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Facts
Numerous appeals were filed by various entities and the Income Tax Department concerning assessment years from 2012-13 to 2018-19. The core of the dispute revolves around the validity of assessment orders passed under Section 153A of the Income Tax Act, 1961, with a particular focus on the approval process mandated by Section 153D.
Held
The Tribunal held that the prior approval required under Section 153D of the Income Tax Act, 1961, for assessment orders in search or requisition cases, was not granted with due application of mind by the approving authority in these cases. The approvals were found to be mechanical and lacked proper scrutiny of the assessment records and material. Consequently, the assessment orders passed were quashed.
Key Issues
Whether the assessment orders passed under Section 153A were vitiated due to the alleged mechanical and non-application of mind by the approving authority while granting prior approval under Section 153D of the Income Tax Act, 1961.
Sections Cited
153A, 144, 153D, 69C, 115BBE, 143(2), 271AAA, 271(1)(c), 271AAB(1A), 158BG, 119, 144BA, 2(28C), 117, 148, 132, 132A, 153B, 292B
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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SANDEEP SINGH KARHAIL, JM
These are 65 cross appeals of the rival parties, involving similar 01. issues, common grounds, common arguments and identical facts and circumstances, therefore, all these appeals are disposed of by this common order.
At the request of the parties ITA number 1275/M/2022 filed by SVP Southwest industries Ltd (formerly Platinum textiles Ltd) (the assessee/appellant) and ITA number 1595/M/2022 filed by the Deputy Commissioner of Income Tax, Central Circle – 8 (2), Mumbai (the learned assessing officer/AO) for assessment year 2016 – 17 filed against the appellate order passed by The Commissioner of Income Tax (A) – 54, Mumbai (the learned CIT – A) dated 31/3/2022 wherein appeal filed by the assessee against the assessment order passed by The Deputy Commissioner Of Income Tax, Central Circle – 6 (1), Mumbai passed under section 144 section 153A of The Income Tax Act, 1961 (The Act) dated 26/2/2021 was partly allowed by consolidated appellate order passed for assessment year 2012 – 13 to 2018 – 19, Therefore, both the parties are aggrieved and are in appeal before us, so is taken as lead appeal.
Facts for assessment year 2016 – 17 in case of assessee are noted 04. which are common to all the appeals. A search and survey action were conducted in the case of Shrivallabh Pettie group (SVP) on 22 August 2017. During the course of the search under section 132 of the act at the office premises of the assessee located at 97 and 99, ninth floor maker Tower F, Cuffe Parade, Mumbai – 05 several incriminating documents were seized in the case of the assessee. Further incriminating documents were also found which are related to an entity, namely Subhkanchi Trading Private Limited [ STPL] . Therefore, a survey action was also conducted on that company on 28/3/2017. Based on the incriminating material found in the case of the assessee, notice under section 153A was issued to the assessee on 18/6/2018 for assessment year 2012 – 13 to assessment year 2017 – 18 and subsequently notice under section 143 (2) was issued for assessment year 2018 – 19. Subsequently the assessee filed an application before The Income Tax Settlement Commission [ ITSC] on 14/10/2019 which was disposed of vide order dated 14/12/2020. Before the settlement commission assessee submitted that the statement of several persons has been recorded and they are mentioned in the show cause to the assessee as well as in order. Additionally details of the premises searched and the papers seized were also submitted. Settlement commission as per order under section 245D (4) of the Act passed its order disposing of the assessee's application and has not accepted the terms of settlement of the assessee group. Therefore, the terms of settlement were not accepted.
