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Facts
The assessee's appeals were against an order of the CIT(A) concerning assessment years 2011-12 to 2016-17. The core issues revolve around the validity of the notice issued under Section 153A and the approval granted under Section 153D.
Held
The Tribunal held that the notice under Section 153A was not properly served on the assessee who was in judicial custody, rendering the proceedings bad in law. Additionally, the approval under Section 153D was found to be granted without proper application of mind, making it invalid.
Key Issues
Whether the notice under Section 153A was validly served when the assessee was in judicial custody, and whether the approval under Section 153D was granted with due application of mind.
Sections Cited
144, 153A, 131, 282, 263, 153D, 143(3)
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Income Tax Appellate Tribunal, DELHI BENCHES : A : NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
These appeals are preferred by the assessee against the order dated 10.03.2023 of the Commissioner of Income-tax (Appeals)-31, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in appeal No.1126,1127,1128, 1129/21-22 arising out of the appeals before it
ITAs No.1452 to 1455/Del/2023 against the orders dated 30.12.2018 passed u/s 144 r.w.s. 153A of the Income Tax Act, 1961 (hereinafter referred as ‘the Act’) by the ACIT, Central Circle-16, New Delhi (hereinafter referred to as the Ld. AO), for the above assessment years.
Heard and perused the records. Ground No. 2 has in its background the 2. fact that Appellant was arrested by the Enforcement Directorate on 07.12.2016 and notice for initiating the proceedings u/s 153A of the Act was issued on 10.10.2017. The appellant was granted bail by the Hon'ble High Court of Delhi on 08.10.2018 and later by Hon'ble High Court of Rajasthan on 03.11.2018. The very fact were informed to the Ld. AO vide letter dated 25.01.2018 by the spouse of the appellant that the appellant is under the judicial custody.
Accordingly now it is strongly submitted by the appellant that the notice issued by the Ld. AO was never served upon the appellant. Ld. AR submits that the notice should have been served as per the provisions of Code of Civil Procedure, 1908 when a person is under judicial custody should be served by following mode:
"Order 5, Rule 24: when a defendant is confined in a prison, the summons should be delivered or sent (by post or otherwise) to the officer in charge of the prison. This officer is then responsible for serving the summons on the defendant."
ITAs No.1452 to 1455/Del/2023 3.1 It is thus submitted by the appellant that when the notice u/s 153A of the Act is not served upon the assessee, the entire proceeding is bad in law and thus, the impugned assessment order is liable to be quashed.
Ld. DR has vehemently opposed the aforesaid contention and it was submitted that there is no procedure in the Act to serve as per Order V Rule 24 of CPC. It was submitted that assesse was well represented by his wife and so no prejudice is caused.
Now what is material is that the fact of assesse being in judicial custody when notices were issued and served is not contested. It is also not contested that ld. AO was informed of assesse’s judicial custody. As per section 131 of the Act, Tax authorities established under the Act have been vested powers of Civil Courts in respect to summons to be issued. Section 282 (b) of the Act provides service of a notice or summon or requisition or order or any other communication under this Act may be made by delivering or transmitting a copy thereof, to the person therein named in such manner as provided under the Code of Civil Procedure, 1908. Hon'ble Orissa High Court while dealing with similar circumstances of questioning service of notice u/s 263 of the Act, on assesse in judicial custody in the case of PCIT Versus Narayan Kumar Khaitan vide I.T.A.
No. 77 of 2022 - Dated: -14-2-2023 wherein it was held as follows:
ITAs No.1452 to 1455/Del/2023
"7. The above provision in a taxing statute admits only of strict interpretation. If the legislative intent was that the appearance of an Assessee or his authorized representative urns sufficient for the purposes of presuming service notice, then there should be an express provision to that effect. The provision, on the other hand, only talks of appearance by the Assessee and not an authorized representative of the Assessee.
Factually, however, as noted by the ITAT in the impugned order, Shri Uttam Kumar was not an authorized representative of the Assessee. He was simply the staff who appeared to inform the PCIT where the Assessee could be located. This was the jail. Despite being informed that the Assessee was in judicial
This Court concurs with the observation of the ITAT in the impugned order that a person in judicial custody is deprived of many of the constitutional rights which he could otherwise exercise. Any officer of the Government including a PCIT should be conscious that once information was received that a person to whom notice has to be served is in judicial custody, then an appropriate order should be passed requiring sendee of notice on such person through the Superintendent of the concerned jail. This is the bare minimum requirement in law. With the PCIT having failed to do so, it was not open to the Department to contend the mere appearance of a staff of such person in judicial custody before the PCIT should be taken to be the appearance by the Noticee/Assessee himself"
Thus in view of the above, we are inclined to hold that the notice u/s 153A of the Act was not served upon the appellant thus the entire proceeding is liable to be quashed. Ground no. 2 is thus sustained.
