DCIT CENTRAL CIRCLE GZBD, HAPUR vs. MIRHA EXPORTS PRIVATE LTD. , DELHI

Both the appeals have common issues; therefore, they are taken together for consideration.

Brief facts of the case are that assessee company has filed its return of income on 30.09.2012 declaring total income at INR 7,55,65,980/-. The assessment was completed u/s 143(3) on 29.01.2015 at an income of INR 7,94,17,730/-. A search and seizure action was carried out on 28.04.2015 on M.K. Group of cases including the residential premises of the Director of the assessee and survey was carried out u/s 133A of the Act at the business premises of the assessee. Consequently, proceedings u/s 153C were initiated in the case of assessee. Looking to the complex nature of the documents seized, reference was made for special audit u/s 142(2A) of the Act and the Special Audit Report was received on 26.06.2018. Subsequently, following the judgement of Hon’ble Supreme Court in the case CIT v. Sinhgad Technical Education Society reported in 397 ITR 344 (SC), the proceedings initiated u/s 153C of the Act were dropped and based on the observations made in the Special Audit Report, reassessment proceedings u/s 148 of the Act were initiated. The AO after recording the reasons and taking the approval from the prescribed Authority, issued notice u/s 148 of the Act on 26.03.2019

Against the said order, an appeal was filed wherein Ld. CIT(A) has allowed substantial relief to the assessee and confirmed the disallowance of INR 3,92,862/- made u/s 40(a)(ia) of the Act.

Aggrieved by the order of Ld. CIT(A), assessee as well as Revenue is in appeal before the Tribunal by taking following grounds of appeal:-

The assessee has raised following grounds of appeal:- 1. “That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned Assessment Order and ignoring the facts that no DIN was mentioned on the impugned assessment order is invalid in the eyes of law and is liable to be quashed. 2. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned Assessment Order in spite of the facts that the assessment should have been framed under section 153C of the Income Tax Act, 1961 instead of section 143(3) of the Income Tax Act, 1961, therefore the impugned assessment order is illegal, unsustainable in law and liable to be quashed. 3. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned Assessment Order despite the facts that the order under section 127 of the Income Tax Act, 1961 dated 13.07.2016 was passed without following the laid down the procedure as contemplated under section 127 of the Income Tax Act, 1961, therefore, the said order under section 127 of the Income Tax Act, 1961 is illegal, unsustainable in law and ITA No.873 & 655/Del/2022 & Others consequently the impugned reassessment order is also illegal, void ab- initio and liable to be quashed. 4. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that the Ld. A.O. recorded reasons on surmises conjectures on borrowed satisfaction and on mere change of opinion therefore the initiation of proceedings under section 147 is illegal and unsustainable in law and consequently the impugned reassessment order is void ab initio and liable to be quashed. 5. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that there is no averment in the reasons recorded that the income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment therefore the initiation of proceedings u/s 147 is illegal and unsustainable in law and consequently the impugned reassessment order is void ab initio and liable to be quashed. 6. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that there is no live link between the reasons recorded and the material available with the Ld. A.O. at the relevant time therefore the Ld. A.O. could not ber said to have reason to believe for initiation the proceedings u/s 147 of the Income Tax Act, 1961 and consequently the impugned reassessment order is illegal void ab initio and liable to be quashed. 7. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the validity of the impugned reassessment Order ignoring the facts that the sanction purportedly obtained under section 151 of the Income Tax Act, 1961 is mechanical and non-est in the eyes of law therefore consequently impugned reassessment order is illegal and void ab initio and liable to be quashed. 8. That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the addition/disallowance of Rs.3,92,862/- under section 40(a)(ia) of the Income Tax Act, 1961 made by the A.O. in the income of the appellant company, therefore, the disallowance is unsustainable in law and liable to be deleted. 9. That the impugned assessment order is without lawful juri iction, void ab-initio and liable to be quashed. 10. That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is much too high and excessive and deserves to be deleted. 11. That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is contrary to the principles of natural justice and equity and deserves to be deleted.

In Ground of appeal No.1 raised by the assessee is not pressed hence, dismissed.

