SANSKAR NAGAR,JHANSI vs. ADDITIONAL COMMISSIONER OF INCOME TAX, KANPUR

From the facts, it emerges that the assessee firm is constituted by the three partners i.e., Sh. Deepak Pursuhwani, Shri Jagdish Prasad Sahu and Shri Aman Madaan. The assessee carried out real estate projects. The assessee group was searched u/s 132 on 07-02-2018 and apparently, on the date of search no assessment proceedings were pending in the case of the assessee and this was a case of unabated assessment year. Upon perusal of assessment order, it could be ascertained that Ld. AO has referred to various documents and loose papers as found during the course of search on assessee group. In post search proceedings, a combined statement was recorded from the three partners wherein they admitted to have received on-money on sale of plots. We find that Ld. AO has referred to incriminating material in the shape of notebooks marked as Annexure BK-14, BK-16 and BK-17 containing plot wise details as sold by the assessee-firm and made the impugned additions. However, as per our tabulation in preceding para 3.2, it could clearly be seen that these documents have been found from the premises of a third-party i.e., Shri Ramakant Verma. His statement was recorded u/s 132(4) during the course of search on 07-02-2018 wherein he stated that the documents as found from one room of his residential premises pertain to the three partners of the assessee-firm. He also stated that these transactions related to property transactions which are part in cheque and part in cash. He explained that the partners requested him to give one room of his residential premise and the same was being used as office by the partners. It could be ascertained that the said premise do not belong to the assessee-firm and the same is a third-party premises. The Ld. AO has referred to notebooks marked as Annexure BK-14, BK-16 and BK-17 which are found from this room and not found from assessee’s premises for which warrant of authorization was issued. No other material has been relied upon by Ld. AO to make the impugned addition in the hands of the assessee. The statement of the three partners are not recorded during the course of search proceeding but during post search proceedings and these statements are not recorded u/s 132(4) and therefore, no credence could be given to these statements. In other words, the incriminating material on which the additions have been made, has not been found from the assessee’s premises but the same has been found from a third-party premises. This being the case, this being unabated year, the assessment is liable to be quashed in terms of the decision of Hon’ble Apex Court in the case of Pr. CIT vs. Abhisar Buildwell (P.) Ltd. (149 Taxmann.com 399) holding that no addition could be made for completed assessment in the absence of any incriminating material found during the course of search on assessee. The co-ordinate bench of Ahmadabad Tribunal in the case of ACIT vs. Real Marketing Pvt. Ltd. (ITSS No.128- 133/Ahd/2021), relying upon the decision of Hon’ble Gujarat High Court in the case of Soumya Construction (387 ITR 529), confirmed quashing of assessment u/s 153A on the ground that there was no seized material in the case of the assessee. The decision of Hon’ble Apex Court has overruled the decision of Hon’ble Allahabad High Court in the case of CIT vs. Raj Kumar Arora (367 ITR 517) as cited by lower authorities. Similar proposition has been laid down in various judicial decisions as cited by Ld. AR and placed on record. Since the same has laid down similar ratio, the same are not being discussed at length for want of brevity. Respectfully following all these decisions, we would hold that the impugned assessment is liable to be quashed. The assessee succeeds on this foremost legal ground. To use third-party material against the assessee, proceedings u/s 153C could be initiated for which recording of satisfaction is a mandatory requirement which is not shown to have been fulfilled.

Another pertinent legal ground as raised by Ld. AR is that approval u/s 153D was given in a mechanical manner. To support the same, Ld. AR has stated that approval has been granted by Addl. CIT through common communication i.e., F. No. Addl CIT (CR) KNP/Approval u/s 153D/2020-21/17 dated 06-04-2021. The Ld. AR drew attention to the remand report as extracted in the impugned order on Page Nos.43 and 44, to state that common approval has been given through above communication in all 13 cases for different assessees. The Ld. AR thus submitted that the approval has been given in a mechanical manner which run contrary to the decision of Hon’ble Allahabad High Court in the case of Pr. CIT vs. Sapna Gupta (147 Taxmann.com 288) and therefore, the assessment is liable to be quashed. The relevant adjudication of Hon’ble Court was as under: - 9. Considering the submissions of the learned counsel for the parties and having perused the order of the Tribunal, in view of the undisputed facts before us about the manner in which the approval to the draft assessment order was granted under section 153D for the assessment proceedings, by a letter dated 30-12 2017 in 85 cases placed before the approving authority in a single day, we are required to examine as to whether a substantial question of law arises for consideration before us so as to admit the present appeal.

To answer the same, we are required to go through the relevant provisions of the Income-tax Act. Section 132 provides the procedure for search and seizure operations in consequence of the information in possession of the Income-tax Authorities. Section 153A prescribes assessment in case of search or requisition. Section 153A provides that in the case of a person where a search is initiated under section 132, the Assessing Officer shall issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years (and for the relevant assessment year or years) referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may apply accordingly as if such return were a return required to be furnished under section 139.

