SWATY MEHTA,DELHI vs. ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-17, DELHI

Heard rival submissions, perused the orders of the authorities below and the submissions made before us. In these appeals i.e. Smt. Sonia Mehta & Swati Mehta approval u/s 153D was granted by the Addl. CIT, Central Range-5, New Delhi on 15.12.2018 approving the draft assessment orders by way of a common approval for various assessment years i.e. from assessment years 2011-12 to 2017-18 as under:

Whether a common approval granted for various assessment years is a valid approval or not came up for consideration before various High Courts including the Hon’ble Jurisdictional Delhi High Court in the case of PCIT vs. Anuj Bansal (supra) & PCIT vs. Shiv Kumar Nayyar (supra). We also observed that similar issue came up for consideration in the following cases:

Brief facts are that a search under Section 132 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) was carried out on the assessee group of cases on 27th April, 2014. Consequently, for the assessment years 2009-10 to 2015-16, notices under Section 153A of the Act were issued by the Revenue to the assessee. The assessee, during the course of assessment proceedings, submitted that the original returns filed be considered as returns filed in response to notices under Section 153A of the Act. Accordingly, assessments were framed by the ACIT, Central Circle-8, New Delhi for the relevant assessment years 2009-10 to 2015-16 vide different orders dated 27th December, 2016 under Section 153A read with Section 143(3) of the Act. Aggrieved by the additions made by the Assessing Officer, the assessee preferred appeals before learned CIT(A) and learned CIT(A) also passed appellate orders for these above assessment years. Aggrieved against the appellate orders, assessee preferred appeals before the Tribunal. The assessee, vide letter dated 27th October, 2021, for these assessment years, raised additional ground in all these appeals. The ground as raised is identical and hence, I will take the ground raised in assessment year 2009-10, which reads as under:-

This ground was adjudicated by the learned Judicial Member and learned Accountant Member after admitting the same and there is no dispute about admissibility of this ground. Before me, learned Counsel for the assessee filed copy of approval (which is in Hindi language but assessee filed a translated copy), which reads as under:- “F.No./A.C.I.T./C.R.-2/2016-17/1029 Dated:- 27-12-2016 To, The Assistant Commissioner of Income Tax (Central) (Circle)-8, New Delhi. Subject:- Karan Luthra Group Income Tax Rules 153D for approval and closing proceedings. Please refer to letter F.No. Assistant Commissioner of Income Tax/Central Circle-08/2016-17/1311, dated – 27/12/2016 received in this office from Assistant Commissioner of Income Tax/Central Circle-08, New Delhi regarding the above subject. These draft orders are sent by you for approval under section 153D.

