NAVEEN NARANG ,DELHI vs. PCIT (CENTRAL), - 3, DELHI

It is noted that earlier this captioned appeal was disposed of by the Tribunal vide order dated 03.10.2024. For recalling the said order, assessee filed a Misc. Application, which was recalled vide order dated 27.03.2025 for adjudicating the Ground No. 5 & 9 which were not adjudicated by the Tribunal in order dated 03.10.2024. Pursuant to the said recalled, the instant appeal has been fixed and heard to adjudicate the Ground Nos. 5 & 9, which read as under:-

We have heard both the parties and perused the records. At the time of hearing Ld. AR for the assessee has firstly raised the Ground No. 9 as reproduced above under para no. 3 of this order, and stated that the order passed by the Ld. PCIT u/s. 263 is liable to be quashed as the original assessment order itself is bad in law and without jurisdiction. He further submitted that the impugned assessment order itself is non-est and bad in law as there is no valid approval u/s. 153D of the Act and, therefore, provisions of section 263 cannot be invoked in respect of such assessment order which itself is bad in law and non-est and assumption of jurisdiction u/s. 263 of the Act in respect of an assessment which is nonest / bad in law / without jurisdiction is also bad in law. Such challenge to the validity of the assessment order can be made even the proceedings challenging the order u/s. 263 of the Act. To support his view, he relied upon the following catena of cases laws of various benches of the Tribunal:

Before us the assessee has challenged the initiation of proceedings u/s 153A of the Act wherein, the approval granted by the JCIT, Central Range-8, New Delhi is bad in law in view of the fact of examination of documents before approval upon application of mind by the said authority is not depicting from the same, moreso the approval is a conditional one which is evident from the approval dated 30.03.2022 granted by JCIT, Central Circle-8, New Delhi, as placed before us. We may gainfully refer here the said approval dated 30.3.2022, which reads as under:- “….2 Approval is hereby accorded u/s 153D of the Income Tax Act, 1961 to the draft assessment order as amended in the following case, on the basis of the detailed discussion with you time to time, information available on record, facts mentioned in the Appraisal Report and relevant seized documents perused by you & brought to the notice of undersigned. S. Name of PAN A.Y. U/S Returned Addition (Rs.) Assessed No. the Income (In Income (in assessee Rs.) Rs.)

Sh. AADPN0344D 2016- 153A 57,91,510/- 14,35,91,358/- 14,93,82,868/- Naveen 17 r.w.s. Narang 143(3) 3. Copies of the final assessment orders should be forwarded to this office immediately after passing the orders. Proposal for retention of seized material should also be forwarded to this office within time as per IT Act, 1961. Before passing the final order, in case, there is requirement of protecting the interest of revenue, permission u/s 281B from Pr. CIT(C)-3, New Delhi should be taken. Office note indicating additions in relevant assessment years should be indicated in all Assessment Years. You have certified about perusal and verification of data seized in electronic format through working copies having certified hash values as that of original hard drives/CDs/pen drives/mobile data & any other electronic data. You have also certified to the undersigned that all information available in AIR/CIB/from other Law Enforcement Agencies have been properly scrutinized by you before finalizing the draft assessment order. 4. Please ensure that penalty is levied under proper section of the Income Tax Act, 1961, if applicable.”

On this aspect it was further submitted by the Ld. AR that such approval under Section 153D was granted without making any reference on the order-sheet and therefore the same is a mechanical one. The approval granted under Section 153D of the Act should necessarily reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending. There are long line of judicial precedents which provides guidance in applying the law in this regard. Moreso, the third para of the approval is a conditional one. The same has been granted in a blanket manner without referring the year under consideration. In fact, it is nothing but the verbatim copy of the approval granted in the case of Veena Singh which was assailed before the ITAT and the Coordinate Bench in the case of Veena Singh v. ACIT CC-25, Delhi dated 24.4.2024 [2024 (4) TMI 1025 –ITAT Delhi ], quashed the entire assessment on account of approval under Section 153D having been granted in a mechanical manner; a product of non-application of mind and therefore, the same is invalid and entire proceedings initiated as void ab initio, copy thereof has been duly submitted before us. Relevant observation of the Bench is as follows: “8. We have heard both the parties and perused the material available on record and gave out thoughtful consideration. For the purpose of adjudicating the issue in hand and for the ready reference the approval accorded by the Additional Commissioner of Income Tax, Central Circle, Range-7, New Delhi dated 21/12/2018 is reproduced as under:

