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Facts
The assessee appealed against an order related to unrecorded investment, where an addition of Rs. 10.94 crores was initially made, sustained by the CIT(A) to the extent of Rs. 25,70,000. The primary issue raised was that the approval granted under Section 153D of the Income Tax Act was arbitrary and mechanical.
Held
The Tribunal held that the approval granted under Section 153D was not in accordance with law. It found that the approval letter lacked evidence of independent application of mind by the approving authority, especially concerning electronic evidence and compliance with the Digital Evidence Investigation Manual.
Key Issues
Whether the approval granted under Section 153D of the Income Tax Act was mechanical and without due application of mind, thus vitiating the assessment order.
Sections Cited
153C, 143(3), 153D, 153A
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Income Tax Appellate Tribunal, “A” BENCH, DELHI
Before: SHRI S RIFAUR RAHMAN & SHRI ANUBHAV SHARMA
O R D E R
PER ANUBHAV SHARMA, JM:
This appeal is preferred by the assessee against the order dated 29.12.2023 of the Commissioner of Income-tax (Appeals)-28, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeals No: 29/10405/2013-14 arising out of the appeal before it against the order dated 09.03.2021 passed u/s 153C/143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Central Circle- 25, New Delhi (hereinafter referred to as the Ld. AO) for AY: 2014-15.
The assessee company had filed return on 24.09.2014 and subsequent to a search in the case of Surendra Kumar Arya, JBM group of companies and key officers of the group on 05.10.2017 allegedly certain documents and digital data indicating under invoicing and suppression of scrap sales by JBM group companies to various scrap dealers were found and seized. The assessee’s case was accordingly taken up for assessment and under Section 153C by issuing a notice against which assessee had filed return reporting income as earlier reported. The AO examined the issue of unrecorded investment and concluded that assessee had made a cash payment for purchase of land at Bithalpur for which addition was made of Rs.10.94 crores and stand sustained by the Ld. CIT(A) to the extent of Rs.25,70,000/- for which the assessee is in appeal before us and so is the department.
On hearing both the sides we find that it is ground no. 2 which Ld. Counsel at first argued and whereby the approval granted under Section 153D of the Act has alleged to be granted in mechanical and arbitrary manner without application of mind.
Though the Ld. DR defended the approval what we find coming up admittedly is that in regard to multiple years for AY 2012-13 onwards till AY 2018-19 this approval letter dated 04.03.2021 mentions that approval was granted to the draft assessment orders ‘as amended’. Further, the approval mentions as under:
Zeal Impex & Traders Pvt. Ltd. (AY: 2014-15)
“You have certified about perusal and verification of data seized in electronic format through working copies having certified cash values as that of original hard drives/CDs/pen drives/mobile data & any other electronic data.
It comes up that this objection of the order having dealt by Ld. CIT(A) in para 5.3.3 and completeness we reproduced the same as under:
“5.3.3 The appellant has submitted that the impugned order passed u/s 153C /143(3) of the Income Tax Act is without jurisdiction as the order in this case was passed without valid approval under section 153D of the I.T. Act, 1961. In this regard we would like to draw your kind attention that approval for A Y 2012-13 to A Y 2018-19 was given by Additional Commissioner of Income Tax, Central Range - 7, New Delhi vide letter no Addl. CIT / CR-7/2020-21/884 dated 04/03/2021. As such separate approval for each year for A Y 2012-13 to A Y 2018-19 has not been given by Additional Commissioner of Income Tax in accordance with section 153D of the Income Tax Act.