Learned Counsel stated that the copy of approval is obtained through RTI and Department, vide letter dated 2ndAugust, 2021, provided this approval. Accordingly, the additional grounds are raised vide application dated 27th October, 2021. Learned Counsel for the assessee made argument that as per the mandate of Section 153D of the Act, the approval is to be granted to the assessment order by the Additional CIT/JCIT after due application of mind. Learned Counsel for the assessee stated that this approval dated 27.12.2016 was granted in lieu of proposal sent by the Assessing Officer i.e. the Assistant Commissioner of Income Tax, Central Circle-08, New Delhi dated 27.12.2016. It means, according to learned Counsel, the Additional CIT granted approval of these seven draft assessment orders on the same date. He further explained that as per this proposal, the Assessing Officer, no assessments records, search materials, replies filed by assessee or any material related to these assessments was provided or examined by the 41 6159, 6160, 6214, 6215 & 6216/Del/2018 Dheeraj Chaudhary Additional CIT. In view of these facts, learned Counsel argued that that this issue is now settled by the decision of Hon'ble Delhi High Court in the case of PCIT(Central)-2 Vs. Anuj Bansal – [2024] 165 taxmann.com 2 (Delhi) and PCIT Vs. Shiv Kumar Nayyar – [2024] 163 taxmann.com 9 (Delhi). Even this issue has been dealt with by Hon’ble Orissa High Court in the case of ACIT Vs. Serajuddin& Co. – [2023] 150 taxmann.com 146(Orissa). Similar view is taken by Hon’ble Allahabad High Court in the case of PCIT Vs. Sapna Gupta – [2023] 147 taxmann.com 288 (Allahabad). Learned Counsel argued that the jurisprudence arising out of the above case laws is that an approval under Section 153D of the Act is considered to be as given with no application of mind and given in a mechanical manner when the approval itself does not reflect any application of mind. He narrated the facts of the present case stating that on 27th December, 2016, the Assessing Officer sent the draft assessment order to the Additional CIT for approval and on the very same date i.e., 27th December, 2016, the Additional CIT granted approval. He produced before us the said letter of the Assessing Officer along with approval granted by the Additional CIT. From a perusal of the above said approval, it was argued that there is not even a token of mention of the draft orders having been perused by the Additional CIT, rather, the letter simply grants approval. He argued that even the bare minimum requirement of the approving authority, having to indicate what the thought process was involved was, is missing in the aforementioned approval order. In the approval order, there is no whisper in regard to the fact that the Additional CIT has examined the seized documents or the proposed additions made in the draft assessment order as the same was forwarded to him for her perusal. From the approval, it is clear that there is no reason given and it is bare minimum for the approving authority that there should have been some indication that the approving authority has examined the 11 draft orders and finds that it meets the requirement of the Act. In terms of the above, learned Counsel for the assessee stated that the above approvals are mechanical and without application of mind and hence, the assessment orders approved without application of mind is to be quashed. He supported the order of learned Judicial Member.

I have heard the rival submissions and gone through the facts and circumstances of the case. Admitted facts are that for all the relevant six assessment years, only one approval is granted by the Additional CIT as is available on record, which is a part of this order at Paragraph 5. The provisions of Section 153D of the Act where prior approval is made necessary for assessments in search and seizure cases is introduced by the legislature by the Finance Act, 2007 with effect from 1st June, 2007. The relevant provisions of Section 153D read as under:- “153D. 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.”

As argued by the learned Counsel for the assessee, in view of this provision, I noted that an important concept mentioned in Section 153A of the Act, which is peculiar to the scheme of search assessments. Keeping in view the basic fundamental features of search assessments i.e., Section 153A of the Act, if the provisions of Section 153D is scrutinized, it would become manifest that an important phrase is employed in the text of Section 153D, which is “each assessment year”. The bare reading of Section 153D of the Act makes it clear that separate approval of draft assessment order in each year is to be obtained. The Hon’ble Allahabad High Court in the case of PCIT Vs. Sapna Gupta – [2023] 147 taxmann.com 288 (Allahabad), while adjudicating this issue, has considered the important concept of each assessment year for the purpose of approval to be granted under Section 153D, as under:- “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).

From the above proposal, it is clear that the same is not accompanied by any assessment folder, seized material or any other related documents for completion of assessment. It means that before the Additional CIT, only a proposal vide letter F.No.ACIT/Central Cir.- 08/2016-17/1311 dated 27th December, 2016 was sent by the Assessing Officer. In the given facts, whether this approval granted by the Additional CIT is mechanical or there is due application of mind or not.

I have gone through the case law of Hon’ble Orissa High Court in the case of Serajuddin & Co. (supra), wherein Hon’ble High Court has considered the meaning of approval and what must containwhile granting of approval as discussed by Hon'ble Supreme Court in the case of Rajesh Kumar Vs. DCIT – [2006] 157 Taxman 168 (SC), wherein Hon'ble Supreme Court, in the context of Section 142(2A) of the Act which empowers the Assessing Officer to direct a special audit and obtaining a prior approval, has explained the approval as under:- “58. An order of approval is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority was required to go through it. He could have arrived at a different opinion. He in a situation of this nature could have corrected the assessing officer if he was found to have adopted a wrong approach or posed a wrong question unto himself. He could have been asked to complete the process of the assessment within the specified time so as to save the Revenue from suffering any loss. The same purpose might 16 have been achieved upon production of some materials for understanding the books of accounts and/or the entries made therein. While exercising its power, the assessing officer has to form an opinion. It is final so far he is concerned albeit subject to approval of the Chief Commissioner or the Commissioner, as the case may be. It is only at that stage he is required to consider the matter and not at a subsequent stage, viz., after the approval is given.”

