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Income Tax Appellate Tribunal, GUWAHATI
Before: Sri Sanjay Garg
order :April 30, 2021 ORDER The present appeal filed by the assessee is directed against the orderdated 22.09.2017 of the Commissioner of Income Tax (Appeals), Shillong. The assessee in this appeal has taken the following grounds of appeal:
“1. For that the impugned order passed by the learned Commissioner of Income Tax(Appeals) [CIT(A)] is bad in law, facts and procedure.
2. For that in absence of any valid notice u/s 143(2) of the Act being served upon the appellant, the impugned order is without jurisdiction and bad in law.
3. For that on the facts and circumstances of the case, the ld. CIT(A) was not justified in confirming the arbitrarily made addition of Rs. 3,00,000/- u/s 69 of the Act.
4. For that the ld. CIT(A) was not justified in arbitrarily confirming the addition of Rs.687/- on account of interest income.
For that the impugned order was passed by the learned CIT(A) in gross violation of the principles of natural justice and hence, the same is bad in law and is liable to be quashed.
For that the ld. CIT(A) ought to have held that the charge of interest under sections 234A, 234B and 234C of the Act being not in accordance with the law, the same is bad in law and is liable to be deleted.
7. For that your appellant craves leave of your honours to take additional ground or grounds and/or to modify any ground(s) of appeal at or before the time of hearing.”
2. Apart from the above grounds of appeal
, the assessee has also taken the following additional grounds of appeal: “1. For that in absence of any valid approval under section 153D having been obtained from the Joint Commissioner of Income-Tax, the impugned order of assessment having been passed under section 143(3) read with section 153B(1)(b) of the Act is bad in law and unsustainable.”
3. The ld. Counsel for the assessee, at the outset, has submitted that the additional legal ground taken by the assessee goes to the root of the case as it is regarding the validity of the assessment framed by the assessing officer u/s 153C read with section 143(3) of the Income Tax Act (hereinafter referred to the ‘Act’). The additional ground is therefore adjudicated first.
4. The brief facts relevant to the issue are that a search and seizure operation u/s 132 of the Act was carried out at the residential premises of one Shri Sushanta Kumar Saha on 25.03.2015. Documents relating to income, investments and expenditure of the assessee were found in the course of the said search action. Therefore, the assessment proceedings u/s 153C were carried out in the case of the assessee also thereby making the impugned additions.
5. The ld. Counsel for the assessee, through the legal ground has pleaded that as provisions of section 153D of the Act, no order of assessment u/s 153Ccan be passed in respect of an assessment year as referred to clause (b) of sub-Section 1 of Section 153B of the Act,except with the prior approval of the Joint Commissioner of Income Tax. Admittedly, the assessment in this case has been framed in relation to the assessment year as referred to in section 153(1)(b), therefore, the approval u/s 153D is pre-requisite for framing of the assessment in this case.
6. The ld. DR has placed at file a copy of the approval granted by JCIT/Addl. CIT. The relevant part of the same for the purpose of ready reference is reproduced hereunder:
The ld. AR has submitted that it is a settled law that the approval under section 153D cannot be turned into an empty ritual rather the obligation of granting approval acts as an inbuilt protection to the taxpayer against arbitrary for unjust exercise by the Assessing Officer. The ld. AR, in this respect, had relied upon the following case laws and submissions:
“1. Rajesh Ladhani v. DcIT; 107 & 108/Agra/2019 dt. 06.11.2019 Held, at para no. 13 to quote: "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 should necessary reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending.”
Kirtilal Kalidas && Co. v DCIT 67 ITD 573 (Mad) "In these cases, the CIT has passed an order granting approval under s.158BG of the Act through a single order passed on 31st March, 1997, without giving any reason whatsoever. ... The approval order does not disclose the points which were considered by the CiT and the reasons for accepting them. In our view, this is totally an unsatisfactory method of granting approval in exercise of judicial power vested in the CIT. It, therefore, follows from the above authoritative decisions that an approval order of a quasi-judicial nature without reasons is a wholly defective order in the eye of law."
Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC) While discussing the requirement of prior approval of CCIT in section 142(2A) of the Act, opined that:- "The requirement of prior approval of chief CIT or CIT being an inbuilt protection against any arbitrary or unjust exercise of power by the AO, casts a very heavy duty on the said high ranking authority to see that the requirement of previous approval is not turned into an empty ritual.. The approval must reflect the application of mind to the facts of the case."
