would be manifest that combined and consolidated approval has been accorded solely based on the submissions and assurances from the AO that the pre-requisites have been met while preparing draft assessment order. Such approvals, which do not even remotely indicate independent application of mind, if endorsed would defeat the very purpose of the statutory enactment of section 153D of the Act meant to act as valuable safeguard against any capricious or unjust or onerous liability on tax payers by the arbitrary exercise of powers of the AO.
The Tribunal observed that for passing assessment orders in search cases, the Assessing Officer is inter alia governed by the requirement of prior approval under Section 153D of the Act. Hence, the AO should complete the assessment proceedings and prepare a draft assessment order which needs to be placed before the approving authority i.e. Joint/Addl. Commissioner (designated authority giving approval to search assessment under Section 153D of the Act) for his perusal and prior approval.
The Tribunal further observed that in view of the definitive judicial consensus available on the expectations from Competent Authority, such Competent Authority is necessarily required to objectively evaluate such draft assessment order with due application of mind on various issues contained in such order so as to derive his/ her diligent satisfaction that the proposed action of AO is in conformity with subsisting law and is also in accord with underlying factual matrix. The requirement of law to grant approval is consistently held to be not a merely as a formality or a symbolic act but a mandatory requirement. The AO is obligated is pass the assessment order exactly, as per approval / directions of the designated authority. It is not open to the AO to modify the assessment order without the knowledge and concurrence of the designated authority. It was clear from the plain reading of approval memo that the Addl. CIT was in complete dark on facts while being called upon to grant his clearance to the draft assessment orders.
The Tribunal further noted that it was evident from the CBDT Circular No.3 of 2008 dated 12.03.2008 that the legislature in its highest wisdom made it obligatory that the assessments of search cases should be made with the prior approval of superior authority, so that the superior authority apply their mind on the materials and other attending circumstances on the basis of which the Assessing officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authority is required to accord approval the respective Assessment order.
The Tribunal further observed that the solemn object of entrusting the duty of Approval of assessment in search cases is that the Additional/ Joint CIT concerned, with his experience and maturity of understanding, should at least minimally scrutinize the seized documents and any other material forming the foundation of Assessment. It is elementary that whenever any statutory obligation is cast upon any statutory authority, such authority is required to discharge its obligation not mechanically, not even formally but after due application of mind. Thus, the obligation of granting Approval acts as an inbuilt protection to the taxpayer against arbitrary or unjust exercise of discretion by the AO. The approval granted under section 153D of the Act enjoins due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending. Long line of judicial precedents which provides guidance in applying the law has been quoted in the preceding para. The courts have repeatedly deprecated the pernicious practice of granting approvals by the supervisory authorities in a nonchalant manner.
The Tribunal opined that in the instant case, the approving authority had granted a mere ‘technical approval’ by his own express admission in departure to a substantive approval expected in law. Curiously, the Addl. CIT had recorded that he has granted approval on the basis of submission of the AO that proper opportunity has been provided to the Assessee; all the issues have been examined by him i.e. the AO and relevant copies of seized documents have been verified by him i.e. the AO before passing the draft order. The Addl. CIT thus effectively claimed that he has not pursued the relevant underlying material and proceeded on dotted line. Such an act cannot be regarded as effective discharge of duty of supervisory nature. As discernible from the combined approval memo, the sanctioning authority (Addl. CIT) has, in fact, relegated his statutory duty to the subordinate AO, whose action the Addl. CIT, was supposed to supervise as per the scheme of the Act.
The Tribunal held that such approach of the Addl. CIT has ipso facto rendered the impugned approval to be a mere ritual or an empty formality to meet the statutory requirement and was thus incapable of being sustainable in law.
Further, the Tribunal observed that the assessee had also demonstrated glaring lapses in the respective assessment orders which could easily be detected on a bare reading of such orders. Impliedly, the Addl. CIT has not even cared to read the assessment orders while entrusted with the task of approval of such orders. Furthermore, a common approval for all assessment years in complex matters of search without identifying or discussing any issue in relation to any assessment year further showed no semblance of any application of mind to any aspect of any assessment years.
Accordingly, the legal question was decided in allowed the appeal in favour of the assessee of the assessee and the appeals were allowed.
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