Further, Hon’ble Orissa High Court in the case of Serajuddin & Co. (supra) has also considered the CBDT Manual of Office Procedure issued in February, 2003 in exercise of powers under Section 119 of the Act and reproduced Para 9 of Chapter 3 of Volume-II(Technical) of the Manual, which reads 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 docketed in the order sheet and a copy of the draft order and covering letter filed in the relevant miscellaneous records folder. Due opportunity of being heard should be given to the assessee by the supervisory officer giving approval to the proposed block assessment, at least one month before the time barring date. Finally once such approval is granted, it must be in writing and filed in the relevant folder indicated above after making a due entry in the order-sheet. The assessment order can be passed only after the receipt of such approval. The fact that such approval has been obtained should also be mentioned in the body of the assessment order itself.”

Further, in the case of Serajuddin & Co. (supra), Hon’ble Orissa High Court has also considered the issue of approval, according to the Revenue, it is itself not justiciable. Hon'ble Supreme Court has considered where approval granted is mechanical and it would vitiate the assessment order itself. Hon'ble Supreme Court, in the case of Sahara India (Firm) Vs. CIT – [2008] 169 Taxman 328 (SC), has considered this issue as under:- “8. There is no gainsaying that recourse to the said provision cannot be had by the Assessing Officer merely to shift his responsibility of scrutinizing the accounts of an assessee and pass on the buck to the special auditor. Similarly, the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty ritual. Needless to emphasize that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case.”

Further, Hon'ble Supreme Court has reiterated the view expressed in Rajesh Kumar (supra) as under:- “29. In Rajesh Kumar (2007) 2 SCC 181 it has been held that in view of section 136 of the Act, proceedings before an Assessing Officer are deemed to be judicial proceedings. Section 136 of the Act, stipulates that any proceeding before an Income-tax Authority shall be deemed to be judicial proceedings within the meaning of sections 193 and 228 of Indian Penal Code, 1860 and also for the purpose of section 196 of I.P.C. and every Income- tax Authority is a court for the purpose of section 195 of Code of Criminal Procedure, 1973. Though having regard to the language of the provision, we have some reservations on the said view expressed in Rajesh Kumar’s case (supra), but having held that when civil consequences ensue, no distinction between quasi judicial and administrative order survives, we deem it unnecessary to dilate on the scope section 136 of the Act. It is the civil consequence which obliterates the distinction between quasi judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away. Therefore, it hardly needs reiteration that even a purely administrative order which entails civil consequences, must be consistent with the rules of natural justice. (Also see :Maneka Gandhi v. Union of India [1978] 1 SCC 248 and S.L. Kapoor v. Jagmohan [1980] 4 SCC 379).

As already noted above, the expression “civil consequences” encompasses infraction of not merely property or personal rights but of civil liberties, material deprivations and non- pecuniary damages. Anything which affects a citizen in his civil life comes under its wide umbrella. Accordingly, we reject the argument and hold that since an order under section 142(2A) does entail civil consequences, the rule audialterampartem is required to be observed.”

Further, Hon’ble Orissa High Court in the case of Serajuddin & Co. (supra), has considered the case of Hon'ble Delhi High Court in the case of Yum! Restaurants Asia Pte.Ltd. Vs. DCIT – [2017] 397 ITR 665 (Delhi), which has dealt with the requirement of approval/sanction under Section 151(2) of the Act for initiating proceedings under Section 147 read with Section 148 of the Act. Hon'ble Delhi High Court observed as under:- “11. The purpose of section 151 of the Act is to introduce a supervisory check over the work of the AO, particularly, in the context of reopening of assessment. The law expects the AO to exercise the power under section 147 of the Act to reopen an assessment only after due application of mind. If for some reason, there is an error that creeps into this exercise by the AO, then the law expects the superior officer to be able to correct that error. This explains why section 151(1) requires an officer of the rank of the Joint Commissioner to oversee the decision of the AO where the return originally filed was assessed under Section 143(3) of the Act. Further, where the reopening of an assessment is sought to be made after the expiry of four years from the end of the relevant AY, a further check by the further superior officer is contemplated.”