I have carefully considered the submission of the appellant and facts of the case. It is noted that the impugned assessment order involved issues as discussed above. The approval u/s 153D was accorded after due examination of the relevant records and verification by the Range Head. Therefore, the allegation of the appellant that the approval was granted in a mechanical manner is without any substance. Further, the approval granted by the Additional Commissioner of Income Tax, Central Rage-2, New Delhi is in the nature of administrative power. The Range Head while examining the matter u/s 153D does not examine or adjudicate upon the rights or obligations of the assessee, but only considers whether the Assessing Officer has fulfilled the requirements of section 153A. Reliance is placed on the judgment of Hon'ble Karnataka High Court in the case of Rishabhchand Bhansali v. DCIT 267 ITR 577 wherein it is held as under: “4.2 ...... thirdly the order passed by the Joint Commissioner granting previous approval under the proviso to section 158BG is in exercise of administrative power on being satisfied that the order of assessment has been made in accordance with the provisions of Chapter XIV-B. The previous approval is purely an internal matter and it does not decide upon any rights of the assessee. The Joint Commissioner, while examining the matter under the proviso to section 158BG does not examine or adjudicate upon the rights or obligations of the assessee, but only considers whether the Assessing Officer has fulfilled the requirements of Chapter XIV.”
In view of the above the allegation of the appellant that the Additional Commissioner of Income Tax, Central Rage-2, New Delhi has granted the approval u/s 153D in mechanical manner and without application of mind has no meaning as the approval is an administrative action which is required to be based on existence of set of circumstances and on subjective satisfaction as per the provisions of the Act. Further approval u/s 153D being an official act provided under the statute, it is to be presumed that before according approval, the Range Head has looked into the records, applied his mind and he did not find any reason to disapprove the order passed by the Assessing Authority and thereafter he has accorded the approval. The appellant cannot say that there was no Zeal Impex & Traders Pvt. Ltd. (AY: 2014-15) application of mind just by seeing the approval letter of the Jt./ Addl. Commissioner. It is a well- known fact that AO & Jt./ Addl. Commissioner have to keep interacting regularly and discuss the cases which are being time barred in near future.
In the given facts of the case, it can be said that the Addl. CIT has applied his mind on the issues involved and has accorded his approval in accordance with the provisions of the Act. Such approval cannot be said as mechanical and without application of mind. Accordingly, the above issue raised by the appellant is devoid of any merit.”
In this context we find that decision of Hon'ble Karnataka High Court in the case of Rishabhchand Bhansali v. DCIT 267 ITR 577 relied by ld. CIT(A) was in context to holding the approval to be administrative for the reasons that no opportunity of hearing is to be given to assessee before grant of approval.
Further all other aspects as considered by Ld. CIT(A) have been dealt extensively in various decision of the Coordinate Benches including decision in the case of Manoj Kumar Singh vs DCIT in wherein we both of us were on quorum. Similar approval involving reliance of electronic evidence and mention of draft assessment order ‘as amended’ was involved and this Bench had decide the issue against the Revenue with the following relevant observations to facts of that case; “9. However, leaving apart the contentions of ld. Sr. Counsel that tenor of approval does not show application of mind or that multiple approval were granted so to presume that there was not application of mind what we find after taking into consideration, the copy of approval granted for relevant assessment years, is that approving authority has mentioned that the impugned letter of approval that the approval has been granted to the draft assessment order ‘as amended’. This phrase ‘as amended’ is quite ambiguous, and actually nothing could be explained or justified by ld. DR for using these words and thus rather than helping the case of Revenue and Ld. DR, it puts the case of the Revenue in 7 docks as there is nothing in letter dated 28.03.22 by the AO to mention that at any stage before 28.03.22, there was any communication between the two authorities. The AO merely mentions that cases of assessee for AYs 2011-12 to 2021 are being put up for Zeal Impex & Traders Pvt. Ltd. (AY: 2014-15) approval. It does not even mention of forwarding records and that any previous direction on the drafts is given effect. There is no mention that any time between this letter dated 28.03.2022 or 30.03.2022, the two authorities have gone through the draft assessment order afresh, so as to justify the use of words ‘as amended’ in the approval letter.
