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Facts
The assessee filed an appeal against the CIT(A)'s order for AY 2018-19. The assessment proceedings were initiated following a search and seizure operation. A key issue is the validity of the approval granted under Section 153D of the Income Tax Act, 1961.
Held
The Tribunal held that the approval granted under Section 153D of the Act was invalid as it was not granted with an independent application of mind, but rather in a mechanical manner. Relying on previous decisions, the Tribunal quashed the assessment order.
Key Issues
Whether the approval granted by the approving authority under Section 153D of the Income Tax Act, 1961, was valid and not mechanical, and whether the assessment order passed without proper approval is sustainable.
Sections Cited
132(1), 153D, 143(3), 153B(1)(b), 153A
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Income Tax Appellate Tribunal, DELHI
(A.Y. 2018-19) Skylark Hatcheries Pvt. Ltd. Vs DCIT Urlana Kalan, Israna, Central Circle, Karnal Panipat, Haryana Haryana PAN: AAHCS9027M Appellant Respondent Assessee by Sh. Ved Jain, Advocate and Ms. Uma Upadhyay, CA Revenue by Sh. Mahesh Kumar, CIT(DR) Date of Hearing 28/05/2025 Date of Pronouncement 04/06/2025 ORDER
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Assessee against the order of the Commissioner of Income Tax (Appeals)-3 Gurgaon [‘Ld. CIT(A)’ for short] dated 07/07/2023 for the Assessment Year 2018-19.
Brief facts of the case are that, the assessment proceedings have been initiated against the Assessee pursuant to a search and seizure operation dated 25/04/2017 conducted u/s 132 (1) of the Income Tax Act, 1961 (‘Act’ for short) in the case of the Assessee. An approval u/s 153D of the Act dated 28/12/2019 has been accorded by the Joint Commissioner of Income Tax, Central Range, Chandigarh in respect of the assessment year 2018-19 pursuant to the office letter of DCIT, Central Circle, Karnal dated 20/07/2019. Based on the said approval granted u/s 153D of the Act, the assessment proceedings has been initiated for the assessment year under consideration. The assessment order came to be passed for Assessment Year 2018-19 on 30/2/2019 by making certain additions. As against the above said assessment order, the Assessee preferred Appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the Appeal of the Assessee vide order dated 07/07/2023, which are called in question before us in the present Appeal filed by the Assessee.
The Ld. Counsel for the Assessee addressing on the Ground No. 5 of the Appeal submitted that the Ld. CIT(A) has erred both on facts and in law in confirming the order passed by the A.O. despite that the proceedings initiated and consequent assessment framed u/s 143(3) r.w.s. 153B(1)(b) are in violation of mandatory provision of Section 153D of the Act. The Ld. Counsel further submitted that the Co- ordinate Bench of the Tribunal in Assessee’s own case for Assessment while dealing with the similar approval granted u/Section 153D of the Act set aside the assessment order. Thus, relying on the order of the Co-ordinate Bench sought for allowing the Appeal.
