AFI AGRO PRIVATE LIMITED,KHANNA vs. DEPUTY COMMISSIONER OF INCOME TAX, CC-1, LUDHIANA, LUDHIANA

Though the facts on all vital points are common, but for the facility of reference, we will be taking facts mainly from to 1258/CHD/2024 & 180 & 373/CHD/2025 3 assessment year 2017-18.

The brief facts of the case are that assessee is engaged in the business of manufacturing cattle feed. It has filed its return of income u/s 139(1) of the Act on 31.10.2017 and 23.10.2018 declaring total income of Rs.69,19,320/- and Rs.1,82,43,700/- in assessment year 2017-18 and 2018-19 respectively. In assessment year 2019-20, the return was filed u/s 139(4) of the Income Tax Act declaring total income at Rs.2,19,19,960/-. A search u/s 132 of the Income Tax Act was carried out on the premises of the assessee on 25.04.2018. In order to give logical end to the search proceeding, notice u/s 153A was issued and served upon the assessee requiring it to file its return of income. Such notice was issued on 23.01.2020 in assessment year 2017- 18 and 2018-19. The assessee has filed its return of income on 27.02.2020 declaring the same income as was declared in the return filed u/s 139(1) of the Income Tax Act. Thereafter, AO has issued notices u/s 143(2)/142(1) in all these assessment years and framed the assessment order on 08.09.2021. Dissatisfied with the assessment order, assessee filed appeals to 1258/CHD/2024 & 180 & 373/CHD/2025 4 in each assessment year and the appeals have been partly allowed by the CIT (Appeals). Therefore, both the sides are in cross appeals.

With the assistance of the ld. Representative, we have gone through the record carefully. We find that a common approval has been granted by the ld. Addl. CIT vide its order dated 03.09.2021. We have already considered this common approval in to 1255/CHD/2024 in the case of a group concern, namely, M/s Aman Feed Industries Vs DCIT. The discussion made by us reads as under :

Judgement passed by Hon'ble Supreme Court in the case of Additional Commissioner of Income-tax v. Serajuddin and Co. [2024] 163 taxmann.com 118 (SC) 2. Judgement passed by Hon'ble High Court of Orrisa in the case of Additional Commissioner of Income-tax vs. Serajuddin and Co. [2023] 454 ITR 312 (Orrisa) 3. Judgement passed by Hon'ble Supreme Court in the case of Principal Commissioner of Income Tax v. Anuj Bansal [2024] 466 ITR 254 (SC) 4. Judgement passed by Hon'ble High Court of Delhi in the case of Principal Commissioner of Income Tax (Central)-2 v. Anuj Bansal [2024] 466 ITR 251 (Delhi) 5. Judgement passed by Hon'ble High Court of Delhi in the case of Principal Commissioner of Income v. MDLR Hotels (P.) Ltd [2024] 166 taxmann.com 327 (Delhi) 6. Judgement passed by Hon'ble High Court of Delhi in the case of Principal Commissioner of Income-tax v. Shiv Kumar Nayyar [2024] 163 taxmann.com 9 (Delhi) 7. Judgement passed by Hon'ble High Court of Allahabad in the case of Principal Commissioner of Income-tax v. Sapna Gupta [2023] 147 taxmann.com 288 (Allahabad) 8. Judgement passed by the Hon'ble High Court of Allahabad in the case of Principal Commissioner of Income-tax Vs. Siddarth Gupta [2023] 450 ITR534 (Allahabad)

The ld. CIT DR, on the other hand contended that in some of the cases relied upon by the ld. counsel for the assessee, the facts are distinguishable because in those cases, approval was granted on the same day and therefore, Courts have construed that these approvals were granted by not looking into the facts and circumstances, therefore, these decisions are specific to those facts. In the present case, AO has sent the letter on 18.08.2021 and approval was granted on 03.09.2021. Thus, there was sufficient time to the ld. Addl. CIT to go through the details. He also took us through the order of approval passed by the ld. Addl. CIT available on page No. 17 of the Paper Book (extracted supra).