Thereafter the learned AO noted the fact that during the course of search and based on the statement recorded of directors of Subhkanchi trading private limited [ STPL] proved to be a mere paper entity and was being controlled and managed by Mr. Chirag Pittie the main promoter of SVP group of companies. During the course of search on SVP group all the documents pertaining to that company were found at the premises of the assessee and not at the premises of that company at 301 Golden Rock Cross Road, Bandra West, Mumbai which is the residence of friend of the promoter of the company MS Mrinal Chablani. She stated in a statement recorded under section 131 that she is appointed to be a director of that company by the promoter of SVP group from number 2011 to February 2012 and since then all the correspondence relating to that company received at this residential address used to be handed over Thereafter the learned assessing officer extracted the statement of 07. various persons recorded and held that it is now conclusively proved that the sale and purchase of the STPL are nothing but accommodation entries on behalf of SVP group including the assessee. Thereafter the learned assessing officer held that there is an addition under section 69C of the act being unexplained expenditure on account of commission paid on accommodation entries of sales and purchases is taxable in the hands of the assessee. The learned assessing officer noted that as the assessee has disclosed an amount of ₹ 6,125,446/– as additional income on account of commission on accommodation entries, the learned AO noted that the total of accommodation sales and purchases in the hands of the assessee is ₹ 23,778,802,359/– and ₹ 2375,81,75,403/– respectively. As the Assessee challenged the assessment order before the learned CIT – 08. A for this assessment year. As identical additions were also in challenge before the learned CIT – A for assessment year 2012 – 13 to AY 2018 – 19, the learned CIT(A) passed a consolidated appellate order on 31/3/2022. The assessee challenged the assessment order on several grounds including (i) treating the return of income as invalid, (ii) nonissue of notice under section 143 (2), (iii) addition made only on account of statements, (iv) addition made in absence of any incriminating material, (v) addition made only on the basis of the statement etc. and (vi) then challenging the addition on the merits/quantum of the addition. The learned CIT – A on legality of the assessment was confronted with the ground that the approval granted by the learned approving authority is bad in law, not proper, mechanically granted, without application of mind. The fact was stated that the impugned assessment order was passed under section 153A of the act by the Deputy Commissioner of income tax Thus, assessee is aggrieved challenging the appellate order raising 09. following grounds in ITA number 1275/M/2022:-
i. Learned CIT – A has erred in law and on facts in not holding that the initiation of the proceedings under section 153A of the act and assessment order passed under section 144 read with section 153A of the act, by the learned AO is without jurisdiction and without proper authority and approval, therefore deserves to be quashed. iii. The learned CIT – A erred in law and on facts in holding that the assessment order under section 144 read with section 153A of the act passed by the learned AO without issuance of the statutory notice under section 143 (2) of the act within the time limit prescribed therein, is bad in law. iv. The learned CIT – A erred in law and on facts in confirming the addition under section 69C of the act of ₹ 16,630,722/– on account of alleged commission paid at the rate of 0.07% on alleged accommodation entries of purchase and sales transaction. v. The learned CIT – A ought to have held that the learned AO has wrongly applied the provisions of section 115BBE of the act in respect of the addition made on account of alleged commission paid on alleged accommodation entries of purchases and sales. vi. The learned CIT – A erred in law and on facts in holding that the addition in the assessment order under section 144 read with section 153A of the act cannot be sustained in absence of any incriminating material found in the search. vii. The learned CIT – A erred t in law and on facts in not holding that the assessment order under section 144 read with section
The learned AO is aggrieved challenging the appellate order raising following grounds in ITA number 1595/M/2022:- i. on the facts and circumstances of the case and in law, the learned CIT – A erred in restricting the addition made under section 69C of the act on account of alleged commission paid on accommodation sales and purchases of ₹ 712,745,262/– to ₹ 16,630,723/– without considering the facts of the case. ii. on the facts and in the circumstances of the case and in law, the learned CIT – A erred in restricting the addition made under section 69C of the act on account of commission paid on alleged accommodation entries of purchases and sales transactions from 3% to 0.07% although the assessing officer has rightly computed commission at the rate of 3% which is fair and reasonable, by placing reliance on various judicial pronouncement which is in the range of 5% to 6% iii. on the facts and in the circumstances of the case and in law the learned CIT – A erred in deleting ₹ 6,125,446/– as undisclosed income on account of alleged accommodation entries of sales without considering the facts of the case.
Coming 1st to the appeal of the assessee, the learned authorized representative challenged that the approval granted by the approving authority is invalid, without application of mind, and therefore on this ground itself the order deserves to be quashed.
