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Facts
A search and seizure operation was conducted on the assessee's premises, leading to the issuance of notices under Section 153C r.w.s. 153A. The assessment was completed at a total income of INR 3,45,23,747/-. The assessee appealed to the CIT(A), which dismissed the appeal. The primary issue on appeal is the validity of the approval granted under Section 153D of the Income Tax Act.
Held
The Tribunal held that the approval granted by the Joint Commissioner under Section 153D of the Act was mechanical and lacked independent application of mind. The approval was granted for multiple assessment years in a single order, which is contrary to the statutory requirement of granting approval for each assessment year independently. Therefore, the assessment orders based on such mechanical approval are vitiated.
Key Issues
Whether the approval granted by the approving authority under Section 153D of the Income Tax Act, 1961, was a mechanical approval lacking application of mind, thereby vitiating the assessment order.
Sections Cited
132, 133A, 153C, 153A, 143(2), 142(1), 68, 153D, 250, 271(1)(c), 143(3)
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Income Tax Appellate Tribunal, DELHI “B” BENCH: NEW DELHI
Before: SHRI YOGESH KUMAR US & SHRI MANISH AGARWAL
to 545/Del/2022 & 1727/Del/2022 [Assessment Years : 2013-14 to 2016-17 & 2016-17] Gurukrupa Krafts Pvt.Ltd., vs ACIT, 67/68, Jaldhara Society, Meghraj Central Circle-17, Road, B/h Umiya, Modasa, New Delhi-110055. Sabakarkantha, Gujarat-383315. PAN-AADCG6157G APPELLANT RESPONDENT Appellant by Shri Sudesh Garg, Adv., Shri Bhavya Garg, Adv. & Shri Prince Bansal, CA Respondent by Ms. Pooja Swaroop, CIT DR Date of Hearing 22.07.2025 Date of Pronouncement 06.08.2025 ORDER
PER MANISH AGARWAL, AM :
The captioned appeals are filed by the assessee against the respective orders passed by Ld. Commissioner of Income Tax (A)-31, New Delhi [“Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the respective assessment orders tabulated as under:- Sr. Order Assessment Section under which Nos. dated Order dated Assessment orders passed 542/Del/2022 1. 31.01.2022 29.12.2017 153C r.w.s. 153A [AY 2013-14] of the Income Tax Act, 1961. 543/Del/2022 2 -Do- -Do- -Do- [AY 2014-15] 3. 544/Del/2022 -Do- -Do- -Do- [AY 2015-16] 545/Del/2022 4. -Do- -Do- -Do- [AY 2016-17] 1727/Del/2022 5. -Do- 271(1)(c) of the Act -Do- [AY 2016-17]
At the time of hearing, it was stated that the issues involved for Assessment Years 2013-14 to 2016-17 are common, interlinked and arising from the search action on the assessee and other persons. Hence, all these cases have been heard together and accordingly, adjudicated by this common order.
First we take appeal of the assessee in [Assessment Year 2013-14]. [Assessment Year 2013-14] 4. Brief facts of the case are that a search and seizure operation u/s 132/133A of the Act was carried out on 09.09.2015 in Shri Vishwanath Agarwal Group of cases at various residential and business premises. During the search proceedings, certain documents were found and seized. Notice u/s 153C of the Act was issued on 25.05.2017 after recording the satisfaction for initiating proceedings u/s 1543C r.w.s. 153A of the Act. In response to notice issued u/s 153C, the assessee filed a letter on 06.10.2017 stated that the return already field on 28.09.2013 may be treated as ITR filed u/s 153C of the Act. Thereafter, notice u/s 143(2) was issued on 06.10.2017 alongwith notice u/s 142(1) and questionnaire. In response to above statutory notices, requisite details/information were filed by the assessee and assessment was completed at a total income of INR 3,45,23,747/-. Against such order, the assessee preferred appeal before Ld. CIT(A) who after considering the submissions, dismissed the appeal of the assessee.