Further, Hon'ble Delhi High Court in the case of PCIT Vs. Shiv Kumar Nayyar – [2024] 163 taxmann.com 9 (Delhi) and PCIT(Central- 2) Vs. Anuj Bansal – [2024] 165 taxmann.com 2(Delhi), has considered the identical issue wherein it was emphasized that approval was granted without examining the assessment records or the searched material and, Hon’ble High Court in Paragraph 13, extracted the findings of the Tribunal as under:- “13. In another words, it was emphasized that the approval was granted without examining the assessment record or the search material. The relevant observations made in this behalf by the Tribunal in the impugned order are extracted hereafter: “17.1 However, in the present case, we have no hesitation in stating that there is complete non-application of mind by the Learned Addl. CIT before granting the approval. Had there been application of mind, he would not have approved the draft assessment order, where the returned income of Rs.87,20,580/-. Similarly, when the total assessed income as per the AO comes to Rs.16,69,42,560/-, the Addl. CIT could not have approved the assessed income at Rs.1,65,07,560/- had he applied his mind. The addition of Rs.15,04,35,000/- made by the AO in the instant case is completely out of the scene in the final assessed income shows volumes. 17.2 Even the factual situation is much worse than the facts decided by the Tribunal in the case of Sanjay Duggal (supra). In that case, at least the assessment folders were sent whereas in the instant case, as appears from the letter

I have gone through the order of learned Accountant Member and noted that in Paragraph 7, it is noted that the approval accorded by the Additional CIT under Section 153D of the Act is nothing but the culmination of day to day involvement of the Assessing Officer and the Additional CIT in search assessments. The relevant procedure noted by the learned Accountant Member reads as “The fact is that the AO and the Addl.CIT works as team members and the AO works under the supervision of the Addl. CIT. The team work gets culmination by the approval under section 153D of the Act. Such involvement of the Addl.CIT in the search assessment is in routine in the Central Charges of the Income Tax Department where the search assessments are completed. It is not a case where the assessment records, other files, investigation folders, etc. of a search case change hands for the first time between the AO and the Addl.CIT at the time of approval of the search assessment. The detail mentioned above is based on my personal experience while working in each hierarchy (AO onwards) of the Central Charges of the Income Tax Department.” The second aspect considered by the learned Accountant Member is that approval under Section 153D of the Act by the Additional CIT is merely administrative in nature to safeguard internal checks and balances without affecting the quasi- judicial powers of the Assessing Officer and creating any prejudice to the assessee. It was further noted by the learned AM that while granting approval under Section 153D of the Act, the Additional CIT does not act as a reviewing/appellate authority to allow or disallow the additions proposed by the Assessing Officer.

