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Facts
The case involved four cross-appeals for AY 2019-20 and 2020-21, with the assessee challenging assessment orders passed under Section 153A/143(3) of the Income Tax Act. The primary contention was that the approval granted by the JCIT under Section 153D for these assessment orders was mechanical and lacked application of mind, as no draft assessment order was sent for review.
Held
The Tribunal, relying on various High Court and Supreme Court precedents, ruled that approval under Section 153D requires application of mind, examination of a draft assessment order, and supporting material. Since the JCIT's approval in this case was mechanical and did not refer to a draft assessment order, it was deemed defective, thus vitiating the assessment orders passed under Section 153A.
Key Issues
Whether a mechanical approval granted by the Joint CIT under Section 153D of the Income Tax Act, 1961, without explicit reference to or examination of a draft assessment order, renders the consequential assessment order passed under Section 153A invalid.
Sections Cited
250, 153A, 143(3), 153D, 69A, 115BBE, 271AAC, 270A(8), 234A, 234B, 119, 158BG, 65B of Indian Evidence Act
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Income Tax Appellate Tribunal, DELHI BENCH ‘G’: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI MANISH AGARWAL
& 3490Del/2023 Sushil Goel vs. DCIT O R D E R PER MANISH AGARWAL, AM: These are four cross appeals are filed by the Assessee and revenue against the order of Ld. Commissioner of Income Tax (Appeals) 30, New Delhi (the CIT(A)’ in short) passed u/s 250 of the Income Tax Act, 1961 (the Act) for AY 2019-20 and 2020-21 as tabulated below:
Asstt. CIT(A) Assessment Assessment No. By Year order dated Order dated Order under section 1 3013/Del/2023 Assessee 2019-20 06.09.2023 30.09.2021 153A r.w.s. 254 of the Act 2. 3488/Del/2023 Revenue -do- -do- -do- -do- 3. 3014/Del/2023 Assessee 2020-21 05.09.2023 30.09.2021 - do - 4. 3490/Del/2023 Revenue -do- -do- -do- -do-
The issues involved in all the cross appeals are common, interlinked and related to the same assessee, therefore, they have been heard together and accordingly, adjudicated by a common order.
First, we take assessee’s appeal in for AY 2019-20 (Assessee’s Appeal) AY 2019-20
The assessee in its appeal has taken following grounds of appeal:
1. That on the facts and circumstances of the case and the provision of law, that the Ld. CIT(A) has failed to appreciate the facts that &3014/Del/2023 & 3490Del/2023 Sushil Goel vs. DCIT the Impugned assessment order passed u/s 153A of the Income Tax Act is illegal, bad in law and without jurisdiction and time barred.
2. That on the facts and circumstances of the case and the provision of law, that the Ld. CIT(A) has failed to appreciate that the approval granted by the Ld. JCIT u/s 1530 is illegal, bad in law, mechanical, without application of mind and single approval has been obtained for all the seven years instead of separate approval for each year and thus assessment made by the Ld. AO requires to be quashed 3. That on the facts and circumstances of the case and the provision of law, that the Ld. CIT(A) has failed to appreciate the facts that the impugned assessment order passed is in violation of the principle of natural justice and without giving adequate time and opportunity to the assessee to represent his case, and thus, the assessment order passed is bad in the eyes of law and liable to be quashed.
4. That on the facts and circumstances of the case and the provision of the law, the Ld. CIT(A) has erred in sustaining the addition of Rs. 6,57,71,872/-on account of commission received from alleged telegraphic transfer business as undisclosed income.
5. That without prejudice to the above ground of appeal
, on the facts and circumstances of the case and provision of law, the Ld. CIT(A) has erred in not allowing the deduction on account of the business expenses incurred from the above said commission income estimated by the Ld. CIT(A).
6. That on the facts and circumstances of the case and the provision of law the Ld. CIT(A) has erred in sustaining the addition of Rs. 4,11,84,300/- as unexplained investment on the basis of currency wise peak stock on arbitrary basis.
7. That on the facts and circumstances of the case and the provision of law the Ld. CIT(A) has erred in enhancing the addition on account of alleged unexplained investment on the basis of currency wise peak stock by Rs. 5,13,90,304/- 8. That on the facts and circumstances of the case and the provision of the law, the Ld. CIT(A) has erred in sustaining the addition of &3014/Del/2023 & 3490Del/2023 Sushil Goel vs. DCIT Rs. 90,00,000/- on account of alleged cash received from sale of property u/s 69A as unexplained money.
That without prejudice to the ground of appeal no. 4 and 8 above on the facts and circumstances of the case and provision of law, the Ld. CIT(A) has failed to appreciate that the charging of tax by applying the provisions of section 115BBE on the additions made as per grounds of appeal no. 4 & 8 is illegal and bad in law.
10. That on the facts and the circumstances of the case and the provisions of the law, the learned AO has erred in forming an incorrect opinion without confronting the same and in using the same adversely without providing the reasonable opportunity of defending, which inaction of the AO makes the assessment proceedings and consequential assessment order as null and void.