Aggrieved by the order of Ld.CIT(A), the assessee preferred appeal before the Tribunal wherein the following grounds of appeal are taken:
1. “The Ld. CIT (A) has erred in facts and law in confirming the additions u/s 68 of the Income Tax Act, 1961 amounting to Rs. 3,27,48,000/- made by the Assessing Officer while completing the assessments in the case of the appellant u/s 153C r.w.s. 153A of the Income Tax Act, 1961.
2. The Ld. CIT (A) has erred in facts and law in confirming the assumption of jurisdiction u/s 153C of the Act by the Assessing Officer without recording satisfaction note in the case of 'searched person' in gross violation of binding CBDT Circular and decided case laws on this issue.
3. The Ld. CIT (A) has erred in facts and law in confirming the assumption of jurisdiction u/s 153C of the Act by the Assessing Officer by providing his own meaning to the satisfaction note recorded by the AO in the case of the appellant stating that the AO meant 'pertain to' instead of 'belong to' and use of word 'belong to' in the satisfaction note 'is at best a misnomer by the AO' in spite of being fully aware that there was a big difference between the two terms. 4. The Ld. CIT (A) has erred in facts and law in confirming the assumption of jurisdiction u/s 153C of the Act by the Assessing Officer on the basis seized document which were not incriminating in nature by any stretch of imagination and has further erred in making addition on the basis of the same in gross violation of settled law on this issue. 5. The Ld. CIT (A) has erred in facts and law in erroneously interpreting the proviso to Section 68 of the Income Tax Act, 1961 as also evidenced by the amendment introduced by the Finance Act, 2022. 6. The Ld. CIT (A) has erred in facts and law in confirming the additions made by the Assessing Officer without adjudicating with the additional ground raised
by the appellant with respect to mechanical approval (without any application of mind and without due consideration of relevant seized material) u/s 153D of the Income Tax Act, 1961 by the approving authority
7. The Ld. CIT (A) has erred in facts and law in confirming the additions made by the Assessing Officer by treating agriculturists (creditors) to be a mode of layering to infuse its own funds into the company ignoring the fact specifically brought to his notice that the company was promoted by the promoters/ directors who were themselves agriculturists and the farmers from whom loan was taken by the promoters were the relatives/close acquaintances of the promoters/ directors.
8. The Ld. CIT (A) has erred in facts and law in confirming the additions made by the Assessing Officer ignoring the confirmations and detailed explanation acknowledging loans/investments made by the promoters filed vide reply dated 09.03.2021 wherein the transactions recorded in the loose papers were also explained in detail.
9. The Ld. CIT (A) has erred in facts and law in confirming the additions made by the Assessing Officer without dealing with numerous case laws referred and relied by the appellant.
10. The aforesaid grounds are without prejudice to each other and appellant craves for liberty to add fresh ground(s) of appeal and also to amend, alter, modify any of the grounds of appeal.”
Before us the ld.AR of the assessee stated that Ground of appeal No. 6 be taken first wherein the validity of assessment order with regard to the approval granted u/s 153D is challenged.
Before us, Ld.AR for the assessee submits that in the present case, approval was granted by Ld. Joint CIT, Central Range-05, New Delhi vide letter dt. 29.12.2017 which is mechanical approval. Ld. AR submits that Ld. Joint CIT granted approval for AY 2010-11 to 2016-17 in terms of letter No. Joint CIT/CR-5/153D/2017- 18/1422 dated 29.12.2017 which is mechanical approval as no separate approval for each Assessment Year was given rather approval was given by a single order for seven assessment years. The approval so granted is as under:
Ld.AR further submits that from the perusal of the approval, it could be seen that Joint CIT while granting the approval has not observed that he has gone through the seized material and assessment records including the replies filed by the assessee with reference to the additions/ disallowance proposed in the drafts assessment order and only directed to AO to pass the order within the period of limitations. As per ld. AR, the Joint CIT has not verified the material, nor any reference was made in the approval and thus it is a mechanical approval given.