His main arguments are as under:- i. Inadequate time available to JCIT The same is very well evident from the information available on record, he submitted a chart showing the details of approval as under:
Details of approval and Assessment Order: Sr. Name of entity A.Y. Date of Date of No. of pages No. of pages in No. Approval Assessment the Draft Order Assessment order
Approval granted on 25.02.2021 1. Citron 2012-13 25.02.2021 26.02.2021 58 58 2. Infraprojects Ltd. 2013-14 25.02.2021 26.02.2021 56 56 3. 2014-15 25.02.2021 27.02.2021 73 73 4. 25.02.2021 27.02.2021 78 78 5. 25.02.2021 26.02.2021 65 65 6. 25.02.2021 27.02.2021 70 70 7. 25.02.2021 26.02.2021 64 64 2. Approval granted and Assessment Order passed on 26.02.2021 8. SVP Southwest 2012-13 26.02.2021 26.02.2021 58 58 Ind Ltd 9. 2013-14 26.02.2021 26.02.2021 64 65 10. (Formerly 2014-15 26.02.2021 26.02.2021 58 59 Platinum Textiles 11. 2015-16 26.02.2021 26.02.2021 59 60 Ltd) 12. 2016-17 26.02.2021 26.02.2021 48 53 13. 2017-18 26.02.2021 26.02.2021 99 102 14. 2018-19 26.02.2021 26.02.2021 88 90 15. Helios Exports 2014-15 26.02.2021 26.02.2021 23 23 Ltd. 16. 2015-16 26.02.2021 26.02.2021 76 77 17. 2016-17 26.02.2021 26.02.2021 60 60 18. 2017-18 26.02.2021 26.02.2021 88 81 19. 2018-19 26.02.2021 26.02.2021 56 51 20. Helios 2012-13 26.02.2021 26.02.2021 72 72 21. Mercantile Ltd. 2013-14 26.02.2021 26.02.2021 75 75 22. 2014-15 26.02.2021 26.02.2021 74 79 23. 2015-16 26.02.2021 26.02.2021 74 74 24. 2016-17 26.02.2021 26.02.2021 74 79 25. 2017-18 26.02.2021 26.02.2021 76 82 26. 2018-19 26.02.2021 26.02.2021 76 76 27. Shrivallabh Pittie 2013-14 26.02.2021 26.02.2021 23 23 28. Ind Ltd. 2015-16 26.02.2021 26.02.2021 73 74 29. 2016-17 26.02.2021 26.02.2021 73 73 30. 2017-18 26.02.2021 26.02.2021 92 92 31. 2018-19 26.02.2021 26.02.2021 108 108 32. SVP Global 2013-14 26.02.2021 26.02.2021 59 59 Textiles Ltd. 33. 2016-17 26.02.2021 26.02.2021 60 60 34. 2017-18 26.02.2021 26.02.2021 84 84 35. 2018-19 26.02.2021 26.02.2021 82 82 36. Shubhkanchi 2012-13 26.02.2021 26.02.2021 51 51 37. Trading Pvt. Ltd. 2013-14 26.02.2021 26.02.2021 49 49 ii. The total no. of cases where Approval by Addl. CIT and Assessment Order has been passed on the same date i.e., 26.02.2021: 35 cases (out of 46 cases). iii. The total no. of cases where Order disposing objections of the assessee, Approval by Addl. CIT and Assessment Order has been passed on the same date i.e., 26.02.2021: 18 cases (out of 46 cases) iv. It is also imperative to note that in Platinum Textiles Ltd AY 2016-17 to AY 2018-19 and Helios Mercantile Ltd AY 2017- 18 and AY 2018-19, certain information was received from DDIT(Inv.), Unit 7(2) regarding transactions with One World group. The Ld. AO received an email from the investigation wing on 26.2.2021 at 05.02 PM. In Platinum Textiles Ltd, Ld. AO has mentioned of this email in the Assessment Order which Order itself is passed on 26.02.2021. Hence, it is apparent that the Assessment Order itself was finalized after 5.02 PM in the evening on 26.02.2021, thereafter, having proper approval of the competent authority on the orders and computation annexed thereto after due perusal of seized material, application of mind on the additions made, is not only unrealistic but clearly mechanical. Therefore, according to him, the above factual positions clearly show that the ld. Additional Commissioner granted approval is mechanical and final order passed on the basis of mechanical approval is bad in law. v. On mistakes committed by the A.O approved by Additional Commissioner, he submits that there were several mistakes committed by the Ld. AO while passing the Assessment Orders, which clearly points out that the assessment was t. He further submits that even in a case where assessee was not in existence and return was not filed, the