Ground no. 3 arises out of challenge of approval given by the Additional CIT u/s 153D of the Act as allegedly same is mechanically. The Ld. CIT(A) has dismissed the contention of the appellant by observing as follows:
ITAs No.1452 to 1455/Del/2023
8.2 Regarding the additional ground of appeal relating to approval u/s. 153D, the same is also admitted since it is related only to a point of law and no fresh documents/evidences apart from those already on record, are required to decide the same. I have carefully considered the submissions of the appellant and am satisfied that omission of this ground in Form 35 was not willful or unreasonable. I have also called for the relevant case records relating to the assesses, from which it ’is observed that the Addl. CIT has granted approval to the draft questionnaire in the case of the assessee vide letter dated 15.11.2018, after considering all issues arising as result: of search. It is a standard practice that the Addl. CIT, who is required to grant approval u/s 153D, invariably associates with the AO and discusses/directs him on various issues involved on the basis of seized material, Appraisal report etc., right from the beginning of assessment process, of which the approval to draft questionnaire is adequate evidence. It is thus clear that the Addl. CIT was well versed with the entire seized material/appraisal report and was fully associated with the AO during the assessment proceedings at least from the month of November, 2018. Having full knowledge of issues pertaining to the group, it was entirely possible for the Addl. CIT to grant such approvals. Due to the above distinguishing factors, the case laws cited by the appellant are not applicable in the case of the appellant. Thus, the contention of the appellant that there was no application of mind while granting approval u/s 153D since approvals were given on a single day, is incorrect as well as untenable in view of the discussion above. Accordingly, the additional ground of appeal is hereby dismissed.
8. Ld. AR has contended that AO as subordinate cannot be said to be working as team with superior authority to say that at time of approval no separate application of mind need to be examined. He relied decision of Hon’ble Punjab and Haryana High Court in Findoc Finvest Pvt. Ltd. Versus DCIT, CC - 01 & ANR vide CWP 9658/2024 order dated 07.03.2025 and the relevant part of decision of the Hon'ble Court is hereby reproduced; "23. Section 116 of the Act, defines the Income Tax Authorities as different and distinct authorities. Such different and distinct authorities
ITAs No.1452 to 1455/Del/2023 have to exercise its powers in accordance with law in specified circumstances. Thus, the Assessing Officer would have to exercise its own discretion to reach a conclusion and would not be influenced by any other officer. In view thereto, we find force in the contention raised by the learned senior counsel for the petitioner that the concerned Assessing Officer was influenced by the consultation and discussion with his superior officers. In fact the order passed by the Assessing Officer appears to have been already prepared even before the reply was received as the consultations have been conducted on 26.10.2023, 11.01.2024 and 14.03.2024 by the Assessing Officer as mentioned by him in the order itself. Again after the reply was received and the order was passed by the Assessing Officer, the same has been approved by the joint Commissioner. As such, we find that the joint Commissioner has in fact comprehensively and actively participated in the making of the assessment order while his role was only limited to the approval of the assessment order in terms of the CBDT Circular. Thus, we find the order to be vitiated in law.
In view of the above, the assessment order cannot be result of an independent application of mind and exercise of discretionary power by the Assessing Officer in terms of Section 143(3) of the Act and but is an order passed under the influence and directions of the superior officers. It is to be noticed that the consultation with a superior officer would be akin to directions of the superior. There is no room available for discretion where consultation is sought from a superior officer while if a superior officer consults his subordinates, the discretion continues to stay with him. He may choose not to follow the advice of his subordinate but the opposite would be untrue. We are, thus, of firm view that the order has been passed whereby the Assessing Officer has abdicated his authority and, therefore, the order has become vitiated in law."
9. In regard to this ground we are of considered view that if the very basis of assumption of jurisdiction by service of notice u/s 153A of the Act by proper means is not found to be in accordance with law that itself shows how casually the approval u/s 153d of the Act is given.
ITAs No.1452 to 1455/Del/2023
Then we find that as per the provisions of the Act in search cases, the Assessing Officer, before passing assessment order framed u/s 153A or 153C of the Act is required to take the approval from Addl. CIT u/s 153D of the Act if the Assessing Officer is below the rank of Jt. CIT and in this respect attention is invited to the provisions of section 153D of the Act. Revenue cannot dispute that the approving authority is required to see all search material including incriminating material, seized documents, appraisal report, enquiries made by the investigation wing and various enquiries made for the relevant Assessment Year by the Assessing Officer during the assessment proceedings and the replies submitted by the assessee and after due application of mind and after ascertaining that the Assessing Officer has appreciated the search material and other evidences in proper perspective has to give approval to the draft assessment order and only after that Assessing Officer can pass the assessment order.