Ld. AR finally submits that common approval is given for various Assessment Years which is contrary to the provisions of section 153D of the Act and therefore, he prayed that no proper application of mind before granting the approval and thus assessment order so passed deserved to be held as null and void. He placed reliance on the various judgements which are stated in the written submission placed on records which includes the hon’ble jurisdictional high court decision in the case of PCIT Vs. Shiv Kumar Nayyar [ITA 285/2024](Delhi).
On the other hand, Ld. CIT DR for the Revenue supports the order of AO and submits that approval was not granted on the same day and not a mechanical approval. As per CBDT Circular dated 22.12.2006, the Range head i.e. the JCIT/ Addl. CIT is fully aware of the assessment proceedings and actively discussed with the AO from time to time with reference to the issues relating to different assessment years and the nature of contents of the seized material. Page | 6 He thus submits that by any stretch of imagination, it cannot be inferred that Range Head was not in a position to apply his mind independently in a judicious manner while granting approval under section 153D of the Act. The CBDT guidelines explicitly emphasize the close coordination required in search and seizure assessments. Therefore, it is reasonable to conclude that, in accordance with prevailing administrative practices and guidelines, the approving authority has a comprehensive understanding of the issues involved in a particular case well in advance, prior to the case being submitted to him for approval under section 153D of the Act. It is thus prayed by ld. CIT DR that the contentions of the assessee on the issue of approval u/s 153D of the Act may please be rejected and the order of the AO may please be upheld. He also placed reliance on the judgement of Co-ordinate Mumbai Bench of Tribunal in the case of Usha Satish Salvi Vs. ACIT in to 4239/Mum/2023 order dated 23.01.2025 wherein the issue of validity of assessment order passed u/s 143(3) r.w.s.153A of the Act in light of provisions of section 153D of the ACT was decided against the assessee.
Heard the contentions of both the parties and perused the material available on record. In the instant case, from the approval as reproduced above, for seven assessment years, the Joint CIT while granting the approval, needs to examine all the material including the assessment records, full appraisal report and seized material pertaining to each Assessment Year with reference to the addition proposed by the AO for which approval is sought. Further approval is to be granted for each assessment year separately.
The Hon’ble Jurisdictional High Court in the case of Shiv Kumar Nayyar in [TS-343-HC-2024-Delhi] has held that the approval u/s 153D of the Act has to be granted for each Assessment year independently. The relevant observations of the judgement of Hon’ble High Court are as under:- "11. A plain reading of the aforesaid provision evinces an uncontrived position of law that the approval under Section 153D of the Act has to be granted for "each assessment year" referred to in clause (b) of sub-section (1) of Section 153A of the Act. It is beneficial to refer to the decision of the High Court of Judicature at Allahabad in the case of PCIT v. Sapna Gupta [2022 SCC OnLine All 1294] which captures with precision the scope of the concerned provision and more significantly, the import of the phrase- "each assessment year" used in the language of Section 153D of the Act. The relevant paragraphs of the said decision are reproduced as under:- "13. It was held therein that if an approval has been granted by the Approving Authority in a mechanical manner without application of mind then the very purpose of obtaining approval under Section 153D of the Act and mandate of the enactment by the legislature will be defeated. For granting approval under Section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for "each assessment year" in respect of "each assessee" separately. The words 'each assessment year' used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. It was held that the "approval" as contemplated under 153D of the Act, requires the approving authority, i.e. Joint Commissioner to verify the issues raised by the Assessing Officer in the draft assessment order and apply his mind to ascertain as to whether the required procedure has been followed by the Assessing Officer or not in framing the assessment. The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power. *** 19. The careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to "each assessment year" is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order under Section 153A." [Emphasis supplied] 12. It is observed that the Court in the case of Sapna Gupta (supra) refused to interdict the order of the ITAT, which had held that the approval under Section 153D of the Act therein was granted without any independent application of mind. The Court took a view that the approving authority had wielded the power to accord approval mechanically, inasmuch as, it was humanly impossible for the said authority to have perused and appraised the records of 85 cases in a single day. It was explicitly held that the authority granting approval has to apply its mind for "each assessment year" for "each assessee" separately.