assessment proceedings were carried out, letter and orders were passed treating the return as non-est and approvals were granted by the Addl. CIT. Summary of approval granted by the Addl. CIT as under: A.Y. Citron Helios Shrivalla Shubhkanc Helios Shrivalla SVP Infraprojec Mercanti bh Pittie hi Trading Export bh Pittie Global ts Ltd. le Ltd. Ind. Ltd. Pvt. Ltd. s Ltd. Southwes Textile u. The Draft Assessing Officer was sent for approval before the Addl. CIT in cases where the companies were not incorporated i.e., Helios Exports Limited in AY 2012-13 and AY 2013-14 and Shrivallabh Pittie Industries Limited in AY 2014-15.
Thus, he submits that All of the above clearly points at the fact that the ld. AO passed assessment orders without obtaining the valid approval u/s. 153D of the Act and, hence, the Assessment Orders are bad in law.
The learned authorized representative relied upon the several judicial precedents to support his case. i. ACIT V Sirajuddin& Co. [2023] 150 taxmann.com 146 (Orissa)/ where in it has been held that Where assessment orders passed in case of assessee were ii. PR. COMMISSIONER OF INCOME TAX (CENTRAL)-2 V Anuj Bansal ITA 368/2023 Date of decision:13.07.2023 where There were two additions made by the AO. The first addition was made qua cash deposited in the bank, amounting to Rs. 15,04,35,000/-. The second addition was made with regard to cash introduced via an entry operator i.e., one, Mr. Vipin Garg. The amount added qua this aspect was pegged at Rs. 1,54,07,100/-. Despite these additions, which would have taken the assessed income Digitally Signed well beyond what was crystallized by the AO i.e., 1,65,07,560/-, the ACIT failed to notice the error. The Tribunal notes that all that was looked at by the ACIT was the draft assessment order. The approval was granted without examining the assessment record or the search material. The Tribunal was right that there was absence of application of mind by ACIT in granting approval under Section 153D. It is not an exercise dealing with an immaterial matter which could be corrected by taking recourse to Section 292B of the Act. iv. Decision of the honourable allowable High Court in case of PCIT versus Sidharth Gupta 450 ITR 534 v. Decision of coordinate bench in case of Inder international versus ACIT 213 TTJ 251 vi. Decision of Delhi bench of the ITAT in case of MDLR hotels private limited ITA number 3076/del/2016 dated 8/2/2023. vii. Decision of Delhi bench in case of Subhash Dabas ITA number 2399/del/2016 dated 25/11/2021 holding that there is no application of mind by the approving authority because the addition has been approved which are opening balances for the year and same were added in the preceding assessment years also. viii. He also relied on decision of the Delhi bench in case of Sanjay Duggal versus ACIT in ITA number 1813/del/2019 dated 19/1/2021.
The learned departmental representative vehemently submitted that when there is a jurisdiction which is not under challenge, searches held to be valid, proper authority is exercised by the learned assessing officer and approving authority, the order is passed by the competent authority and the approval is also proper. He submits that section 153D is only prior approval which is properly granted in the
16. He relied upon the office manual, procedure contained therein and also CBDT instruction number 286/161/2006 – 07 dated 22/12/2006 and submitted various paragraphs showing that there is no score for nonapplication of mind to be alleged by the assessee. He stated that assessment in such case is passed with proper appreciation of facts by all the authorities, continuous discussion of all the issues between the assessing authority and approving authority, therefore the approval cannot be said to be passed or given without any application of mind.