The Hon'ble High Court of Madhya Pradesh in the case of CIT vs. S. Goyanka Lime & Chemicals Ltd. reported in (2015) 56 taxmann.com 390 (MP) has held as under:- "We have considered the rival contentions and we find that while according sanction, the Joint Commissioner, Income Tax has only recorded so "Yes, I am Satisfied". In the case of Arjun Singh vs. Asstt. DIT (2000) 246 ITR 363 (MP), the same question has been considered by a Coordinate Bench of this Court and the following principles are laid down:- "The Commissioner acted, of course, mechanically in order to discharge statutory obligation properly in the matter of recording sanction as he merely wrote on the format "Yes, I am satisfied" which indicates as if he was to sign only on the dotted line. Even otherwise also, the exercise is shown to have been performed in less than 24 hours of time which also goes to indicate that the Commissioner did not apply his mind at all while granting sanction. The satisfaction has to be with objectivity on objective material. If the case in hand is analyzed on the basis of the aforesaid principle, the mechanical way of recording satisfaction by the Joint Commissioner, which accords sanction for issuing notice under section 148, is clearly unsustainable and we find that on such consideration both the appellate authorities have interfered into the matter. In doing so, no error has been committed warranting reconsideration." The above decision of the Hon'ble M.P. High Court came before the Hon'ble Supreme Court in the case of CIT vs. S. Goyanka Lime & Chemical Ltd. reported in (2015) 64 taxmann.com 313 (SC), the Head Notes of which reads as under: "Section 151, read with section 148 of Income Tax Act, 1961 - Income escaping assessment- Sanction for issue of notice (Recording of satisfaction) – High Court by impugned order held that where Joint Commissioner recorded satisfaction in mechanical manner and without application of mind to accord sanction for issuing notice under section 148, reopening of assessment was invalid-Whether Special Leave Petition filed against impugned order was to be dismissed- Held, Yes (in favour of the Assessee). Thus, grant of sanction under section 151 of the Act without recording proper satisfaction after due application of mind reflecting how and in what manner the sanctioning authority was satisfied, makes the re-assessment proceeding bad in law.”
The ld. Counsel has further placed reliance on the decision of Coordinate Agra Bench of the Tribunal in the case of Rajesh Ladhani in vide order dated 06.11.2019. The relevant part of the said order is reproduced as under for the sake of ready reference as under:
“11. Having held as above, the issue which now requires to be adjudicated is whether the Approval so granted in this case can be treated as valid in view of the mandate of the provisions of Sec. 153-D of the Act vis-à-vis the legislative intent of inserting the said section in the statute. Section 153-D read as under: "No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of section 153A or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner. Provided that nothing contained in this section shall apply where the assessment or reassessment order, as the case maybe, is required to be passed by the Assessing Officer with the prior approval of the Commissioner under sub-section (12) of section 144BA."
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 provide that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the previous approval of the Joint Commissioner. Such provision has been made applicable to orders of assessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 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 requisition is made under section 132A. 50.3 Applicability-These amendments will take effect from the 1st day of June, 2007."
It is evident from the CBDT Circular that the legislature in its highest wisdom made it compulsory 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 officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authority have to approve the Assessment order. Object of entrusting the duty of Approval of assessment in search cases is that the Additional CIT, with his experience and maturity of understanding should scrutinize the seized documents and any other material forming the foundation of Assessment. It is an elementary law that whenever any statutory obligation is casted 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 should necessary reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending.
In the above background of law and in the light of Order dated 27.03.2015 passed under section 153D of the Act, which gives legality to the impugned Assessment order, question which arises for our consideration is whether the said Approval granted by the Additional CIT, Central, Kanpur vide his order dated 27.03.2015 can be held to be granted after due application of mind and can be held to be valid in the eye of law? 15. To decide the above issue, order dated 27.03.2015 passed by the Additional CIT was again carefully perused. The contents of the Approval, as reproduced in Para 4, speak for itself loud and clear. The following inferences are inevitable from the bare reading of the said order. Draft Assessment orders were placed before the Additional CIT, Central, Kanpur on 27.03.2015 at 3.50 PM for the first time and soon on the same day it was granted. As clearly mentioned in the Approval under challenge, that prior to this date the case was never discussed with the authority granting the approval. The Additional CIT has further noted that even the questionnaire as was required to be issued with the approval of Additional CIT, in view of CBDT instruction was not issued with his approval. He further observed that since, there was no time left to analyze the issue of draft order on merit, therefore, the said order is approved, as specifically mentioned in the said order, solely relying upon the undertaking obtained from the AO that he has taken due care while framing the assessment that all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have been carefully considered by the authority seeking approval. Thus, the sanctioning authority delegated his statuary duty to grant Approval, after due application of his mind, to the same subordinate AO , whose action the Additional CIT, was supposed to supervise and adopting a short cut in the matter obtained an undertaking from the subordinate AO, accepting it on face value that all the issues have been taken care off while framing the assessment by the AO, and that all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have been carefully considered by the AO, the Additional CIT, granted Approval. Admittedly, the Additional CIT, without any consideration on merit in respect of issues on which addition was made granted the Approval on the undertaking of the AO and in view of stated paucity of time with him for granting Approval. This approach of the Additional CIT, Central has rendered the Approval to be an eyewash and idle formality and such a mechanically granted Approval is no approval in the eyes of law.