Section 153D of the Act relevant for our purposes is to be noted hereinunder: 153D "Prior approval necessary for assessment in cases of search or requisition.—No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of [sub-section (1) of] section 153A or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner." Provided that nothing contained in this section shall apply where the assessment or reassessment order, as the case may be, is required to be passed by the Assessing Officer with the prior approval of the [Principal Commissioner or] Commissioner under sub-section (12) of section 144BA.

The Tribunal while quashing the assessment order had relied upon its earlier decision in Navin Jain (supra) wherein a detailed discussion has been made with regard to the requirement of prior approval of superior authority on the draft assessment order under section 153D, before passing the assessment order by the Assessing Officer. It was noted that the word 'approval' though has not been defined in the Income-tax Act but the general meaning of the word 'approval' in Black's Law Dictionary, 6th Edition was to be seen. The decision of the Apex Court in Vijayadevi Navalkishore Bhartia v. Land Acquisition Officer [2003] 5 SCC 83 wherein the distinction between Approving Authority and Appellate Authority was drawn, had been noted. The decision of the High Court of Gauhati in Dharampal Satyapal Ltd. v. Union of India 2019 (366) ELT 253 has been noted to record that grant of approval means due application of mind on the subject matter approved which satisfies all the legal and procedural requirements. There is an exhaustive discussion on the requirement of prior approval under section 153D of the Act and it was noted that the requirement of approval cannot be treated as mere formality and the mandate of the Act that the Approving Authority has to act in a judicious manner by due application of mind in a manner of a quasi judicial authority, has been considered.

It was held therein that if an approval has been granted by the Approving Authority in a mechanical manner without application of mind then the very purpose of obtaining approval under section 153D of the Act and mandate of the enactment by the legislature will be defeated. For granting approval under section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for "each assessment year" in respect of "each assessee" separately. The words 'each assessment year' used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. It was held that the "approval" as contemplated under 153D of the Act, requires the approving authority, i.e. Joint Commissioner to verify the issues raised by the Assessing Officer in the draft assessment order and apply his mind to ascertain as to whether the required procedure has been followed by the Assessing Officer or not in framing the assessment. The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power.

It was noted that the obligations of the approval of the Approving Authority serves two purposes: (i) On the one hand, he has to apply his mind to ensure the interest of the revenue against any ommission or negligence by the Assessing Officer in taxing right income in the hands of right person and in right assessment year. (ii) On the other hand, superior authority is also responsible and duty-bound to do justice with the tax payer by granting protection against arbitrary or creating baseless tax liability on the assessee.

The Tribunal has further noted that the provisions contained in sections 153A to section 153D provide for separate notice to be given to assessee for assessment for each year as specified in section 153A of the Act; the assessee has to file separate ITR for each year as specified in section 153A of the Act; separate assessment orders are to be passed for each year as specified in section 153A of the Act.

It was observed that this is an important concept mentioned in Section 153A of the Act, which is peculiar to the scheme of the said Section. Keeping in view of this basic fundamental features of Section 153A, if Section 153D is scrutinized, then, it would become manifest that an important phrase is employed in the text of Section 153D, which is "each assessment year". The reading of the provisions in Section 153A and 153D conjointly makes it clear that separate approval of draft assessment order for each year is to be obtained under section 153D of the Income-tax Act. In its erudite judgement with the discussion on the legislative intent of Section 153A to 153D and the meaning of the "approval" as defined in Black's Law Dictionary as also the decisions of the Apex Court in the case of Sahara India(Firm) v. CIT [2008] 169 Taxman 328/300 ITR 403 (SC) where the discussion on the requirement of prior approval of Chief Commissioner or Commissioner in terms of provision of Section 142(2A) of the Act had been made, it was noted that the Apex Court has held therein that the requirement of previous approval of the Chief Commissioner or Commissioner in terms of the said provision being an in-built protection against arbitrary or unjust exercise of power by the Assessing Officer casts a very heavy duty on the said high ranking authority to see that the approval envisaged in the section is not turned into an empty ritual. The Apex Court has held therein that the approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case.

The above discussion made in the judgement of Tribunal dated 3-8-2021 in the case of Navin Jain (supra) has been relied by the Tribunal, in the instant case, to arrive at the conclusion that the mechanical approval under section 153D of the Act would vitiate the entire proceedings in the instant case.

For the reasoning given in the case of Navin Jain (supra), as extracted in the impugned order passed by the Tribunal, as noted above, there cannot be any two opinion to the requirement of prior approval of the Joint Commissioner to the draft assessment order prepared by the Assessing Officer, as per the mandate of Section 153D of the Income-tax Act. 19. 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 basis of material available on record and the approval must reflect the application of mind to the facts of the case. The requirement of approval under section 153D is pre-requisite to pass an order of assessment or re assessment. Section 153D requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of "each assessment year" referred to in clause (b) of sub-section (1) of section 153A which provides for assessment in case of search under section 132. Section 153A(1)(a) requires that the assessee on a notice issued to him by the Assessing Officer would be required to furnish the return of income in respect of "each assessment year" falling within six assessment years (and for the relevant assessment year or years), referred to in clause (b) of sub-section (1) of section 153A. The proviso to section 153A further provides for assessment of the total income in respect of each assessment year falling within such six assessment years (and for the relevant assessment year or years).

The careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to "each assessment year" is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order under section 153A.

In the instant case, the draft assessment order in 85 cases, i.e. for 85 assessment years placed before the Approving Authority on 30-12-2017 was approved on same day i.e. 30-12-2017, which not only included the cases of respondent-assessee but the cases of other groups as well. It is humanly impossible to go through the records of 85 cases in one day to apply independent mind to appraise the material before the Approving Authority. The conclusion drawn by the Tribunal that it was a mechanical exercise of power, therefore, cannot be said to be perverse or contrary to the material on record.

As the facts are admitted before us, the questions of law framed on the factual issues related to the findings recorded by the Assessing Officer are not open to agitate within the scope of the present appeal being in the nature of second appeal. No substantial question of law arises for consideration before us.

The Appeal is dismissed being devoid of merit. The Hon’ble Court thus held that the approval of draft assessment order being an in- built protection against any arbitrary or unjust exercise of power by the Assessing Officer and therefore, the same could not 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. 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 basis of material available on record and the approval must reflect the application of mind to the facts of the case. The requirement of approval under section 153D is pre-requisite to pass an order of assessment or re-assessment. Section 153D requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of "each assessment year" referred to in clause 153A(1)(b) which provides for assessment in case of search u/s 132. Section 153A(1)(a) requires that the assessee would be required to furnish the return of income in respect of "each assessment year" falling within six assessment years (and for the relevant assessment year or years), referred to in Sec.153A(1)(b). The proviso to section 153A further provides for assessment of the total income in respect of each assessment year falling within such six assessment years (and for the relevant assessment year or years). The conjoint reading of Sec.153A(1) and section 153D leave no room for doubt that approval with respect to "each assessment year" is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order u/s 153A. Similar view has been taken in various other judicial decisions, the copies of which have been placed on record.

The facts as well as issues in AY 2017-18 are substantially identical except for the fact that the time limit to issue notice u/s 143(2) for this year had not expired. However, the assessment order would not survive on the issue of mechanical approval u/s 153D. Furthermore, the material seized from third-party premises has been used in an assessment framed u/s 153A. The Hon’ble Delhi High Court in the case of Pr. CIT vs. Anand Kumar Jain HUF (ITA No.23/2021 dated 12-02-2021) has held that even if the statement u/s 132(4) recorded in the search of other person is considered to be incriminating material in the search, such incriminating material could be used in assessment u/s 153C only and the department is not entitled to rely on such incriminating material in an assessment u/s 153A. Again, in the case of Pr. CIT vs. Subhash Khattar (ITA No.60/2017 dated 25-07-2017), it was held by the same court that notice u/s 153A was misconceived since the so-called incriminating material was not found during search at assessee’s premises. The annulment of assessment on that ground in the first appeal was upheld by Hon’ble High Court in that case. Considering these decisions, the assessment stand quashed.

In appeal for AY 2018-19 the assessment has been framed u/s 144 on 08-04-2021. The Ld. AR has submitted that the documents as relied upon by Ld. AO were handed over on 14- 03-2019 on the basis of alleged incriminating material as found in the search of other entity and therefore, the assessment ought to have been framed u/s 153C. As per proviso to Sec.153C, the above date i.e., 14-03-2019 is to be treated as the date falling in the year of search and earlier six years are to be assessed u/s 153C and not under any other section. The assessment for AY 2018-19 falls in the block period of six years in view of proviso of Sec.153A and AY 2019- 20 being the year of search in view of proviso to Sec.153C of the Act. The Ld. AR has relied on the decision of Hon’ble Delhi High Court in the case of Pr. CIT vs. Ojjus Medicare Pvt. Ltd. (161 Taxmann.com 160) to support the same. We find force in the argument of Ld. AR since this year would clearly fall in the year of search and therefore, the assessment ought to have been framed u/s 153C and not under any other section. The cited case law duly supports the contention of Ld. AR. Further, the assessment order would not survive on the issue of mechanical approval u/s 153D. Considering these legal grounds, the assessment stand quashed.

The appeals listed at serial nos. 6 to 9 are penalty appeals assailing levy of penalty u/s 271D / 271E which emanates from respective assessment orders of Ld. AO for AYs 2016-17 to 2018-19. Since we have quashed assessments for these years, the penalties arising there-from would not survive. We order so. All these appeals stands allowed.

All the appeals stand allowed in terms of our above order. Order pronounced u/r 34(4) of Income Tax (Appellate Tribunal) Rules, 1963.