13. Reliance can also be placed upon the decision of the Orissa High Court in the case of Asst. CIT v. Serajuddin and Co. [2023 SCC OnLine Ori 992] to understand the exposition of law on the issue at hand. Paragraph no.22 of the said decision reads as under:- "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 Commissioner of Income-tax. 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 "seen" 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 of the Act. There are three or four requirements that are mandated therein, (i) the Assessing Officer should submit the draft assessment order "well in time". Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind ; (ii) the final approval must be in writing ; (iii) the fact that approval has been obtained, should be mentioned in the body of the assessment order." [Emphasis supplied] 14. During the course of arguments, learned counsel for the assessee apprised this Court that the Special Leave Petition preferred by the Revenue against the decision in the case of Serajuddin (supra), came to be dismissed by the Supreme Court vide order dated 28.11.2023 in SLP (C) Diary no. 44989/2023.
A similar view was taken by this Court in the case of Anuj Bansal (supra), whereby, it was reiterated that the exercise of powers under Section 153D cannot be done mechanically. Thus, the salient aspect which emerges from the abovementioned decisions is that grant of approval under Section 153D of the Act cannot be merely a ritualistic formality or rubber stamping by the authority, rather it must reflect an appropriate application of mind.
In the present case, the ITAT, while specifically noting that the approval was granted on the same day when the draft assessment orders were sent, has observed as under:- "10. We have gone through the approval granted by the ld. Addl. CIT on 30.12.2018 u/s 153D of the Act which is enclosed at page 36 of the paper book of the assessee. The said letter clearly states that a letter dated 30.12.2018 was filed by the ld. AO before the ld. Addl. CIT seeking approval of draft assessment order u/s 153D of the Act. The ld. Addl. CIT has accorded approval for the said draft assessment orders on the very same day i.e., on 30.12.2018 for seven assessment years in the case of the assessee and for seven assessment years in the case of Smt. Neetu Nayyar. It is also pertinent in this regard to refer to pages 68 and 69 of the paper book which contains information obtained by Smt. Neetu Nayyar from Central Public Information Officer who is none other than the ld. Addl. Commissioner of Income-tax, Central Range-S, New Delhi, under Right to Information Act, wherein, it reveals that the ld. Addl. CIT had granted approval for 43 cases on 30.12.2018 itself. This fact is not in dispute before us. Of these 43 cases, as evident from page 36 of the paper book which contains the approval u/s 153D, 14 cases pertained to the assessee herein and Smt. Neetu Nayyar. The remaining cases may belong to some other assessees, which information is not available before us. In any event, whether it is humanly possible for an approving authority like ld. Addl. CIT to grant judicious approval u/s 153D of the Act for 43 cases on a single day is the subject matter of dispute before us. Further, section 153D provides that approval has to be granted for each of the assessment year whereas, in the instant case, the ld. Addl. CIT has granted a single approval for all assessment years put together."
17. Notably, the order of approval dated 30.12.2020 which was produced before us by the learned counsel for the assessee clearly signifies that a single approval has been granted for AYs 2011-12 to 2017- 18 in the case of the assessee. The said order also fails to make any mention of the fact that the draft assessment orders were perused at all, much less perusal of the same with an independent application of mind. Also, we cannot lose sight of the fact that in the instant case, the concerned authority has granted approval for 43 cases in a single day which is evident from the findings of the ITAT, succinctly encapsulated in the order extracted above."
