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Facts
The assessee filed appeals against orders of the CIT(A) that confirmed assessment orders passed under Section 153A/143(3) of the Income Tax Act, 1961. The primary issue revolved around the validity of the approval granted under Section 153D of the Act for conducting the assessment.
Held
The Tribunal held that the approval granted under Section 153D of the Act must be a non-mechanical exercise of power, requiring an independent application of mind for each assessment year. Since the approval in this case was omnibus and granted without proper application of mind, the assessment orders were vitiated.
Key Issues
Whether the assessment orders are valid when the approval under Section 153D of the Income Tax Act was granted mechanically and without proper application of mind, for multiple assessment years and assessees in a single order.
Sections Cited
153A, 143(3), 153D, 271(1)(c), 132, 133A, 143(2), 56(1)(vii), 68, 234A, 234B, 234C, 234D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI “F” BENCH: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
ORDER
PER MANISH AGARWAL, AM :
The captioned appeals are filed by the assessee against the separate orders, all dated 15.02.2018 passed by Ld. Commissioner of Income Tax(Appeals)-27, New Delhi [“Ld. CIT(A)” in short] passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising from the different assessment orders pertaining to Assessment Years 2014- 15 & 2015-16 and 2014-15 & 2015-16 respectively, which is tabulated as under:- Sl.
CIT(A)’s AO’s order Assessment No. Years order dated dated Order passed u/s 1. 2228/Del/2018 2014-15 15.02.2018 23.12.2016 153A /143(3) 2. 2229/Del/2018 2015-16 15.02.2018 23.12.2016 143(3) 3. 7004/Del/2019 2014-15 14.08.2019 26.03.2019 271(1)(c) 4. 7005/Del/2019 2015-16 14.08.2019 26.03.2019 271(1)(c) Page | 1 & 2229/Del/2018, 7004 & 7005/Del/2019 2. At the time of hearing, it was stated that the issues involved in and 2229/Del/2018 for Assessment Years 2014-15 and 2015-16 respectively, are common, interlinked and arising from the search action on the assessee. Hence, all these two appeals have been heard together and accordingly, adjudicated by this common order. The remaining two appeals are related to the penalty levied u/s 271(1)(c) of the Act and therefore, they will be taken up after disposing the quantum appeals for these two assessment years.
First we take appeal of the assessee in [Assessment Year 2014-15]. [Assessment Year 2014-15] 4. Brief facts of the case are that a search and seizure operation u/s 132/133A of the Act was conducted on 20.06.2014 in M/s. Alchemist Group of cases and the residential premises of the assessee D-102, Block-D, Saket, New Delhi was also covered u/s 132(1) of the Act. A notice dated 18.02.2016 u/s 153A of the Act was issued and served upon the assessee. In response to the said notice, the assessee vide reply dated 23.03.2016 submitted that its return of income already filed on 16.02.2015, declaring an income of INR 58,32,180/- may be treated as filed in response to notice u/s 153A of the Act. The case was taken up vide notice u/s 143(2) of the Act dt. 02.08.2016. In response to the notices issued, the information called for was furnished. During the year under appeal, the assessee had earned income of heard “Salaries” at INR Page | 2 & 2229/Del/2018, 7004 & 7005/Del/2019 52,15,594/- and “Income from other sources” at INR 7,16,584/-. Assessee in her capital account shown a gift of INR 65,61,314/0 from Dr. Mohd. Aijaj Ilmi and the assessee was asked to explain the purpose/occasion of receiving the gift and relationship with donor. After examining the requisite details/information filed by the assessee, assessment was completed at a total income of INR 7,48,93,490/-. Against such order, the assessee preferred appeal before Ld. CIT(A) who 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. “That having regard to the facts and circumstances of the case, Ld. CIT(A) has, erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order u/s 153A/143(3) and that too without assuming jurisdiction as per law and without obtaining valid prior approval u/s 153D of the Act and in any case purported approval was without application of mind and therefore order of assessment is invalid.
2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in making addition of Rs.65,61,314/- on account of gift received from her husband by treating it as appellant own funds and further erred in holding that the assessee is outside the purview of the provisions of section 56(1)(vii) and its exclusion clause ignoring the fact that no money was received during the year and that too by recording incorrect facts and findings and in violation of principles of natural justice.
3. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making addition of Rs.65,61,314/- on account of gift received is bad in law and against the facts and circumstances of the case.
4. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld AO in making aggregate addition of Rs.2,00,00,000/- on account of Page | 3 & 2229/Del/2018, 7004 & 7005/Del/2019 advance received from M/s Jagsakti (P) Ltd. against sale of property by treating it as alleged sham transaction u/s 68, more so when the said amount has not been received in the year under consideration and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
5. That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making aggregate addition of Rs.2,00,00,000/- u/s 68, is bad in law and against the facts and circumstances of the case.
6. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld AO in making an addition of Rs.4,25,00,000/- on account of advance received from M/s Gurukripa Finvest Ltd. against sale of property by treating it as alleged sham transaction u/s 68 and that too by recording incorrect facts and findings and by disregarding the submissions/evidences placed on record by the appellant and in violation of principles of natural justice.
7. That in any case and in any view of the matter, action of Ld. CIT (A) in sustaining the action of Ld. AO in making addition of Rs.4,25,00,000/- u/s 68, is bad in law and against the facts and circumstances of the case.
8. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234A, 234B, 234C and 234D of Income Tax Act, 1961.
9. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
Before us, Ld. AR for the assessee submits that in the present case, the approval was granted by Ld. JCIT, Central Range-05, New Delhi dated 23.12.2016. Ld.AR submits that Ld. JCIT has granted approval for AY 2009-10 to 2015-16 in terms of order No. Joint CIT/CR-5/153D/2016-17/1056 dated 23.12.2016 which is mechanical approval as no separate approval for each Assessment Year was given rather approval was given by a single order for various assessee’s involving various assessment years. The approval Page | 4 & 2229/Del/2018, 7004 & 7005/Del/2019 granted by Ld. JCIT, Central Range-05, New Delhi is reproduced as under:-
Ld. AR further submits that from the perusal of the approval, it could be seen that JCIT while granting the approval has not Page | 5 & 2229/Del/2018, 7004 & 7005/Del/2019 stated 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 observed that the approval is granted. As per ld. AR, the JCIT has not verified the material, nor any reference was made in the approval and thus it is a mechanical approval given.
Ld.AR finally prayed that no proper application of mind before granting the approval and thus assessment order so passed deserved to be hold as null and void. He placed reliance on the following judgements:- [i] Arch Pharmalabs Ltd. reported in 2021-TIOL-1264-ITAT- Mumbai; [ii] Sheelekha Damani vs DCIT 173 TTJ 332 (Mum.) reported in 2015-TIOL-2170-ITAT-Mum; [ii] Sanjay Dugal & Others reported in 2021-TIOL-148 ITAT, Delhi; [iii] Inder International vs ACIT in [iv] Naveen Jain & Others vs CIT reported in 91 ITR 682 (Lucknow Trib.) [v] Smt. Sapna Gupta, Kanpur vs DCIT, [2021] (Lucknow Trib.); [vi] Vijayadevi Naval Kishore Bharatia vs Land Acquisition Officer [2003] 5 SCC 83 (SC); [vii] Dharampal Satyapal Ltd. vs Union of India [2019] 366 ELT 253 (Gauhati High Court); [viii] M/s. Subash Dabas, New Delhi vs ACIT; [ix] Pr.CIT vs Shiv Kumar Nayyar in ITA Nos.2228 & 2229/Del/2018, 7004 & 7005/Del/2019 [x] Pr.CIT vs Anuj Bansal (ITA No.368/2023) (Delhi High Court); [xi] ACIT vs Sarjuddin & Co. [2023 SCC Online Orissa 992].
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 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. 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. She also placed reliance on the judgement of coordinate Mumbai bench of Tribunal in the case of Usha Satish Salvi Vs. ACIT in to 4239/Mum/2023 wherein the issue of validity of assessment order & 2229/Del/2018, 7004 & 7005/Del/2019 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 chart submitted by Ld.AR, it is seen that the approval was granted in as many as 4 cases where total number of assessment years involved are 28 Assessment Years. The JCIT while granting the approval, needs to examine all the material including the assessment, 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. 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 Page | 8 & 2229/Del/2018, 7004 & 7005/Del/2019 "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.
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 & 2229/Del/2018, 7004 & 7005/Del/2019 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.
16. 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 & 2229/Del/2018, 7004 & 7005/Del/2019 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 Page | 11 & 2229/Del/2018, 7004 & 7005/Del/2019 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 justiciable. 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 and no reference is made what records were sent by the AO alongwith the draft assessment order and what material was examined by the ld. JCIT before affording the 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 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. Kolkata was dismissed as reported in (2024) 163 taxmann.com 118 (SC).
& 2229/Del/2018, 7004 & 7005/Del/2019 12. The ratio of judgement delivered in the case of ACIT vs Serajuddin & Co., Orrisa; PCIT vs Anuj Bansal; PCIT vs Shiv Kumar Nayyar; and PCIT vs Subhash Dabas (supra) has held in chorus that the approval granted under s. 153D of the Act, if granted mechanically, will vitiate the assessment order itself.
13. 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 & 2229/Del/2018, 7004 & 7005/Del/2019 order/ratio of the Tribunal in the case of Usha Satish Salvi (supra) has no effect of binding precedent
Such mechanical approval cannot be sustainable in law in the light of judicial dicta available. In the instant case, the approval memo is totally silent on the issues involved and ld. JCIT has granted omnibus approval without any thoughtful process being discernible. A single approval u/s 153D has been accorded in respect of four different Assessees comprising total 28 Assessment Years. 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 of the Assessee.
15. Since we have already allowed the ground of appeal No.1 taken by the assessee on the validity of reassessment on account of approval u/s 153D of the Act, thus other grounds of appeal are not adjudicated
In the result, appeal of the assessee is allowed.
Since in the other appeal of the assessee in Assessment year 2014-15 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 & 2229/Del/2018, 7004 & 7005/Del/2019 decided in favour of the assessee in for AY 2014-15, hereinabove. Since the facts are identical and the approval was granted by JCIT by a common order vide letter No. Joint CIT/CR-5/153D/2016-17/1056 dated 23.12.2016 for AYrs. 2014-15 & 2015-16 thus, following the said observations, the appeal of the assessee for AY 2015-16 is hereby allowed.
In the result, captioned appeal of the assessee is allowed.
& 7005/Del/2019 [Assessment Years : 2014-15 & 2015-16] 19. The captioned two appeals are related to the penalty levied u/s 271(1)(c) of the Act for AYs 2014-15 & 2015-16. These penalties were initiated in the assessment order passed for both the years u/s 143(3) r.w.s 143A of the Act which orders have been quashed on the ground of validity in terms of approval u/s 153D of the Act. In view of these facts, the penalty levied u/s 271(1)(c in both the appeals are deleted as the very cause of action from where these proceedings are emanated has already been held bad in law.