Ground of appeal Nos. 2 to 7 and 9 to 11 raised by the assessee are legal grounds wherein the assessee has challenged the reassessment proceedings initiated u/s 148 of the Act.

Ld.AR for the assessee submits that sole basis for re-opening the assessment is Special Audit Report in the case of the assessee which is evident from the copy of the reasons recoded wherein AO has clearly stated that based on the Special Audit Report, it was found that certain payments were made on which no TDS was deducted u/s 194C/194J of the Act. Ld. AR submits that all the necessary details have already been examined during regular assessment proceedings and the order was passed u/s 143(3) of the Act. Ld. AR further submits that other issues on which satisfaction of escapement of income was recorded, no adverse inference was drawn after verification of the facts submitted by the assessee. Ld. AR submits that regarding non-payment of TDS on various expenses, in the original assessment proceedings carried out u/s 143(3) of the Act after inquiries and investigation, a sum of INR 2.20 lacs was disallowed by invoking the provision of Section 40(a)(ia) of the Act.

On the other hand, Ld. CIT DR for the Revenue submits that looking to the complexity of the material found and seized during the course of search, matter was referred for special audit u/s 142(2A) of the Act and based on the report of special auditor, re-assessment proceedings in the case of the assessee were initiated. Ld. CIT Dr submitted that assessee has violated the provision of section 40(a)(ia) of the Act and therefore, AO has rightly re-opened the assessment which deserves to be upheld.

3. “The Grounds of appeal no. (i) to (v) and additional grounds no. (ii) challenges the legality of initiation of proceedings under section 147 of the Income Tax Act, 1961. However from the records it has been verified that the AO has recorded reasons for initiating income escaping assessment proceedings u/s 147 of IT Act on the basis of information available with him and accordingly sanction under section 151 of the Income Tax Act, 1961 has been granted by Pr. CIT(Central), Kanpur in accordance with law. Thereafter notice u/s 148 of IT Act has been issued and the income escaping assessment proceedings have been completed u/s 147 of IT Act by following all the provisions of law and the order has been passed u/s 147/143(3) of IT Act on 18.10.2019. Under these circumstances, I hold that the proceedings under section 147 of the Income Tax Act, 1961 have been correctly initiated and completed as per law hence these Grounds of appeal are summarily dismissed. 6.4. In the additional ground of appeal no. (i), the appellant has objected the order passed u/s 127 of the IT Act dt. 13.07.2016. In this regard, it is observed that from the facts of the case as brought out by the appellant itself, it has been found that all the procedures as laid down by law appear to have been followed. Further since no appeal lies against the same in this office, hence this ground of appeal is hereby summarily dismissed.”

Before us, Ld.AR for the assessee reiterated the same arguments as were made before the ld. CIT(A) and failed to controvert the findings of Ld.CIT(A). In view of these facts we find no infirmity in the order passed by ld. CIT(A) on these issues, which is hereby uphold. Accordingly, Grounds of appeal Nos. 2 to 7 and 9 to 11 raised by the assessee are dismissed.

Heard the contentions of both parties and perused the material available on record. From the perusal of assessment order passed u/s 143(3) placed at Pages 35 to 37 of the Paper Book, it is seen that the disallowance of INR 2.20 lacs was made on account of non- deduction of TDS on taxi hire charges. Further disallowance was made u/s 40(a)(ia) of the Act in the order passed u/s 147 of the Act for non-deduction of tax at source u/s 194J of INR 1,91,933/- towards consultancy charges and u/s 194C of INR 1,67,000/- for transportation charges and of INR 6,83,044/- for generator repair and maintenance expenses. It is also a fact that these payments were pointed out by the special Auditor as payments on which no TDS was made. As observed above, disallowance u/s 40(a)(ia) of Rs. 2.20 lacs was already made for non-compliance of provisions of section 194C therefore, to this extent no further disallowance could be made. Accordingly, we direct the Ao to reduce the amount already considered and disallowed u/s 40(a)(ia) of the Act in the order passed u/s 143(3) and remaining disallowance is hereby confirmed.