Name of the PAN KY. Returned Assessed No assesses Income Income 1 Ms. Veena Singh AXJPS9588H 2011-12 7,31890/ 14,11,393/- 2 Ms. Veena Singh AXJPS9588H 2012-13 17,77,440/- 37,27,440/- 3 Ms. Veena Singh AXJPS9588H 2013-14 25,57,350/- 57,87,350/- 4 Ms. Veena Singh AXJPS9588H 2014-15 10,99v220/- 52,29,220/- 5 Ms. Veena Singh AXJPS9588H 2015-16 7,47,730/- 33,69,650/- 6 Ms. Veena Singh AXJPS9588H 2016-17 13,18,830/- 182,31,454/- 7 Ms. Veena Singh AXJPS9588H 2017-18 1165,510/- 2,52,33,8201- 3. Copies of the final assessment orders should be forwarded to this office immediately after passing the orders. Proposal -tor retention of seized- material, should also be forwarded to this, office within time as per IT Act, 1961. Before passing the final order, in case, there is requirement of protecting the- interest of revenue, permission u/s 281B from Pr. CIT(.C)3, New Delhi should be taken: Office notice indicating additions in relevant assessment years should be indicated In all Assessment Year, A.0 to certify about perusal and verification of data seized in electronic format through working copies having certified hash values as that of original hard drives/CDs/ pen drives/mobile data & any other electronic data, You have also certified to the undersigned that all Information available In AIR/CIB/from other Law Enforcement Agencies have been properly scrutinized by you before finalizing the draft assessment. (Vivek Gupta) Additional Commissioner of Income Tax Central Range -7, New Delhi 9. On plain reading of the above appeal, it is found following:- (i) A common and consolidated approval has been granted for AY 2011-12 to 2017-18 and there is no year wise reasoning in the said approval granted u/s 153D of the Act. (ii) There is only a reference of a letter F No. ACIT/CC-25/2018- 19 dated 21.12.2018 of Assistant Commissioner of Income Tax, Central Circle-25, but there is no reference regarding the draft assessment order being sent for approval of the Additional Commissioner of Income Tax. (iii) The letter requesting accord of approval u/s 153D of the Act has been returned by the Assistant Commissioner of Income Tax on 21.12.2018, the Additional Commissioner of Income Tax granted the approval u/s 153D of the Act on the very same date i.e. on 21.1.2018 and the impugned assessment order has also been passed on 21.12.2018. (iv) The approval dated 21.12.2018 was not absolute, while granting the approval u/s 153D of the Act, the Additional Commissioner of Income Tax in Para 3 mentioned as under:- “Office notice indicating additions in relevant assessment years should be indicated In all Assessment Yean,. A.0 to certify about perusal and verification of data seized in electronic format through working copies having certified hash values as that of original hard drives/CDs/ pen drives/mobile data & any other electronic data.” (v) The impugned approval passed u/s 153D of the Act was apparently issued in mechanical and hurried manner without mentioning the reasons and the same has been issued without application of mind.

The above mentioned approval accorded makes it evident that such approval is generic and listless and accorded in a blanket manner without any reference to any issue in respect of any of 5 assessment years. Apparently, the approval has been granted on a dotted line without any availability of reasonable time which firms up the belief towards non application of mind. Besides, the approval has been granted in a consolidated manner for all assessment years for which voluminous assessment orders were prepared. The whole sequence of action apparently appears to be illusory to merely meet the requirement of law as an empty formality. It is also alleged on behalf of assessee that the draft assessment orders are not available on record as no such draft Assessment order has been referred while according the approval u/s 153D of the Act.

The provision of Section 153D of the Act envisages prior approval of JCIT before passing the assessment order, for the purpose of ready reference the provisions of Section 153D of the Act is reproduced as under:- Prior approval necessary for assessment in cases of search or requisition. 153D. 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 [subsection (1) 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 may be, is required to be passed by the Assessing Officer with the prior approval of the "[Principal Commissioner or] Commissioner under sub-section (12) of section 144BA.] Rectification of mistake.”

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 should necessarily reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending. There are long line of judicial precedents which provides guidance in applying the law in this regard.