The question is if department can say that only for the reasons that superior authority was all the way involved in the assessment that makes the approval an empty formality or to be called merely an administrative task. On going through the copy of approval available at page 24 of the paper book, we find that in the present case the Assessing Officer passed the draft assessment order on 28.12.2018 and on the very next day approval u/ s 153D was granted and final assessment order was also passed by the Assessing Officer on 7
ITAs No.1452 to 1455/Del/2023 29.12.2018. It is brought to our attention that as per this approval letter the Addl.
CIT granted approval u/s 153D in 23 cases which includes the present case of assessee listed at S. No. 4 & 5. Certainly it is not possible to go through 23 draft assessment orders on a single day so the only way to defend it is by saying that at time of grant of approval application of mind need not be examined and whole exercise of assessment where tax authorities have worked together should be taken note of and thereby approval be assumed to be a mere formality.
This assertion of department is doing more harm than any benefit in defending the challenge by the assesse. The approval u/s 153D of the Act cannot be treated mere formality only and the purpose of inserting this provision is two folds i.e., Firstly, before approving the senior authority will ensure that the assessee should be protected against the undue and irrelevant addition and disallowances and the approving authority will also ensure that proper enquiry or investigations are carried out by the Assessing Officer on the relevant materials including material in the hands of the Department. Secondly, the Assessing Officer also keeps in mind the interest of Revenue. If an approval has been granted by the approving authority considering it to be mere formality for the reasons of supervision of assessment proceedings at previous stages then the very purpose of obtaining approval u/s 153D of the Act and mandate of enactment by the Legislature will be defeated. The rationale of word "Each" as specifically referred to in Section 153D and Section 153A deserves to be given 8
ITAs No.1452 to 1455/Del/2023 effective/proper meaning so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. The meaning of 'approval', as contemplated u/s 153D of the Act, is that the Addl. CIT is required to take cognizance of whole of the assessment record and verify the issues raised by the Assessing Officer in the draft assessment order and apply his independent mind to ascertain as to whether the assessment is initiated, conducted and concluded in accordance with law.
The Ld. DR has relied the decision of Coordinate Bench in Kailash 13. order dated 24.10.2025 to contend that approval u/s 153D of the Act is an administrative approval only. However, we are of the considered view that the findings of Coordinate Bench in Kailash Gahlot (supra) are on the broad premises that as the AO had made the incriminating material etc. available to the approving authority during the course of assessment so much so that even questionnaire issued by AO is with the knowledge of these authorities, so approval is mere formality. However, such findings seems to be given in ignorance of the decision of Hon’ble Punjab & Haryana High Court in the case of Findoc Finvest Private Limited (supra) wherein Hon’ble High Court of Punjab and Haryana has held that any such consultation with superior officer would be akin to the directions of the superior which vitiates the quasi judicial functions of the assessment. Further, the Coordinate Bench in the case of ITAs No.1452 to 1455/Del/2023 Kailash Gahlot (supra) has also failed to take notice of the third member decision in the case of Dheeraj Chaudhary Vs. DCIT, to 6160 order dated 14.09.2025 wherein the Hon’ble third member has held that the approval granted under Section 153D is not an administrative approval and therefore can be tested for want of application of mind and if the same is mechanical cannot be sustained under law. All the contentions relied by revenue now on basis of decision in Kailash Gahlot (supra) have been duly addressed by Hon’ble Third Member in Dheeraj Chaudhary Vs. DCIT(supra), so need not be addressed afresh. Pertinent to mention is that the third member decision has a binding precedent value similar to that of special bench and reliance for this can be placed on the decision in Dy. CIT v. Oman International Bank SAOG [2006] 100 ITD 2185 (Mum.). Thus, where there is non consideration of binding decision of Hon’ble Punjab & Haryana High Court in Findoc Finvest Private Limited (supra) and Hon’ble third member decision in Dheeraj Chaudhary Vs. DCIT(supra), the findings of Coordinate Bench in Kailash Gahlot (supra) are to be considered per incuriam and revenue cannot take benefit of the same for asserting that approval under Section 153D is a mere administrative function, being out-come of joint efforts of tax authorities during assessment.
In the present facts and circumstances, the manner in which the approval has been sought for multiple assessee’s and multiple years being involved as per 10
ITAs No.1452 to 1455/Del/2023 approval dated 29.12.2018 copy of which is available at page 24 of the paper book, certainly made the impugned approval not in accordance with law. Thus, we are inclined to sustain ground no. 3 as well and as a consequence of the aforesaid determination of the ground nos. 2 & 3 in favour of the assessee, the appeals of the assessee are allowed.
Order pronounced in the open court on 28.11.2025.