The Lucknow Bench of the ITAT in the case of “AAP Paper Marketing Limited Vs ACIT”, (2017) (4) TMI 1371-ITAT Lucknow, (APB-122-129) coincidentally where the ITAT had the occasion to consider the validity of approval granted by the same Additional CIT, Central Circle, Kanpur while quashing the assessments vide Para-14 held as under: "In the present case ACIT has granted impugned approval halfheartedly without application of mind and without considering and perusing the material on record. Thus, we are inclined to hold that there has been no application of mind by the ACIT before granting the approval. Consequently, we hold that the assessment orders made u/s 143(3) of the Act r.w.s 153A of the Act in the case of M/s Siddhbhumi Alloys Ltd. for Assessment Year 2006- 07 is bad in law and deserve to be annulled, thus, we ordered accordingly. Finally additional ground of appeal
raised by the assessee by way of Rule 27 of the ITAT Rules in for the Assessment Year 2006-07 is allowed."
17. From the approval order dated 27.03.2015 of the Addl. CIT, we find that the Ld. AR has rightly pointed out that in the facts of case of AAP Paper Marketing Limited (supra) there may be some justification for the qualified approval in view of the fact that the limitation in that case was getting expired on the day when the draft assessment orders were put up before the Additional CIT, Central Circle, Kanpur for his approval. However, to the disadvantage of the revenue in the case on hands there can be no little justification for qualified approval as the proposal for approval was put up before the Additional CIT on 27.03.2015 at 3.50 PM and at the same time it was granted, without any application of mind on the pretext that limitation is going to get expired on 31.03.2015. Thus, in the case at hand despite availability of time, the Additional CIT has been taking excuse of limitation and has chosen to grant approval without application of his own mind but on the undertaking of the AO that “while completing the assessment as per the draft assessment order, all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have carefully considered.” In our view such a practice is required to be deprecated and we deprecate the same.
18. ITAT, Mumbai Bench in the case of “Smt. ShreelekhaDamani” (supra) (APB-130- 137) annulled the assessment holding as under:
“Coming to the facts of the case in hand in the light of the analytical discussion hereinabove and as mentioned elsewhere, 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 considered opinion, the power vested in the Joint Commissioner/Addl Commissioner to grant or not to grant approval is coupled with a duty. The Addl Commissioner/Joint Commissioner is required to apply his mind to the proposals put up to him for approval in the light of the material relied upon by the AO. The said power cannot be exercised casually and in a routine manner. We are constrained 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.”
19. The above order so passed by the ITAT, Mumbai Bench was subjected to judicial scrutiny in appeal before the Hon’ble Bombay High Court and the Hon’ble High Court approved the order passed by the Mumbai Bench of the ITAT which is found reported as “PCIT Vs Smt. ShreelekhaDamani”, (2019) 307 CTR (Bom.) 218(APB- 138-139) wherein in Para-7 the Hon’ble High Court held as under:
7. In plain terms, the Addl. CIT recorded that the draft order for approval under s. 153D of the Act was submitted only on 31st Dec. 2010. Hence, there was not enough time left to analyze the issue of draft order on merit. Therefore, the order was approved as it was submitted. Clearly, therefore, 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 on his part. The Tribunal is , therefore, perfectly justified in coming to the conclusion that the approval was invalid in eye of law. We are conscious that the statue does not provide for any format in which the approval must be granted or the approval granted must be recorded. Nevertheless, when the Addl. CIT while granting the approval recorded that he did not have enough time to analyze the issues arising out of the draft order, clearly this was a case in which the higher authority had granted the approval without consideration of relevant issues. Question of validity of the approval goes to the root of the matter and could have been raised at any time. In result, no question of law arises.”