Plain reading of the letter of approval granted by the Addl. Commissioner, clearly depicts that the Addl. CIT had routinely given approval to the AO to pass the order only on the basis of letter of the Ld. A.O. without any application of mind. From the said approval, it can be easily inferred that the approved has been accorded with certain conditions. Thus, the sanctioning authority had in effect abdicated its statutory functions and delightfully relegated its statutory duty to the subordinate AO, whose action the Additional CIT, was supposed to supervise. The said approach of the Additional CIT, Central has rendered the Approval to be a mere formality and cannot be sustained in the eyes of law.

There are several decisions, which supports the view that approval granted by the superior authority in mechanical manner defeats the very purpose of obtaining approval u/s 153D of the Act. Such perfunctory approval has no legal sanctity in the eyes of the law. The decision of the co-ordinate bench in Shreelekha Damani vs. DCIT 173 TTJ 332(Mum.) which has been approved by jurisdictional High Court subsequently, reported in 307 CTR 218 affirms the plea of the Assessee, wherein the Hon’ble Bombay High Court held as under:- “1. This appeal is filed by the Revenue challenging the judgment of Income Tax Appellate Tribunal ("the Tribunal" for short) dated 19th August, 2015. 2. Following question was argued before us for our consideration: "Whether on the facts and circumstances of the case and in law, the Tribunal was justified in holding that there was no 'application of mind' on the part of the Authority granting approval? 3. Brief facts are that the Tribunal by the impugned judgment set aside the order of the Assessing Officer passed under Section 153A of the Income Tax Act, 1961 ("the Act" for short) for Assessment Year 2007- 08. This was on the ground that the mandatory statutory requirement of obtaining an approval of the concerned authority as flowing from Section 153D of the Act, before passing the order of assessment, was not complied with. 4. This was not a case where no approval was granted at all. However, the Tribunal was of the opinion that the approval granted by the Additional Commissioner of Income Tax was without application of mind and, therefore, not a valid approval in the eye of law. The Tribunal reproduced the observations made by the Additional CIT while granting approval and came to the conclusion that the same suffered from lack of application of mind. The Tribunal referred to various judgments of the Supreme Court and the High Courts in support of its conclusion that the approval whenever required under the law, must be preceded by application of mind and consideration of relevant factors before the same can be granted. The approval should not be an empty ritual and must be based on consideration of relevant material on record.

Having heard the learned Counsel for the both sides and having perused the documents on record, we have no hesitation in upholding the decision of the Tribunal. The Additional CIT while granting an approval for passing the order of assessment, had made following remarks : "To, The DCIT(OSD)1, Mumbai Subject: Approval u/s 153D of draft order u/s 143(3) r.w.s. 153A in the case of Smt. Shreelekha Nandan Damani for A.Y. 2007-08 reg. Ref: No. DCIT (OSD)1/ CR7/Appr/2010-11 dt. 31.12.2010 As per this office letter dated 20.12.2010, the Assessing Officers were asked to submit the draft orders for approval u/s 153D on or before 24.12.2010. However, this draft order has been submitted on 31.12.2010. Hence there is no much time left to analise the issue of draft order on merit. Therefore, the draft order is being approved as it is submitted. Approval to the above said draft order is granted u/s 153D of the I. T. Act, 1961."

In plain terms, the Additional CIT recorded that the draft order for approval under Section 153D of the Act was submitted only on 31st December, 2010. Hence, there was not enough time left to analyze the issues of draft order on merit. Therefore, the order was approved as it was submitted. Clearly, therefore, the Additional 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.

In the case of ACIT, Circle-1 (2) Vs. Serajuddin and Co. the Hon’ble Supreme Court in SLP (Civil) Dairy No. 44989/2023 vide order dated 28/11/2023, dismissed the Appeal filed by the Department of Revenue against the order dated 15/03/2023 in passed by the Hon’ble High Court of Orissa at Cuttack, wherein the Hon’ble High Court had quashed the Assessment Order on the ground of inadequacy in procedure adopted for issuing approval u/s 153D of the Act by expressing discordant note on such mechanical exercise of responsibility placed on designated authority under section 153D of the Act.

Hence, vindicated by the factual position as noted in preceding paras, we find considerable force in the arguments advanced by the Ld. the Assessee's Representative on the Aditional Ground of Appeal

We thus set aside the order passed by the Ld. Pr. CIT under section 263 of the I.T. Act and quash the same as the assessment order itself was void-ab-initio.