Further claim of the assessee is that in many cases the recipient had included this amount in their income and paid the taxes thereon, therefore, no disallowance could be made u/s 40(a)(ia) of the Act. Since, no evidence is filed before us in support of this claim, therefore, the same cannot be accepted at this stage. Regarding other claim of the assessee of making disallowance @ 30% of the default amount u/s 40(a)(ia) of the Act, we find that the amendment has ITA No.873 & 655/Del/2022 & Others come into statute by Finance Act, 2014 and applicable from 01.04.2015 therefore, this amendment is not applicable to the year before us. This view is supported by the judgement of Hon’ble Supreme Court in the case of Shree Choudhary Transport Company vs ITO [2020] 426 ITR 289 (SC) wherein Hon’ble Supreme Court has held that such amendment is prospective in nature and cannot be applied prior to AY 2015-16. 17. In view of the above, we hereby confirmed the disallowance of INR 1,72,862/- (3,92,862-2,20,000) u/s 40(a)(ia) of the Act. The Ground of appeal No.8 raised by the assessee is partly allowed.

In the result, appeal of the assessee is partly allowed.

Ground of appeal No.1 raised by the Revenue is with respect to the deletion of adhoc disallowance made of INR 2,82,38,711/- being 5% of total cash payment made out of the total purchases claimed by the assessee.

Heard the contentions of both parties and perused the material available on record. It is seen from the observations made in para 14 of the assessment order that the AO has not invoked the provisions of section 40A(3) of the Act as the assessee has not made any payment in violation to this section. However, for the reason that in some purchases vouchers, no signatures of the recipients were available on verification of the bills and vouchers, AO has made adhoc disallowance of INR 2,82,38,711/- being 5% of the cash purchases of INR 56,47,74,231/-. From the perusal of the order of Ld. CIT(A), we find that Ld. CIT(A) appreciated the facts that once the AO has not invoked the provisions of section 40A(3) of the Act and found that all the payments made in cash are in accordance and ITA No.873 & 655/Del/2022 & Others within the limits specified u/s 40A(3) of the Act, without specifying any instance or without bringing on record any vouchers where signatures of the recipients were missing, no adhoc disallowance could be made. Ld.CIT(A) has deleted the disallowance by making following observations in para 6.6 & 6.7 of impugned order:

6 “In the Ground of appeal no. (vii), the appellant has challenged the addition of Rs. 2,82,38.711/- being 5% of the cash payment of Rs. 56,47,74,231/-. In this regards the AO observes that on perusal of statement on records, it is found that the assessee has made payment through RTGS as well as cash to the persons from whom purchase is made. He states that it is not understandable as to why cash was paid to them in spite of the fact that they have maintained bank A/c. However, the assessee stated that the cash payment was made strictly on the insistence of the suppliers. The AO further states that on verification of some vouchers it is found that no signature was made. However the did not communicate these discrepancies to the appellant and made adhoc disallowance @5% of the total cash payment of Rs 56,47,74,231/-. However from the assessment order it is clear that the AO was convinced that the assessee has satisfied the relevant conditions of Rule 6DD of the Income Tax Rules 1962, still the AO disallowed a sum of Rs. 2,82,38,711/- being 5% of the Cash Purchases. The Ld AR of the appellant further argued that the AO made this disallowance on adhoc basis just to cover up possible leakages without pinpointing specific defects. I agree with the submissions of the appellant that no disallowance can be made on adhoc basis without pointing out specific defects, Various case laws relied upon by the appellant fully support this view. Under these circumstances, the addition of Rs 2.82.38,711/-deserves to be deleted. 6.7 Looking to the facts and circumstances of the case it is observed that no adhoc disallowance or any disallowance u/s 40A(3) of IT Act should be made when the appellant was fulfilling all the requisite conditions of Income-tax Rule 6DD(e) (ii) of IT rules 1962. Therefore this adhoc disallowance of Rs 2,82,38,711/- is hereby deleted. And hence the grounds of appeal relating to this disallowance are hereby allowed.”