I note the above observations of learned Accountant Member and is of the view that assessment proceedings or any proceedings under the Act before the Assessing Officer which affect the levy of tax on the subject are judicial in nature. It is well-settled that the Assessing Officer upon whom jurisdiction has been conferred to make all orders judicially, has to act independently. The Assessing Officer, while framing assessment, cannot act on the advice given by an outsider even though he may be an authority higher in rank to him in official hierarchy. Higher authorities that include Additional 21 CIT/JCIT under whom the Assessing Officer is administratively under control, are not entitled to give opinion or advice in regard to assessment proceedings being quasi-judicial in nature. This is, however, subject to the provisions of Section 144A of the Act, where the assessee or the Assessing Officer suo-moto can refer the matter but, for that, he has to invoke this provision. This view is supported by Hon'ble Bombay High Court in the case of Dinshaw Darabshaw Shroff Vs. CIT – [1943] 11 ITR 172 (Bom), wherein it is held that although the Assessing Officer making an assessment is not acting as a court of law, it is clear that while framing assessment is acting in quasi-judicial capacity, and he ought to conform to the more elementary rules of judicial procedure, and in particular to conduct the case himself, and not allow somebody else, even his superior officer, to interfere in the conduct of the case. What to talk of superior authority, Hon'ble Supreme Court in the case of Union of India Vs. Tata Engineering & Locomotive Co. Ltd. – AIR 1998 SC 287, 288, held that the Assessing Officer is entitled to complete the assessment as per the provisions of Section 143(3) of the Act and, for this purpose, he can call for and examine whatever document he considers relevant. Hon'ble Supreme Court held that, if the Assessing Officer fails to follow any judgment of the High Court or of the Supreme Court, the assessee has adequate statutory remedies by way of an appeal and revision against the assessment order but, the Court should not try to control the mode and manner in which an assessment should be made. Hence, the higher authority including the Additional CIT/JCIT or CIT or CCIT, being administrative controlling authorities of the Assessing Officer, are not entitled to interfere in the judicial process of the Assessing Officer while framing assessment. In view of the above, I am of the view that, while making an assessment, the Assessing Officer is solely to be guided by the provisions of law and he cannot avail of any instructions or directions given by his higher authority including CBDT in making a particular assessment in a particular way. While passing assessment orders, he is only bound by what, if any, has been directed under Section 144A of the Act by his Additional CIT/JCIT or the instructions issued by the CBDT under Section 119 of the Act or what has been decided by the appellate authorities as mentioned in the Act. He has also to follow the precedence established by Hon’ble High Courts or the Supreme Court. The proceeding under Section 153D for granting approval is entirely different from the process of making assessment. Once draft assessment is prepared, the process of approval starts under Section 153D of the Act. Then the authority prescribed under Section 153D i.e., the Additional CIT/JCIT has to apply his mind for grant of approval after verifying the assessment records, seized records, etc.

I noted that the common thread discussed by Hon’ble Orissa High Court in the case of Serajuddin & Co. (supra), by Hon'ble Delhi High Court in the case of Anuj Bansal (supra) and by Hon’ble Allahabad High Court in the case of Sapna Gupta (supra) is that the 22 requirement of previous approval of assessment by the Additional CIT/Joint CIT in terms of provisions of Section 153D of the Act being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the Section is not turned into an empty formality. Needless to say that before granting approval, the Additional CIT/Joint CIT, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer and the approval must reflect the application of mind to the facts of the case. The CBDT itself recognized the importance of this provision and the above laid down principle and hence issued Manual of Office Procedure in February, 2023 in exercise of powers under Section 119 of the Act. Vide Para 9 of Chapter 3 of Volume-II (Technical), a clear procedure is devised i.e., how an approval is to be granted for draft assessment for passing of assessment order in search cases. According to the Manual, the Assessing Officer should submit the draft assessment order for such approval well in time along with docketed in the order sheet, a copy of the draft assessment order, covering letter filed in the relevant miscellaneous records folder. Even, it is noted that due opportunity of being heard should be given to the assessee by the supervisory officer giving approval to the proposed block assessment, at least one month before the time barring date. It is further noted that once such approval is granted, it must be in writing and filed in the relevant folder indicating above after making due entry in the order sheet. This is the mandate provided in the office manual of the Department.In view of above, I am of the view that the ‘approval’, as mandated u/s 153D of the Act, signifies a product of human thoughts based on the given set of facts and interpretation of the applicable law. It provides equality in treatment and thus prevents bias, prejudice and arbitrariness. It also prevents and avoids inconsistent and divergent views. The power of approval to the specified authority i.e., Superior authority has been envisaged with the objectives that no illegality or biasness, to either of the sides i.e., the assessee or the Revenue, remains.

In the present case before me, the above procedure is not at all followed as is evident from the proposal sent by the Assessing Officer as reproduced in Paragraph 10. It means that the approval granted is mechanical in manner and without application of mind by the approving authority i.e., by the Additional CIT. Now, in view of the above discussion and legal position, I answer the question as under:-

As we have quashed the assessment allowing ground nos. 3 & 4 of grounds of appeal of both these assessees, all other technical grounds as well as grounds on merits are not gone into as it would be of only academic exercise at this stage and therefore they are left open.

In the result, the appeals of the assessees are partly allowed as indicated above.