We have duly considered the rival contentions and gone through the record carefully. The Hon'ble Orissa delivered the judgement on this issue in the case of ACIT Vs Serajuddin & Co. and is reported in 454 ITR 312, 292 taxman 566. This judgement has been upheld by the Hon'ble Supreme Court and the judgement of Hon'ble Supreme Court is reported in 299 taxman 448. In this judgement, Hon'ble Orissa High Court had taken into consideration the scheme of 153D and what are the necessary requirements. The line of arguments raised by the Revenue before the Hon'ble High Court has been briefly noticed in paragraph No.8 of the judgement, which read as under :

Mr. T.K. Satapathy, learned Senior Standing Counsel for the Revenue made the following submissions: (i) In the present case, prior approval had in fact been taken by the AO from the Additional CIT and there was no illegality in that regard. (ii) The approval of the superior officer was distinct from the assessment order. It was a mere administrative order and not open to challenge before a court of law. In other words, it was submitted that the approval granted by the Additional CIT was not justiciable and could not form the basis for challenging the assessment order. (iii) What could only be challenged is want of sanction. Reliance was placed on the decision of the ITAT. Mumbai in Pratibha Pipes & Structurals Ltd. v. Dy. CIT [IT Appeal No. 3874 (Mum.) of 2015, dated 10-4-2019]. (iv) There was no requirement for any hearing to be given to the Assessee by the supervisory officer prior to giving approval although Clause-9 of the Manual of Office Procedure stipulates it. This, therefore, cannot be said to be mandatory. Reliance was placed on the decisions of the Karnataka High Court in Gopal S. Pandit v. CIT [20181 96 taxmann.com 233/257 Taxman 300 and Rishabchand to 1258/CHD/2024 & 180 & 373/CHD/2025 12 Bhansali v. Dy. CIT 120041 136 Taxman 579/267 ITR 577 and of the Madras High Court in Sakthivel Bankers v. Asstt. CIT [20021 124 Taxman 227/255 ITR 144 which were all in the context of Section 158 BG of the Act. (v) The mere irregularity in granting approval in the context of Section 158BG of the Act was held not to be fatal to the assessment order. Reliance was placed on the orders of the Kolkata ITAT in Shaw Wallace & Co. Ltd. v. Asstt. CIT [ 19991 68 ITD 148 and of the Delhi ITAT in Kailash Moudgil v. Dy. CIT [20001 72 ITD 97 (SB). Reliance was also placed on the decision of the Karnataka High Court in Gayathh Textiles v. CIT [2000] 111 Taxman 123 where it was held that for the purpose of section 271(l)(c) of the Act, the failure to obtain prior permission from the IAC for imposing penalty was only a procedural error and not fatal to the order of penalty. (vi) Since the entire documents were already available to the Additional CIT in the file sent for approval, there was no need for exchange of the said documents prior to the grant of formal approval under section 153D of the Act. (vii) Lastly, it was submitted that even if there had been a violation of the principles of natural justice, unless prejudice were shown by the Assessee, no interference with the assessment orders was warranted. Reliance was placed on the decisions in Dharampal Satyapal Ltd. v. Dy. CCE [2015]_58 taxmann.com 90/51 GST 197 (SO/8 SCC 519: Managing Director, ECIL v. B. Karunakar [1993] 4 SCC 727; Haryana Financial Corporation v. Kailash Chandra Ahuja [2008] 9 SCC 31; State Bank o f Patiala v. S.K. Sharma [1996] 3 SCC 364; P.D. Agrawal v. State Bank o f India [2006] 8 SCC 776 and State o f U.P. v. Sudhir Kumar Singh [Civil Appeal No. 3498 of 2020, dated 16-10-2020] It was then submitted that where initiation was valid but completion was not correct, the order may not be invalid but only irregular because the intervening irregularity is a curable one. Reliance was placed on the decision of the Kerala High Court in (CGG) Panicker v. CIT [19991 237 ITR 443 and CIT v. N. Krishnan [1999] 235 ITR 386. It was submitted that mere technicality should not defeat justice.”