11. That on the facts and the circumstances of the case the Ld. CIT(A) has erred in initiating the penalty proceedings u/s 271AAC and section 270A(8) of the Income Tax Act, 1961.
12. That on the facts and the circumstances of the case the Ld. CIT(A) has failed to appreciate that the learned assessing officer has erred in charging interest u/s 234A and 2348 is illegal and without prejudice it is excessive.
13. That the appellant craves leave to reserve to itself the right to add, alter, amend, vary, modify and/or withdraw any ground(s) of appeal at or before the time of hearing.
During the course of hearing, vide letter dt. NIL, assessee filed an application for the admission of additional grounds of appeal which are reproduced as under.
Additional Ground No. 1 That on the facts and circumstances of the case and the provision of law, the approval granted u/s 153D is also illegal and bad in law as it is in violation of CBDT circular no. 19/2019 for mentioning of DIN on the body of any document issued to the assessee and thus assessment order passed requires to be quashed.
& 3490Del/2023 Sushil Goel vs. DCIT Additional Ground No. 2 That on the facts and circumstances of the case and the provision of law, the additions made on the basis of digital data maintained in busywin software in digital devices seized/cloned without providing certificate u/s 65B of the Indian Evidence Act is illegal and bad in law and thus the additions so made requires to be deleted.
During the course of hearing, ld. AR for the assessee has not pressed the additional grounds of appeal taken thus the same are dismissed as not admitted.
Before us, ld. AR for the assessee first make submission on the Ground of appeal No. 2 wherein, validity of approval granted u/s 153D of the Act is challenged.
8. In support of the ground taken, Ld.AR submits that the AO vide letter dt. 29.09.2021 sought approval for passing the assessment order u/s 153A/143(3) of the Act in the case of assessee and neither the assessment records nor any other material nor draft order was sent to the Joint CIT. He further submits that the approval was granted by Ld. Joint. CIT, Central Range-8, New Delhi vide letter No. JCIT/CR-8/153D/2021- 22/1354 dt. 30.9.2021 wherein JCIT has not referred as to for which order, approval was granted i.e. no reference of any draft assessment order was made in the approval letter and thus it is a mechanical approval granted without application of mind. Ld. AR submits that it appears that no draft assessment order was sent
10. Ld.AR further submits that from the perusal of the approval, it could be seen that, Adl. CIT while granting approval has observed that the same is granted on the basis of facts submitted and discussions held from time to time and after examination of appraisal reports and material on record however, nowhere he has observed that he has verified the material with reference to the additions proposed in draft assessment order, thus is defective approval where the draft assessment order was never approved by the ld. JCIT.
11. 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 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. She 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 &3014/Del/2023 & 3490Del/2023 Sushil Goel vs. DCIT 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 submitted that for merely not mentioning the draft assessment order, legitimately granted approval cannot be held as invalid. 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.
Heard both the parties and perused the material available on record. Before going further, we first consider the letter sent by the AO seeking approval u/s 153D of the Act which is reproduced as under:
13. The approval granted by Ld. JCIT, Range 8, New Delhi in the case of assessee vide letter dt. 30.9.2021 is reproduced as under:
As per section 153D of the Act, every order needs to the approved by the Additional / Joint CIT, Central Range however, as could be seen from the correspondence between the AO and the JCIT, as reproduced above, it is clear that approval was taken for passing the order u/s 153A and no approval was taken/given of the draft assessment order. The AO in the letter seeking approval, should refer to the draft assessment order and the material including the assessment records, full appraisal report and seized material pertaining to Assessment Year with reference to the addition proposed by the AO and after considering all such &3014/Del/2023 & 3490Del/2023 Sushil Goel vs. DCIT material, the JCIT should grant the approval of the draft assessment order. In the present case as no draft assessment order was sent by the AO, it is not known for which order approval u/s 153D of the Act was given by the Joint CIT.
15. The Hon'ble Orissa High Court in the case of ACIT vs Serajuddin & Co. reported in 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 to 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 the thought process involved leading &3014/Del/2023 & 3490Del/2023 Sushil Goel vs. DCIT to 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 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. It is relevant to state that SLP filed by revenue against the aforesaid judgement in the case of ACIT vs Serajuddin & Co. was dismissed by hon’ble Supreme court as reported in (2024) 163 taxmann.com 118 (SC).
The Hon’ble Jurisdictional High Court in the case of Shiv Kumar Nayyar reported in (2024) 163 taxmann.com 9 (Delhi). Reaffirmed the observations made by the hon’ble Orrisa High court in the case of Serajuddin & Co (supra). The relevant observations of Hon’ble High Court are as under:-
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.