In Rejoinder , The learned authorized representative submitted that that the rule 9 report submitted by the additional CIT before income
He otherwise submitted that assuming while denying that assessment procedure is carried out properly, The process of approval is altogether different from the assessment order. Here the issue is approval of order under section 153D of the act. He submits that all errors are pointed out in assessment order which are not looked into by the additional Commissioner of income tax at the time of approval of the order therefore assessee challenges that the approval is granted without application of mind.
He submits that application of mind cannot be presumed but it has to be demonstrated. If such demonstration is missing but non- application of mind is evident by the various errors shown here in. He submits that the approval has been made a mere formality by the approving authority and assessing authority.
He further submitted that there may be innumerable instructions issued by the Central Board Of Direct Taxes or any other regulatory authority over the assessing authority and approving authority. It is not a matter of question by anybody including this assessee but assessee questions that such instructions are followed or not.
He further stated that none of the errors pointed out by the assessee are rebutted by the learned departmental representative and therefore these errors in the approval, or in the assessment remain completely uncontroverted. Therefore, the Learned DR accepts these errors also. Hence now it is undisputed that these errors do exist in the assessment order which has been approved by the approving authority. Therefore, erroneous order approved by the approving authority clearly shows non application of mind.
22. He submits that there is no answer from the side of the revenue that how the draft orders can contains the date of approval, and number of approval letter. He submits that in the draft assessment order the learned assessing officer mentions when the final order is approved stating the date and the letter number. This fact has neither been controverted by the learned departmental representative nor the assessing officer at any of the stage. This is the clinching evidence which clearly shows that approval of the assessment order is merely mockery of the procedure and instructions of CBDT as before sending draft assessment order and relevant search material, the learned assessing officer has recorded by which date the draft assessment order would be approved and by which communication. This clearly shows that the approving authority has merely signed
23. He categorically stated that how an approval can be granted in case of an assessee who is not at all in existence. In this case such approval is granted by the approving authority. The companies which are not in existence, which are not even formed, where assessments are passed and such assessment orders are approved by the approving authority, this if does not demonstrate the extreme standard of non-application of mind then what it can be.
24. He also stated that in many cases the approval is granted on the draft assessment order but the assessment order itself are not passed. Then what for the approval is obtained on the draft assessment order. There is no answer from the departmental representative.
25. We have carefully considered the rival contentions and perused the orders of the lower authorities. Before the learned CIT – A, assessee challenged that there is no valid approval granted by the approving authority of all these assessment orders. The learned CIT – A held as under:-
―5.2 the facts recorded in the assessment order and the submission made by the appellant has been considered.
The appellant has challenged the assessment order under section 153D read with section 144 of the act is bad in law. The appellant submitted that as per the provisions of section 153D, an assessment order is to be passed under section 153A (1) (b) or under section 153B (1) (b) after taking prior approval of joint Commissioner of income tax. In the 5.2.1 the facts of the case are that the AO obtained approval of the additional Commissioner of income tax of draft assessment order under section 153A read with section 144 of the act. The approval was granted under section 153D of the act wide letter number Addl. CIT-CR-6/Approval U/s 153D/2020 – 21/36 dated 26/2/2021 a question has been raised by the appellant that the additional CIT is not a competent authority to grant approval under section 153D of the act. In answer to this question lies in provisions of section 2(28C) of the IT act provides that the ―joint Commissioner ―means a person appointed to be joint Commissioner of income tax or any additional Commissioner of income tax under subsection (1) of section 117 of the IT act. The definition of the joint Commissioner is inclusive definition and it includes additional Commissioner. This inclusive definition of the joint Commissioner has been approved in number of judicial pronouncements.
The relevant Para of the judgment are reproduced as under: – ― 14. The only contention raised by the learned counsel for the appellant-assessee is that the notice was not issued with the prior sanction of the Joint Commissioner, but sanction was accorded by the Additional Commissioner and, therefore, notice under Section 148 of the Act issued by the A.O. was without jurisdiction.