A plain reading of section 153D itself makes it abundantly clear that the legislative intent was to be obtaining of "prior approval" by the AO when he is below the rank of a Joint Commissioner, before he passes an assessment order or reassessment order under section 153A(l)(b) or 153B(2)(b) of the Act.

That such an approval of a superior officer cannot be a mechanical exercise has been emphasized in several decisions. Illustratively, in the context of section 142 (2-A) which empowers an AO to direct a special audit. The obtaining of the prior approval was held to be mandatory. The Supreme Court in Rajesh Kumar (supra) observed as under: "58. An order of approval is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority was required to go through it. He could have arrived at a different opinion. He in a situation of this nature could have corrected the assessing officer if he was found to have adopted a wrong approach or posed a wrong question unto himself. He could have been asked to complete the process of the assessment within the specified time so as to save the Revenue from suffering any loss. The same purpose might have been achieved upon production of some materials for understanding the books of accounts and/ or the entries made therein. While exercising its power, the assessing officer has to form an opinion. It is final so far he is concerned albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. It is only at that stage he is required to consider the matter and not at a subsequent stage, viz., after the approval is given."

It is therefore not correct on the part of the Revenue to contend that the approval itself is not justiciable. Where the approval is granted mechanically, it would vitiate the assessment order itself. In Sahara India (Firm) (supra), the Supreme Court explained as under: "8. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case."

The contention of the Revenue in those cases that the non- compliance of the said requirement does not entail civil consequences was negatived. Reiterating the view expressed in Rajesh Kumar (supra), the Court in Sahara India (Firm) (supra) held as under: to 1258/CHD/2024 & 180 & 373/CHD/2025 14 "29. In Rajesh Kumar (2007) 2 SCC 181 it has been held that in view of section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act, stipulates that any proceeding before an Income-tax Authority shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of Indian Penal Code, 1860 and also for the purpose of section 196 of I.P.C. and every Income-tax Authority is a court for the purpose of section 195 of Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar's case (supra), but having held that when civil consequences ensue, no distinction between quasi judicial and administrative order survives, we deem it unnecessary to dilate on the scope of section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see: Maneka Gandhi v. Union of India [1978] 1 SCC 248 and S.L. Kapoor v. Jagmohan [1980] 4 SCC 379).

As already noted above, the expression "civil consequences" encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non-pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. Accordingly, we reject the argument and hold that since an order under section 142 (2A) does entail civil consequences, the rule audi alteram partem is required to be observed."

To the same effect, are the decisions of the Delhi High Court in Yum! Restaurants Asia Pte. Ltd. (supra)which dealt with the requirement under section 151 (2) of the Act for initiating proceedings under section 147 read with 148 of the Act. It was observed as under: "11. The purpose of section 151 of the Act is to introduce a supervisory check over the work of the AO, particularly, in the context of reopening of assessment. The law expects the AO to exercise the power under section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the AO, then the law expects the superior officer to be able to correct that error. This explains why section 151 (1) requires an officer of the rank of the Joint Commissioner to oversee the decision of the AO where the return originally filed was assessed under Section 143 (3) of the Act. Further, where the reopening of an assessment is sought to be made after the expiry of four years from the end of the relevant AY, a further check by the further superior officer is contemplated."

The non-compliance of the requirement was held to have vitiated the notice for reopening of the assessment. Likewise, in Synfonia Tradelinks (P.) Ltd. (supra) the to 1258/CHD/2024 & 180 & 373/CHD/2025 15 Delhi High Court disapproved of the rubber stamping by the superior officer of the reasons furnished by the AO for issuance of the sanction.