Before us, the Revenue has failed to controvert the findings of Ld. CIT(A) by bringing on record any contrary material. It is further seen that in the re-assessment order, the AO has failed to specify any ITA No.873 & 655/Del/2022 & Others single payment in cash which was not incurred for the purpose of business or for which the material was not purchased. The AO has accepted the trading results declared by the assessee and also the no reason is given as to why 5% of the total cash purchases could be disallowed. Assessee disclosed all the details of the payments made and further in the special audit report no instance of payment in violation to section 40A(3) was pointed out which has been considered and for which any disallowance was made by the AO.. Disallowing out of expenses was mere ad-hoc disallowance, not based on finding of bogus expenses claimed. Expenses were not fully verifiable due to nature of payments made and as observed above the trading results were accepted.

It is further seen that no incriminating paper was found as a result of search with respect to the cash purchases made nor any satisfaction of escapement of income of such cash purchases was reached in the reasons recorded for reopening the assessment. The payments to few individuals were doubted however, no adverse inference was taken on such payments by the AO after making verification of the records. In view of these facts, we find no error in the order of ld. CIT(A) in deleting the adhoc made and accordingly, we uphold the order of Ld. CIT(A). Therefore, Ground of appeal No.1 raised by the Revenue is dismissed.

Ground of appeal No.2 raised by the Revenue is with respect to the deletion of disallowance of INR 5,91,620/- out of business promotion expenses and Ground of appeal No.3 is with respect to ITA No.873 & 655/Del/2022 & Others deletion of disallowance of INR 1,00,000/- out of tour & travel expenses.

Heard the contentions of both parties and perused the material available on record. From the perusal of the assessment order, we find that AO has made the disallowance solely for the reason that personal nature of expenses cannot be ruled out and there were certain self-made vouchers prepared for payment of these expenses. Therefore, the genuineness of these expenses was not fully accepted by the AO. Ld. CIT(A) has deleted these disallowances by making following observations in para 6.8 & 6.9 of the order:-

8 “In the Ground of appeal no. (viii), the appellant challenges the adhoc disallowance of Rs. 5,91,620/- being 5% of business promotion expenses of Rs. 1,18,32,402/-. In this regard the AO observes that on perusal of expenses under the head business promotion expenses. It is found that the assessee has incurred expenses of Rs. 1,18,32,402/- during the year under consideration as against last year expenses of Rs.66,62,976/. This year the total sale was made at Rs. 504,57,85,607/-and in immediate preceding year, the total sale was at Rs.228,59,31,053/-. In the assessment proceeding, the appellant submitted that the business promotion expenses of Rs. 80,81,979/- were incurred through credit cards by the directors namely Mr. Shuab Ahmed Qureshi and Mr. Qaise Hussain Qureshi on travelling, lodging, boarding and entertainment of foreign customers. It was also clarified that these expenses are in nature of hotel expenses and token courtesy extended to the buyers in India and Abroad to maintain good business relation. It was further submitted that these expenses are incurred in strict confidence, by directors themselves to maintain secrecy of customers etc. both within and outside the Company. These expenses are below 0.16% of the turnover. However the AO concluded that the personal nature of expenses of directors cannot be ruled out and hence to cover up possible leakage disallowance @5% of such business promotion expenses was made. However the AR submits that all the expenses are genuine business expenses, these expenses are incurred through credit cards and the same are duly recorded in the books of accounts. which are audited and the trail of expenses is kept so that no personal/non business expense

It is further seen that in the assessment order passed u/s 143(3) dated 29.01.2015, AO has made disallowance of INR 36,31,737/- out of business promotion expenses, power and fuel, vehicle and bus and diesel expenses. It is also seen that those additions have been accepted by the assessee and no further appeal was preferred. Once disallowance has already been made towards the expenses further disallowance made without considering the to the earlier disallowance tantamount to double addition. The Assessing

In the result, appeal of the Revenue is dismissed. [Assessment Year 2013-14]

Now we take cross-appeals filed by the Revenue in ITA No.1233/Del/2022 and the assessee in ITA No.656/Del/2022 for AY 2013-14. ITA No.873 & 655/Del/2022 & Others 29. The Revenue has raised following grounds of appeal:-