15. Section 2 of the Act is Definitions Section. Clause (28C) of Section 2 of the Act defines the word "Joint Commissioner" and explains it means a person appointed to be a Joint Commissioner of Income Tax or an Additional Commissioner of Income Tax under sub- section (1) of Section 117.
Thus, the Joint Commissioner includes an Additional Commissioner as well. The issue is otherwise covered by the judgments of various High Courts, which are as follow:— Dharam Pal Singh Rao v. ITO [2004] 271 I . ITR 223 (All); Arun Kumar Maheshwari v. ITO [2006] 285 I I. ITR 179 (All); and Smt. I Maya Rastogi v. CIT [2010] II. 8 taxmann.com 253/[2011] 196 Taxman 283/331 ITR 116 (All.) 17. In view of the aforesaid discussions, we find no merit in this appeal and other connected appeals which are, thus, dismissed.‖ Further clause 9 of manual of office procedure, volume II (technical) February 2003 issue by the directorate of income tax on behalf of central board of direct taxes, Department of revenue, government of India reads as under: – ―9. Approval for assessment: in assessment order under chapterXIV B can be passed only with the previous approval of the range JCIT/additional CIT (for the period from 30/6/1995 to 31 December 1996 the approving authority was the CIT).‖ Thus, the additional CIT is a competent authority to grant the approval under section 153D of the act of the draft assessment order under section 153C of the act.
5.2.2 the appellant has also submitted that the replies of the appellant were submitted to the AO on 11/2/2021 and 25/2/2021 and the approval under section 153D was granted by the additional CIT on 26/2/2021. Therefore, the additional CIT has given the approval mechanically without applying his mind. The appellant has relied upon the decision in case of Rajesh Ladhani V DCIT (supra)and Smt. Sreelekha Damani V DCIT (supra). Ongoing through this decision it is seen that in case of Rajesh Ladhani V DCIT (supra) the proposal for approval was put up before the additional CIT on 27/3/2015 at 3.50 p.m. and at the same Thus, the case laws relied upon by the appellant is of no help as in the case of the appellant, the additional CIT has approved the draft assessment order well before the due date. In view of the above discussion, the assessment order under section 153A read with section 144 of the act has been passed by the AO by taking approval from authority competent to grant approval under section 153D of the act.‖
From the above decision of the learned CIT – A, it is apparent that he has not decided whether approving authority has granted such approvals without application of mind or not. Before us the assessee has relied upon several judicial precedents supporting the case that the approval granted is mechanical and without application of mind, hence, assessment orders deserve to be quashed.
We first refer to the provisions of section 153D of the act introduced by The Finance Act, 2007 with effect from 1/6/2007, which provides that the prior approval is necessary for assessment in case of search or requisition. This section provides that:-
“Prior approval necessary for assessment in cases of search or requisition.
153D. No order of assessment or reassessment shall be passed by an Assessing Officer below the 48[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 49[Principal Commissioner or] Commissioner under sub-section (12) of section 144BA.] [extracted from taxmann.com]
The above provisions came to be examined by the honourable Orissa High Court in ACIT V Serajuddin & Co.[2023] 150 taxmann.com 146 (Orissa) where the question of law for consideration was:-
―Whether on the facts and circumstances of the case, the ITAT was correct in holding that the approving authority has not applied his mind for giving approval under section 153D?‖
The honourable High Court in paragraph number 11 has analyzed the provisions of section 153D of the act inserted by the finance act 2007 and also the CBDT circular dated 12 March 2008 thereon as under:-
“11. Among the changes brought about by the Finance Act 2007 was the insertion of Section 153D of the Act.
"50. Assessment of search cases—Orders of assessment and reassessment to be approved by the Joint Commissioner. 50.1 The existing provisions of making assessment and reassessment in cases where search has been conducted under section 132 or requisition is made under section 132A, does not provide for any approval for such assessment.
50.2 A new section 153D has been inserted to provide that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the previous approval of the Joint Commissioner. Such provision has been made applicable to orders of assessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B 50.3 Applicability—These amendments will take effect from the 1st day of June, 2007."