& 3490Del/2023 Sushil Goel vs. DCIT 17. The hon’ble Third member of ITAT Delhi, in the case of Dheeraj Chaudhary Vs. ACIT in vide order dt. 10.11.2025 after considering all the judgements relied upon by ld. CIT DR and further after detailed analysis of section 153D, power and independence of assessing authority and the CBDT manual referred by the revenue, has held that approval should be granted by following the procedure laid down in CBDT manual which inter alia includes the preparation and sending of the draft assessment order and that should be duly intimated in the letter seeking the approval u/s 153D of the Act. The relevant observations of the Hon’ble Third Member are as under:
I noted that the common thread discussed by Hon’ble Orissa High Court in the case of Serajuddin& Co. (supra), by Hon'ble Delhi High Court in the case of Anuj Bansal (supra) and by Hon’ble Allahabad High Court in the case of Sapna Gupta (supra) is that the requirement of previous approval of assessment by the Additional CIT/Joint CIT in terms of provisions of Section 153D of the Act 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 formality. Needless to say that before granting approval, the Additional CIT/Joint CIT, 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 and the approval must reflect the application of mind to the facts of the case. The CBDT itself recognized the importance of this provision and the above laid down principle and hence issued Manual of Office Procedure in February, 2023 in exercise of powers under Section 119 of the Act. Vide Para 9 of Chapter 3 of Volume-II (Technical), a clear procedure is devised i.e., how an approval is to be granted for draft assessment for passing of assessment order in search cases. According to the Manual, the Assessing Officer should submit the draft assessment order for such approval well in time along with docketed &3014/Del/2023 & 3490Del/2023 Sushil Goel vs. DCIT in the order sheet, a copy of the draft assessment order, covering letter filed in the relevant miscellaneous records folder. Even, it is noted that due opportunity of being heard should be given to the assessee by the supervisory officer giving approval to the proposed block assessment, at least one month before the time barring date. It is further noted that once such approval is granted, it must be in writing and filed in the relevant folder indicating above after making due entry in the order sheet. This is the mandate provided in the office manual of the Department. In view of above, I am of the view that the ‘approval’, as mandated u/s 153D of the Act, signifies a product of human thoughts based on the given set of facts and interpretation of the applicable law. It provides equality in treatment and thus prevents bias, prejudice and arbitrariness. It also prevents and avoids inconsistent and divergent views. The power of approval to the specified authority i.e., Superior authority has been envisaged with the objectives that no illegality or biasness, to either of the sides i.e., the assessee or the Revenue, remains.
In the present case before me, the above procedure is not at all followed as is evident from the proposal sent by the Assessing Officer as reproduced in Paragraph 10. It means that the approval granted is mechanical in manner and without application of mind by the approving authority i.e., by the Additional CIT.
Such mechanical approval cannot be sustainable in law in the light of judicial dicta available. The approval memo is totally silent about the draft assessment order and further on the issues proposed for additions and has granted omnibus approval without any thoughtful process being discernible. In the instant case in our considered opinion there was no approval of the draft assessment order as the process of approval starts only when the draft assessment order is prepared and sent to the Adl./Joint CIT for approval alongwith all the material based on which additions &3014/Del/2023 & 3490Del/2023 Sushil Goel vs. DCIT are proposed in draft assessment order. Thereafter, it is incumbent upon the Adl. / Joint CIT to consider all the facts and material and then accord the approval of the draft assessment order which as observed above, is absent in the present case. Thus, by applying the ratio laid down by the hon’ble high courts as noted above, the assessment order passed u/s 153A without having any approval of draft assessment order, stands vitiated and thus quashed by allowing ground of appeal No. 2 taken by the Assessee.
Since we have already quashed the assessment order by allowing ground of appeal No. 2 taken by the assessee, other grounds of appeal taken by the assessee become academic and thus not adjudicated.
In the result appeal of the assessee is allowed.
Now we take the revenue’s appeal in for AY 2019-20. for AY 2019-20 (Revenue’s appeal)
22. Since we have already allowed assessee’s ground of appeal No. 2 and quashed the assessment order passed u/s 153A r.w.s. 143(3) of the Act, the present appeal of the revenue is thus dismissed.
Now coming to the cross appeal filed by the assessee’s appeal and revenue in and 3490/Del/2023 respectively, for AY 2020-21.
Admittedly, the facts in the present appeals are identical to the fact as existed in AY 2019-20 where the letter seeking approval u/s 153D of the Act issued by the AO to ld. JCIT, Central Range is common for both the assessment years, and the ld. JCIT has also given approval by the order having identical language except change in figures of proposed income and year of assessment. We have already allowed the assessee’s appeal for AY 2019-20 in by allowing ground of appeal No. 2 taken by the assessee challenging validity of assessment order passed u/s 153A r.w.s. 143(3) of the Act in the light of invalid approval granted u/s 153D of the Act. As the facts are identical, thus following the same observations as made herein above for AY 2019-20, the present appeal of the assessee in is allowed and appeal of the revenue in is dismissed.
In the final result, both the appeals of the assessee in and for AY 2019- 20 and AY 2020-21 respectively are allowed and appeals of the Revenue in No. 3488/Del/2023 and ITA No.
Order pronounced in the open Court on 22 .12.2025.