Per contra, the Ld. Department's Representative apart from addressing oral argument also filed written submission which is reproduced as under:-
We have heard both the parties and perused the material available on record and also gone through the order of the Co- ordinate Bench in Assessee’s own case for Assessment Year 2017-18 in ITA No. 2545/Del/2023. The Co-ordinate Bench of the Tribunal while dealing with the similar worded approval letter dated 28/12/2019, after considering the identical submissions of the Department of Revenue held as under:-
5. We have considered the rival submissions. The letter dt. 27.12.2019 of the AO, Karnal to the JCIT Chandigarh received in the office of JCIT on 28.12.2019 seeking approval in Six cases for total 21 different assessment year is as under:
From the perusal of the approval, It could be seen that the AO in the instant case is located at Karnal and the JCIT who has granted approval is located at Central Range, Chandigarh thus for obtaining the approval entire records needs to be carried to Karnal to Chandigarh and the JCIT has to examine all the material including the assessment folders, appraisal report and seized material before granting the approval which cannot be humanly possible in a single day. Though it was stated by the AO and the JCIT in their affidavits that discussions were held between them telephonically and also during their personal visits either at Chandigarh or at Karnal. However, facts remained that in the impugned assessment year itself, the assessment order carries as many as 70 pages and around 5 issues involved on which additions were made. It is expected from the approving authority that before according the approval at least he must have read the entire draft order and also refer the seized material based on which additions are proposed. The JCIT has given approval on the same day despite of the fact that the entire records were sent from the office of the AO at Karnal to the office of JCIT at Chandigarh which is evident from the letter seeking approval. As mentioned earlier by the ld. AR that there are 21 cases for which the approval was sought and granted on the same day i.e. on 28.12.2019by JCIT. It is surprising that JCIT has been able to go through the draft assessment orders, appraisal reports and other related materials for a minimum of 21 cases on the same day. We use the word “minimum of 21cases” because this letter seeking approval alone contains 21 cases and the JCIT had other files also before him of other officers also. The assessment orders, in the instant case is of 70 pages, appraisal report was also to be quite a few pages, the concerned seized material must also contain few pages and the submissions of the assessee would be innumerable. As observed above, the JCIT should have gone through them with reference to the draft assessment orders before granting approval. We are not aware about the nature and issues involved in the other cases and other assessment years and also how they were dealt with by JCIT. This is physically impossible task which has been admitted to by the ld. JCIT, Chandigarh. The Hon’ble Jurisdictional High Court in the case of Shiv Kumar Nayyar, reported supra, has held as under:- “9. We have heard the learned counsels appearing on behalf of the parties and perused the record.
Before embarking upon the analysis of the factual scenario of the instant appeal, we deem it apposite to examine the underlying intent of the relevant provision of the Act i.e., Section 153D, which is culled out as under:- "153-D. Prior approval necessary for assessment in cases or requisition.--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 [sub- section (1) of Section 153-A] or the assessment year referred to in clause (b) of sub-section (1) of Section 153-B, 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 144-BA."
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.
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 reasonsneed 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. NeetuNayyar. It is also pertinent in this regard to refer to pages 68 and 69 of the paper book which contains information obtained by Smt. NeetuNayyar 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. NeetuNayyar. 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."
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.
Therefore, under the facts of the present case, considering the foregoing discussion and the enunciation of law settled through judicial pronouncements discussed hereinabove, we are unable to find any substantial question of law which would merit our consideration. 19. Consequently, the appeal stands dismissed. Pending application(s), if any, are also disposed of.” 8. The same view is expressed by the Hon’ble Delhi high court in other cases relied upon by the ld.AR. The Hon’ble Orissa High court in the case
of Serajjudin& Co reported in [2023] SCC Online Ori 992 which has also been approved by the Hon’ble Supreme Court by dismissal of the SLP vide order dated 28.11.2023 in SLP (C) Diary no. 44989/2023 under identical circumstances has held the approval granted as invalid. Thus by respectfully following the ratio laid down by the Hon’ble jurisdictional high court in the case of Shiv Kumar Nayyar, reported supra, and also in the case of Serajjudin& Co, supra, the approval granted in this case is without application of mind and consequently the assessment order is annulled. The ground of appeal
No. 5 of the assessee is allowed.
9. As the appeal of the assessee is allowed by allowing on the issue of legality of approval granted u/s 153D of the Act,the other grounds of appeal on other legal issues and on merits by the assessee become academic and not adjudicated upon.
10. In the result, appeal of the Assessee is allowed.”
6. By respectfully following order of the Co-ordinate Bench in Assessees own case for Assessment Year 2017-18 in dated 27/02/2025, we quash the assessment order by allowing Ground No. 5 of the Assessee.
7. Since, we have allowed the Ground No. 5 and quash the assessment order, other grounds of Appeal require no adjudication.
In the result, appeal of the Assessee is partly allowed.