Honourable High Court drew an analogy that the requirement of approval was also under section 158BG of the act which was there even prior to introduction of section 153D of the act which provided for obtaining the previous approval by submitting a draft assessment order following a search and seizure operations. These provisions were similar to the requirement under section 158BG of the act and the only difference being that section 158BG occurs in chapter XIV B relating to ― Special procedure for assessment of search cases‖ and section 153D is part of chapter XIV. The honourable High Court in paragraph number 13 also looked at Manual of office procedure (February 2003) in exercise of powers under section 119 of the act wherein in paragraph number 9 of chapter 3 of volume II (Technical) of the manual was stated to be as under:-
"9. Approval for assessment—An assessment order under Chapter XIV-B can be passed only with the previous approval of the range JCIT/ADDL.CIT (For the period from 30-6-1995 to 31-12-1996 the approving authority was the CIT.). The Assessing Officer should submit the draft assessment order for such approval well in time. The submission of the draft order must be
Thereafter in paragraph number 16 it has been held that such an approval of the superior officer cannot be a mechanical exercise as plain reading of section 153D 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 (1) (b) or 153B (2) (b) of the act. After considering the decision of the honourable Supreme Court in case of Rajesh Kumar versus DCIT (2007) 2 SCC 181 the honourable High Court held that it is not correct on the part of the revenue to contend that the approval itself is not justiciable. The Honourable High Court further held that where the approval is granted mechanically, it would vitiate the assessment order itself.
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 CIT. 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 'see' or 'approved' will not satisfy the requirement of the law. This is where
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 "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 (143) 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 (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 reassessment 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 application of mind by the Additional CIT resulting in vitiating the assessment orders themselves.”
Thus, it is apparent that approval under section 153D should be granted by the authority after showing the thought process involved in such approval. Though it is not required that elaborate reasons are to be given but there has to be some indication that the approving
Honourable Allahabad High Court in case of Principal Commissioner of Income-tax V Subodh Agarwal[2023] 149 taxmann.com 373 (Allahabad)it has held that:- “18. The approval of draft assessment order being an in- built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise, without application of independent mind by the Approving Authority on the material placed before it and the reasoning given in the assessment order. It is admitted by Sri Gaurav Mahajan, learned counsel for the appellant-revenue that the approval order is an administrative exercise of power on the part of the Approving Authority but it is sought to be submitted that mere fact that the approval was in existence on the date of the passing of the assessment order, it could not have been vitiated. This submission is found to be a fallacy, in as much as, the prior approval of superior authority means that it should appraise the material before it so as to appreciate on factual and legal aspects to ascertain that
Further in case of PCIT versus Sidharth Gupta 350 ITR 534 honourable Allahabad High Court has held that :-
“12. It was noted that the obligations of the approval of the Approving Authority serves two purposes:
“16. The approval of draft assessment order being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise, without application of independent mind by the Approving Authority on the material placed before it and the reasoning given in the assessment order. It is admitted by Sri Gaurav Mahajan, learned counsel for the appellant-revenue that the approval order is an administrative exercise of power on the part of the Approving Authority but it is sought to be submitted that mere fact that the approval was in existence on the date of the passing of the assessment order, it could not have been vitiated. This submission is found to be a fallacy, in as much as, the prior approval of superior authority means that it should appraise the material before it so as to appreciate on factual and legal aspects to ascertain that the entire material has been examined by the Assessing Authority before preparing the draft assessment order. It is trite in law that the approval must be granted only on the
Thus, from the above guiding principles available pronounced by the honourable High Courts, it is clear that the approval has to be after perusal of the relevant material, based on which the assessment orders have been framed and on due application of mind of the approving authority. It is not merely a formality, but the approving authority must ensure the safeguarding of the interest of revenue against any leakage of revenue as well as supervise the assessment proceedings so that a protection is available to the taxpayer of fair play and justice.