20. Similar view has been adopted by the Cuttack Bench in the case of Geetarani Panda (supra) (APB140-154) wherein following order passed under section 153D of the Act by the Additional CIT was subjected to challenge before the ITAT on the ground of non-application of mind. ITAT held as under:
In the instant case, the alleged approval letter dt. 27th March, 2015 of the Addl. CIT, Range-1, Bhubaneswar reads as under: "Despite a reminder given on 19th March, 2015 to submit the time barring draft assessment orders for approval under s. 153D on or before 23rd March, 2015, the draft orders in M/s NeelachalCarboMetalicks (P) Ltd. Group of cases has been received in this office only on 26th March, 2015 in the afternoon. The draft orders having being submitted only 5 days before final orders are getting barred by limitation, I have no other option but to accord the approval to the same as the approval is statutorily required under s. 153D, even though there is no time left for undersigned to ensure that all the points raised in the appraisal report, the appellate proceedings, audit inspection etc. are duly taken into account, and the enquiries and investigations that are required to be made are actually made before finalization of the assessment orders. It would have been much better and in the interest of Revenue if you had submitted the draft orders at least one month earlier so as to allow the undersigned sometime to go through and analyse the same vis-a-vis the appraisal report and seized records. It also goes without saying that you never cared even to discuss these cases with the undersigned for guidance and line of investigation to be taken. However, despite all this, I have gone through the material available on records and some of the observations, in respect of the following cases are given in subsequent paras."
In our considered view, the provisions contained in s. 153D as enacted by the Parliament cannot be treated as an empty formality. The provision has certain purpose. It is apparent that the purpose behind the enactment of the above provision in the statute by the Parliament is two-folds. Firstly, the approval of the senior authority will ensure that the assessee is not prejudiced by the undue or irrelevant addition or assessment. Secondly, the approval by senior authority will also ensure that proper enquiry or investigations are carried out by the assessing authority. Thus, the above provision provides for mental application of a senior officer of the Department, which in turn, provides safeguard to both i.e., Revenue as well as the assessee. Therefore, this important provision laid down by the legislature cannot be treated as a mere empty formality. The same view was expressed by the Pune Benches of the Tribunal in the case of AkilGulamaliSomji vs. ITO in to 458 (Pune) of 2010, order dt. 30th March, 2012, wherein it was held that when the approval was granted without proper application of mind, the order of assessment will be bad in law. The Hon’ble Bombay High Court in the case of CIT vs. AkilGulamaliSomji in IT Appeal (L) No. 1416 of 2012, order dt. 15th Jan., 2013 concurred with the view of the Tribunal that not following of the provisions of s. 153D of the Act will render the related order of assessment void. 25. In the instant case, we find that the supervisory authority has himself admitted that because of reasons stated by him, could not apply his mind and has accorded the approval mechanically to meet the requirements of law as the requirement was merely a formality. The said supervisory authority had a duty towards both the assessee as well as the Revenue which was failed to be performed in the instant case.
It is the bounden duty of the Additional Commissioner of Income Tax to act in accordance with the law, while discharging statutory functions an obligation is casted upon him by the Act to apply his mind while according the approval. 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 statutorily required Approval. The reason for granting the Approval may not be subject matter of the challenge but the manner and the material on the basis of which the approval was granted can always be examined by the Tribunal 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.”
In view of the above mentioned case laws, the issue has been settled holding that the approval of the 153D of the Act cannot be granted in the mechanical manner rather the approving authority has to apply his mind by way of a speaking order showing that the concerned officer has gone through the contents of the assessment and he has satisfied himself with the draft assessment framed by the Assessing Officer. However, as reproduced above, the approval in this case seems to be an empty ritual as the approval letter does not speak of any application of mind by the concerned Addl. CIT/Approving Authority. Therefore, in view of the settled legal proposition, the said approval granted by the ld. Addl. CIT, in this case, is not a valid approval. Therefore, the assessment framed, in this case, becomes bad in law and the same is accordingly quashed. Since, we have quashed the assessment on the legal ground, the discussion on merits of the case will be rendered academic in nature. The appeal of the assessee is, therefore, allowed.
In the result, the appeal of the assessee is allowed. Kolkata, the 30th April, 2021.