Similarly, the Hon'ble Orissa High Court in the case of ACIT vs Serajuddin & Co. 454 ITR 312 (Orissa) had an occasion to examine substantial question of law on the propriety of approval granted under s. 153D of the Act. The Hon’ble Orissa High Court made wide ranging observations towards the manner and legality of approval under s. 153D of the Act. The Hon'ble High Court inter- alia observed that the approval under s.153D of the Act being mandatory, while elaborate reasons need not be given, there has to be some indication that approving authority has examined draft orders and finds that it meets the requirement of law. The approving authority is expected to indicate his thought process while granting approval, held that it is not correct on the part of the Revenue to contend that the approval itself is not justifiable. Where the Court finds that the approval is granted mechanically, it would vitiate the assessment order itself. The Hon'ble High Court inter-alia observed that there is not even a token mention that draft order has been perused by the Ld. Addl. CIT. The approval letter simply grants approval. In other words, even the bare minimum requirement of approving authority having to indicate what thought process involved leading to the aforementioned approval has not been provided. As explained, the mere repeating of words of the Statue or mere rubber stamping of the communication seeking sanction by using similar words like 'approval' will not, by itself, meet the requirement of law. The Hon'ble Court made reference to Page | 11 manual issued by the CBDT in the context of erstwhile section 158BG of the Act and observed that such manual serves as a guideline to the AOs. Since it was issued by CBDT, the powers of issuing such guidelines can be traced to section 119 of the Act. The Hon'ble High Court also held that non-compliance of requirement of section 153D of the Act is not a mere procedural irregularity and lapse committed by Revenue may vitiate the assessment order. The SLP filed against the aforesaid judgement in the case of ACIT vs Serajuddin & Co. was dismissed as reported in (2024) 163 taxmann.com 118 (SC).
[ 14. In so far as the order of the Co-ordinate Bench of the Tribunal (Mumbai Bench) relied by the Ld. Department's Representative in the case of Usha Satish Salvi (supra), in the said case, certain modifications were suggested to the A.O. in the draft assessment order, which have been carried out by the A.O. while passing the Assessment Order and the Bench therein observed that the said fact shows that approving authority approved the draft order not in mechanical manner but after due application of mind, however, in the present case, no such application of mind is forthcoming. Further in the case of Usha Satish Salvi (supra), the Ld. Department's Representative has filed affidavit of the then Assessing Officer and the approving authority who have denied the allegations raised by the Assessee. After relying on the said so called unchallenged depositions made in the Affidavit of the then A.O. and the approving authority, (which has been filed much after the granting of the approval and at the stage of second Appeal before the Tribunal), upheld the order of the Ld. CIT(A). Therefore, the present case in hand is factually distinguishable. In view of the judgement of the Hon'ble Delhi High Court in the case of Shiv Kumar Nayyar (supra), which is having binding precedent, and the order/ratio of the Tribunal in the case of Usha Satish Salvi (supra) has no effect of binding precedent.
[ 15. Such mechanical approval cannot be sustainable in law in the light of judicial dicta available. The approval memo is totally silent on the issues involved and has granted omnibus approval without any thoughtful process being discernible. A single approval u/s 153D has been accorded in respect of seven Assessment Years and there is no other material to show involvement of the superior authority in the course of assessment proceedings. Thus, applying the ratio of judgements delivered as noted above, the assessment order based on ritualistic approval stands vitiated and thus, quashed by allowing Ground of appeal No. 6 of the Assessee.
16. Since we have already allowed the ground of appeal No. 6 taken by the assessee thus, other grounds of appeal are not adjudicated.
In the result, appeal of the assessee is allowed. to 545/Del/2025 & 1727/Del/2022 [Assessment Years 2014-15 to 2016-17]
Since in all the other appeals of the assessee in to 545/Del/2022 & 1727/Del/2022 for Assessment years 2014-15 to 2016-17 respectively, the assessee has taken one of the ground of appeal, challenging the validity of assessment order passed u/s 143(3) r.w.s. 153A of the Act in light of provisions of section 153D of the Act which issue has been decided in favour of the assessee in for AY 2013-14, hereinabove. Since the facts are identical and the approval was granted by Joint CIT for all these assessment years also by a common order vide letter Joint CIT/CR- 5/153D/2017-18/1422 dated 29.12.2017 for AYrs. 2010-11 to 2016-17 thus, following the said observations, all the captioned appeals of the assessee are allowed.
In the combined result, all appeals of the assessee in to 545/Del/2022 & 1727/Del/2022 [Assessment Years 2013-14 to 2016-17] are allowed.
Order pronounced in the open Court on 06.08.2025.