Therefore, request for approval and approval are required to be tested in all these cases on the above stated principle. If it satisfies the above principles, then approval is validly granted and does not hamper the validity of Assessment order.
The request for approval was sent by the learned assessing officer to the learned Additional Commissioner Of Income Tax, Central range – 6, Mumbai on 26/2/2021 is as under:-
No. DCIT-Central Circle-6(1)/Platinum Textiles Ltd./u/s 153D Dated 26.02.2021. To The Addl. Commissioner of Income Tax Central Range-6 Mumbai Sir, On the basis of above request, the learned Additional Commissioner Of Income Tax granted approval as under:-
No. Addl.CIT-CR-6/Approval U/s 153D/2020-21 Date 26.02.2021 To The DCIT-Central Circle-6(1) Mumbai Sub: Approval of draft assessment orders u/s 153D of the I.T. Act, 1961 in the case of M/s Platinum Textiles Ltd. (PAN: AABCN1537H)-reg.
All such approvals in case of all the assessees involved in this appeal are placed at serial number 39 of paper book number 3 at page number 225 – 261, the request for approval by the AO and approval of the approving authority are also similar.
Further glaring example of Non application of mind is that in case of Platinum textiles limited for assessment year 2016 – 17 to assessment year 2018 – 19 and in case of Helios mercantile Limited for assessment year 2017 – 18 and assessment year 2018 – 19 some information is received from The Deputy Director Of Income Tax (investigation) regarding transaction with ‗one-word group‘ through email on 26/2/2021 at 5.02 PM, the email is also referred to in the assessment order which was passed on 26/2/2021. Thus, natural corollary is that such assessment order is passed after 5.0 2 PM on 26/2/2021 and approval is also granted on 26/2/2021 in that case. This itself shows that approval so granted is without application of mind.
It is more glaring that in some of the draft assessment orders, the approval number, and the date on which the approval was granted by the Additional CIT is also mentioned. The assessee has produced a list of such draft assessment order and for number of assessment years in case of different companies it is mentioned. We failed to understand how in draft assessment orders, details of approval number and date on which the draft assessment order is approved can be mentioned. We failed to visualize any such situation to justify it.
In case of where assessee was not at all in existence, return was also not filed, the assessment proceedings were carried out, the learned
The more glaring example is that the draft assessment order is presented for approval before the additional CIT in case where Helios exports Ltd for assessment year 2012 – 13 and assessment year 2013 – 14 and in case of Shreevallabh Pittie industries Ltd in assessment year 2014 – 15 when such companies were not at all incorporated. Approvals were granted.
The learned authorized representative has given us a chart for each of the above situations mentioned; none of the charts were controverted by learned departmental representative.
We are not on the issue that how the learned approving authority would approve all such orders on one day on 26/2/2021 because it may be possible for a person to approve all such orders if he is in know of things since the stage of commencement of the assessment proceedings. However, we are unable to understand and appreciate the situation where the glaring mistakes in the assessment order as stated above and also fact of approval with approval number and date of approval is mentioned in the draft assessment order itself which is sent for approval of the approving authority. This itself forces us to state that all such approval granted under section 153D of the act by the approving authority in all these appeals are without application of mind. Neither the interest of revenue, nor the principle of fair play and natural justice were taken care of while approving draft orders of the assessing officer.
In view of above cumulative facts and respectfully following the decision of the honourable Orissa and Allahabad High Court as well
Thus, ground number 1 in appeal of the assessee is allowed in all these 34 appeals filed by the assessee holding that approval granted under section 153D of the act is without application of mind and hence the assessment orders are annulled.
Thus, all other grounds of appeal in appeal of the assessee, additional grounds raised by assessee in all these 34 appeals are not required to be adjudicated, hence dismissed.
51. As 31 appeals filed by the learned assessing officer are also dismissed in view of our decision in ground number 1 in case of 34 appeals filed by the assessee wherein we have quashed the assessment order itself.
Accordingly, all these 65 appeals are disposed of by this common order allowing 34 appeals of the assessee and dismissing 31 appeals of the learned AO.
Order pronounced in the open court on 30.04. 2024.