“On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by Assessing Officer of Rs. 6,07,64,411/- on account of disallowance of cash payment u/s 40A(3) of the LT Act. 1961 without considering the facts that the assessee had not filed the complete addresses of the suppliers/sellers and therefore, the genuineness of the purchase cannot be verified. Further the conclusion of the Ld. CIT(A) that no adhoc disallowance or any disallowance u/s 40A(3) of IT Act should be made when appellant was fulfilling all the requisite conditions of Income Tax Rule 6DD(e)(ii), is also not acceptable as in the instant case some of the alleged suppliers from whom it received raw material/meat/live stock were not producers and working like traders/brokers. Also, the assessee could not produce confirmations of all the suppliers to verify that the cash purchases were genuine. Hence, the disallowance of part of purchase to avoid leakage of revenue is justified.

On facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made by Assessing Officer of Rs. 8,43,877/ on account of disallowance of business promotion expenses without considering the facts as brought out in the assessment order. It is categorically mentioned in the assessment order that the assessee company has not produced bank account's statement, cheques details and any other documentary evidences in respect of these expenses like bills/vouchers during the assessment proceedings and therefore, genuineness of these expenses could not be established.

That the appellant craves 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.”

The assessee has raised following grounds of appeal:-

“That the reference for Special Audit under section 142(2A) of the Income Tax Act, 1961 was invalid, therefore, the initiation of proceedings under section 147 on the basis of Special Audit Report is unsustainable in law and consequently the impugned reassessment order is unsustainable in law and liable to be quashed.

That the Ld. Commissioner of Income Tax (Appeals)-4, Kanpur has erred in law and on facts in sustaining the addition/disallowance of Rs.4,38,480/- under section 40(a)(ia) of the Income Tax Act, 1961 made by the A.O. in the income of the appellant company, therefore, the disallowance is unsustainable in law and liable to be deleted.

That the impugned assessment order is without lawful juri iction, void ab-initio and liable to be quashed.

That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is much too high and excessive and deserves to be deleted.

That the Additions/Disallowances sustained by the Ld. C.I.T.(A)-4, Kanpur made by the A.O. in the income of the appellant company is contrary to the principles of natural justice and equity and deserves to be deleted.

That any other relief or reliefs as your honour may deem fit in the facts and circumstances of the case be granted.”

Before us, both parties have accepted that the facts involved in the issues raised in the cross-appeals filed by assessee and revenue are identical to the facts in above decided cross appeals for AY 2012- 13 in ITA Nos. 873/Del/2022 & 655/Del/2022, except for the amounts of additions/disallowances.

As admitted by both the parties, the facts and circumstances of the present appeals and observations made by the AO and Ld. CIT(A) in both the assessment years are identical therefore, by following the ITA No.873 & 655/Del/2022 & Others observations made by us while dismissing the appeal of the assessee as well as Revenue in ITA No.655/Del/2022 [Assessee’s appeal] and 873/Del/2022 [Revenue’s appeal] for AY 2012-13 which are Mutatis Mutandis applied to the facts of the present case, all the grounds of appeal taken in both the cross-appeals filed by the Revenue and the assessee are dismissed.

In the result appeal of the assessee and of the revenue are dismissed.

Now we take cross-appeals filed by the Revenue in ITA No.1234 & 874/Del/2022 and the assessee in ITA No.657 & 658/Del/2022 for AYs 2015-16 & 2016-17 respectively.

In assessee’s appeal for AY 2015-16 in ITA No. 657/Del/2022, in Ground of appeal No.6, the assessee has challenged the validity of approval granted u/s 153D of the Act.

Before us, ld. AR of the assessee submits that in the present case, approval was granted by Ld. Adl. CIT, Central Range, Meerut vide letter dated 23.08.2018 which is mechanical approval and common for 02 (two) assessment years. Ld. AR submits that Ld. Adl. CIT granted approval for AY 2015-16 & 2016-17 in terms of letter

Ld.AR further submits that from the perusal of the approval, it could be seen that Adl. CIT while granting approval has referred to the discussions made on the same date in his chamber, and further stated that he has considered the assessment records. It was pointed out that the mandate of law u/s 153D is that the approval should be granted by independent application of mind after considering the material on record for each assessment year separately. Further the approval was granted on the same day i.e. on the same day when the same was sought by the AO. The reliance in this regard was placed on the order of the Hon’ble Delhi High Court in the case PCIT vs. Sapna Gupta (2023) 147 taxmann.com 288 (All) and PCIT vs. Shiv Kumar Nayyar (2024) 163 taxmann.com 9 (Delhi). Further, the ld. counsel has relied the judgement of the Hon’ble Delhi High Nos.1420 & 1421/Del/2023, to contend that in case of mechanical approval u/s 153D of the Act, the assessment is liable to be quashed.