It is seen that in the present case, the AO wrote the following letter seeking approval of the Additional CIT: GOVERNMENT OF INDIA OFFICE OF THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-1(2), BHUBANESWAR No. ACIT/C-l(2)//Approval/2010-ll/5293 Dated, Bhubaneswar, the 27/29th December, 2010 To The Addl. Commissioner of Income-tax, Range-1, Bhubaneswar. Sub: Approval of draft orders u/s 153D of the I.T. Act 1961 in the case of M/s. Serajuddin & Co. 19A, British India Street, Kolkata (in Serajuddin Group of Cases)- matter regarding. Sir, >Enclosed herewith kindly find the draft orders u/s 153A of the I.T Act, 1961 along with assessment records in the case of M/s Serajuddin & Co., 19A, British India Street, Kolkata for kind perusal and necessary approval u/s.l53D.

In the present case, it is an admitted position that the assessment orders are totally silent about the AO having written to the Additional CIT seeking his approval or of the Additional CIT having granted such approval. Interestingly, the assessment orders were passed on 30th December 2010 without mentioning the above fact. These two orders were therefore not in compliance with the requirement spelt out in para 9 of the Manual of Official Procedure.

The above manual is meant as a guideline to the AOs. Since it was issued by the CBDT, the powers for issuing such guidelines can be traced to Section 119 of the Act. It has been held in a series of judgments that the instructions under section 119 of the Act are certainly binding on the Department. In Commissioner of Customs v. Indian Oil Corporation Ltd. 2004 taxmann.com 1061 (SCV2004 (165) E.L.T. 257 (SC) the Supreme Court observed as under: "Despite the categorical language of the clarification by the Constitution Bench, the issue was again sought to be raised before a Bench of three Judges in Central Board of Central Excise, Vadodara v. Dhiren Chemicals Industries: 2002 (1.43) ELT 19 where the view of the Constitution Bench regarding the binding nature of circulars issued under section 37B of the Central Excise Act, 1944 was reiterated after it was drawn to the attention of the Court by the Revenue that there were in fact circulars issued by the Central Board of Excise and Customs which gave a different interpretation to the phrase as interpreted by the Constitution Bench. The same view has also been taken in Simplex Castings Ltd. v. Commissioner of Customs, Vishakhapatnam 2003 (5) SCC 528. The principles laid down by all these decisions are: (1) Although a circular is not binding on a Court or an assessee, it is not open to the Revenue to raise the contention that is contrary to a binding circular by the Board. When a circular remains in operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute. (2) Despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board. (3) A show cause notice and demand contrary to existing circulars of the Board are ab initio bad (4) It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars."

For all of the aforementioned reasons, the Court finds that the ITAT has correctly set out the legal position while holding that the requirement of prior approval of the superior officer before an order of assessment or re-assessment is passed pursuant to a search operation is a mandatory requirement of Section 153D of the Act and that such approval is not meant to be given mechanically. The Court also concurs with the finding of the ITAT that in the present cases such approval was granted mechanically without to 1258/CHD/2024 & 180 & 373/CHD/2025 18 application of mind by the Additional CIT resulting in vitiating the assessment orders themselves.

The question of law framed is therefore answered in the affirmative i.e., in favour of the Assessee and against the Department. 27. The appeals are accordingly dismissed, but in the circumstances, with no order as to costs.”