It can be further appreciated from the material on record and discussion aforesaid that this is a case where excessive reliance has been placed on the electronic/digital evidence, and the approving authority does not mention in the approval letter that electronic evidences were examined and were tested on principles of law governing the relevancy and admissibility of electronic evidences seized during search or analyzed later on. Rather, the approving authority by mentioning para-3 of the approval letter that “you have certified about perusal and verification of data seized in electronic format through working copies having certified hash values as that of original hard drives/CDs/pen drives/mobile data & any other electronic data” admits that without any independent verification, the AO’s certification was relied to accept that the electronic evidences were collected and relied in accordance with law.”
7.1 The coordinate bench further held that where electronic evidences are to relied the Digital Evidence Investigation Manual, 2014 (hereinafter called ‘the Manual’) of the Central Board of Direct Taxes needs to be adhered to and if same is not then the approval granted u/s 153D of the Act would reflect non application of mind. The relevant part is reproduced below; “16. However, after examining the assessment order, we are of the considered view that it is not a case where a single issues was involved or same set of incriminating evidence, being some physical evidences, was relied by the AO. The incriminating evidences were multiple electronic evidences found form multiple digital devices thus in regard to same the approving authority should have made sure, before granting of approval, that at time of search and thereafter the investigation wing authorities and so also the AO has duly followed the instructions of the Board as laid in the Manual. The aforesaid directions of Board in para 9.1 and 9.6 of the Manual, requiring as to what all material should be annexed to the assessment order in case the assessment is outcome of electronic or digital evidences seems to be completely ignored by the AO. Even if for sake of arguments it is accepted that they are not instructions u/s 119 of the Act, but then that Zeal Impex & Traders Pvt. Ltd. (AY: 2014-15) does not lead to inference that the instructions of Board could be neglected by AO and while granting approval u/s 153D of the Act, too, the same can be left out of consideration by the competent authority on assumption that it is merely an administrative function. Rather, as discussed here above the approving authority casually records that veracity of electronic evidences have been accepted as certified by the AO. Same only leads to one conclusion that approval was mechanical.
The law in this regard has quite crystallized by now. 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 High Court made wide ranging observations towards the manner and legality of approval under s. 153D of the Act by observing that the approval under s. 153D of the Act being mandatory, while elaborate reasons need not be given, there has to be some indication that approving authority has examined draft orders and finds that it meets the requirement of law. The approving authority is expected to indicate his thought process while granting approval, held that it is not correct on the part of the Revenue to contend that the approval itself is not justifiable. Where the Court finds that the approval is granted mechanically, it would vitiate the assessment order itself. The Hon'ble High Court inter-alia observed that there is no 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 judgment in the case of ACIT vsSerajuddin& Co. Kolkata was dismissed as reported in (2024) 163 taxmann.com 118 (SC).
Though there are catena of decision of coordinate bench in favour of assessees, we rely Hon’ble Jurisdictional High Court decision in case of Shiv Kumar NayarPCIT vs Shiv Kumar Nayyar reported in 163 taxmann.com 9 which has also relied this decision in case of Serajuddin(supra) and held in para 10 to 15 as follow; “11. A plain reading of the aforesaid provision evinces an uncontrived position of law that the approval under Section 153D of the Act has to be granted for “each Zeal Impex & Traders Pvt. Ltd. (AY: 2014-15) assessment year” referred to in clause (b) of sub-section (1) of Section 153A of the Act. It is beneficial to refer to the decision of the High Court of Judicature at Allahabad in the case of PCIT v. Sapna Gupta [2022 SCC OnLine All 1294] which captures with precision the scope of the concerned provision and more significantly, the import of the phrase- “each assessment year” used in the language of Section 153D of the Act. The relevant paragraphs of the said decision are reproduced as under:- “13. 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 18 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.”
In the light of the aforesaid discussion, we are inclined to sustain ground no. 2 as raised by the assessee and hold the approval granted u/s 153D of the Act to be not in accordance with law. The appeal of the assessee is allowed and the appeal of the Revenue is dismissed.