On the other hand, Ld. CIT-DR for the Revenue supports the orders of lower authorities and submits that the Ld. Addl. CIT has ITA No.873 & 655/Del/2022 & Others granted approval after due consideration of the material available before him. Therefore, ld. CIT DR requested that the approval granted was valid approval.

Heard the contentions of both the parties and perused the material available on record. Before going further, we first consider the approval granted by Ld. Adl. CIT, Central Range, Meerut in the case of assessee which is reproduced as under:

The Hon’ble Delhi High Court in the case of Shiv Kumar Nayyar in ITA No.285/2024 [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:-

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:-

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. 15. 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:-

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."

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 elaborate reasons need not be given, there has to be some indication that approving authority has examined draft orders and ITA No.873 & 655/Del/2022 & Others 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 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 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 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. The SLP filed against the aforesaid judgement in the case of ACIT vs Serajuddin & Co. was dismissed as reported in (2024) 163 taxmann.com 118 (SC).

The hon’ble Delhi High Court in the case of PCIT vs Anuj Bansal in ITA No.368/2023 (Delhi) has held that the approval

Recently the Hon’ble Third Member at ITAT, Delhi in the case of Dheeraj Chaudhary Vs. ACIT in ITA Nos. 6158 to 6160/Del/2018 after considering all the judgements relied upon by the ld. CIT DR and further after detailed analyzing the provisions of section 153D, power and independence of assessing authority and the CBDT manual referred by the revenue has held that the common approval granted for various year and for various assessee without making any reference to the material seen is mechanical approval and cannot sustained in the eyes of law. A reference is also made the CBDT manual issued in respect to the procedure to be followed in this regard. 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 ITA No.873 & 655/Del/2022 & Others 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 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. 23. 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 on the issues involved and has granted omnibus approval without any thoughtful process being discernible. A single approval u/s 153D has been accorded in respect of two Assessment Years through single order on the request of the AO made on the very same day vide letter dt. 23.08.2018 as could be seen from the first para of the approval order as reproduced above. 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 No. 6 taken by the Assessee.

As we have already allowed the assessee’s legal ground taken with respect to the validity of the approval granted u/s 153D of the Act and quashed the assessment order in AY 2015-16 in ITA No.657/Del/2022 which are Mutatis Mutandis applied to the facts of present assessment year. Thus, following the same observations, we hold the approval granted u/s 153D as invalid in this year also and accordingly quash the assessment order. The ground of appeal No. 3 taken by the assessee is thus allowed.

Since we have allowed the legal grounds of appeal taken by the assessee in both the appeals for AY 2015-16 and AY 2016-17 and quashed the assessment orders for both the assessment years, the remaining grounds of appeal in assessee’s appeal for both the years and the revenue’s appeal for both the assessment year require no adjudication.

Now we take up the appeal filed by the Revenue in ITA No. 875/Del/2022 for AY 2017-18. 52. Before us, both parties have accepted that the issues raised in this appeal are identical to the issues raised in assessee’s appeal for Ay 2012-13 i.e. ITA Nos.873/Del/2022 & 655/Del/2022 for AY 2012- 13, except for the amounts of additions/disallowances.

As admitted by both the parties, the facts and circumstances existed in the present year and observations made by the AO and submission made by the assessee are also common, therefore, by following the observations made by us while dismissing the appeal of the Revenue in ITA No.873/Del/2022 [Revenue’s appeal] for AY 2012-13 which are Mutatis Mutandis applied to the facts of the present case, the appeal filed by Revenue is dismissed.

In the result, appeal of the Revenue is dismissed.