Let us now examine whether in the aforesaid background of the scheme of the Act, whether the approval in terms of section 153D of the Act has been granted by to 1258/CHD/2024 & 180 & 373/CHD/2025 22 the Id. JCIT in a judicious way after due application of mind or not, in the instant case. We have gone through the approval granted by the Id. 140-Chd-2024 & Others - S.P. Singla Constructions 20 JCIT on 27.03.2015 u/s 153D of the Act. The said approval letter clearly states that a letter dated 27.03.2015 was filed by the Ld. AO before the Id. JCIT seeking approval of draft assessment order u/s 153D of the Act. The Id. JCIT has accorded approval for the said draft assessment order on the very same day i.e. on 27.03.2015 for various assessment years for 232 files on a single day. In any event, whether is it humanly possible for an approving authority like the Id. JCIT to grant judicious approval u/s 153D of the Act for all the assessment years on a single day is the subject matter of dispute before us. Further, we find that similar issue has been addressed by the Hon'ble Jurisdictional High Court in the case of PCITvs. Anju Bansal in ITA 368/2023 order dated 13.07.2023 wherein, under similar circumstances, the Hon'ble Delhi High Court categorically held that statutory approval given by a quasi judicial authority without due application of mind as contemplated in section 153D of the Act would be fatal to the entire search assessment proceedings. The relevant operative part of the said order is reproduced below:- "12. This aspect was brought to the fore by the Tribunal in the impugned order. The Tribunal, thus, concluded there was a complete lack of application of mind, inasmuch as the ACIT, who granted approval, failed to notice the said error. 12.1 More particularly, the Tribunal notes that all that was looked at by the ACIT, was the draft assessment order.

In another words, it was emphasised that the approval was granted without examining the assessment record or the search material. The relevant observations made in this behalf by the Tribunal in the impugned order are extracted hereafter: " 17.1 However, in the present case, we have no hesitation in stating thai there is complete non-application of mind by the Learned Addl. CIT before granting the approval. Had there been application of mind, he would not have approved the draft assessment order, where the returned income of Rs.87,20,580/-, Similarly, when the total assessed income as per the AO comes to Rs. 16,69,42,560,'-, the Addl. CIT could not have approved the assessed income at Rs. 1,65,07,560 -had he applied his mind. The addition ofRs. 15,04,35,000/- made by the AO in the instant case is completely out of the scene in the final assessed income shows volumes. 17.2 Even the factual situation is much worse than the facts decided by the Tribunal in the case of Sanjay Duggal (supra). In that case, at least the assessment folders were sent whereas in the instant case, as appears from the letter of the Assessing Officer seeking approval, he has sent only the draft assessment order to 1258/CHD/2024 & 180 & 373/CHD/2025 23 without any assessment records what to say about the search material. As mentioned earlier, there are infirmities in the figures of original return of income as well as total assessed and the Addl. CIT while giving his approval has not applied his mind to the figures mentioned by the AO. Therefore, approval given in. the instant case by the Addl. CIT, in our opinion, is not valid in the eyes of law. We, therefore, hold that approval given u/s 153D has been granted in a mechanical manner and without application of mind and thus it is invalid and bad in law and consequently vitiated the assessment order for want of valid approval u/s 153D of the Act. In view of the above discussion, we hold that the order passed u/s 153A r.w.s. 143(3) has to be quashed, thus ordered accordingly. The ground raised

In the light of the above, if we appreciate the order of Addl. CIT dated 03.09.2021 extracted supra, vide which approval was granted u/s 153D, it would reveal that he has not discussed any aspect, any seized material and this order does not exhibit the reasons which have operated in the mind of Addl. CIT to approve the assessments, however he made a reference about Appraisal Report, conclusions of the investigations. It is pertinent to note that in the forwarding letter, these materials are not to 1258/CHD/2024 & 180 & 373/CHD/2025 24 discernible. Moreover, he has approved 42 assessment orders by this common approval letter. It, nowhere reflects which of the facts pertaining to each assessee was considered by him. Therefore, it is only a mechanical manner, rather we may observe that a pre-drafted proforma is being used where names of the assessees are fed in. Hence, in view of the jurisprudence propounded across the country by all Hon'ble High Courts, we are of the view that the approval has not been granted according to the scheme as contemplated by the legislature. Hence, the assessment orders are not sustainable. Accordingly, this ground of appeal