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Income Tax Appellate Tribunal, DELHI BENCH ‘C’: NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI AVDHESH KUMAR MISHRA
ORDER
PER AVDHESH KUMAR MISHRA, AM
This appeal of the assessee for Assessment Year (‘AY’) 2015-16 is directed against the order dated 30.09.2023 of the Commissioner of Income Tax (Appeals)-23, New Delhi [‘CIT(A)’].
The assessee has raised following grounds: “1. The CIT(A) erred in law and on facts in confirming an addition of Rs. 42,98,086/- as unexplained expenditure u/s 69C of the Act by holding the diary of Mr. Rohit Sharma seized from the office of the assessee as belonging to the assessee by applying the presumption u/s 132(4) of the Act ignoring that the said presumption is a rebuttable presumption which got rebutted: (i) by the affidavit of Mr. Rohit Sharma placed on record where he owned the said diary and also explained the contents of the same therein; (ii) when the diary has been owned by a third party, the diary cannot be considered as Kailash Gahlot belonging to the assessee as per the settled law; (iii) no amount mentioned therein was ever given by the appellant; and (iv) also ignoring the explanation of each entry given by him in the affidavit without examining him. Thus, the addition so made ignoring the said affidavit without bringing any adverse evidence on record should be deleted.
2. The CIT(A) erred in law and on facts in confirming the addition of Rs 42,98,086/- as unexplained expenditure u/s 69C of the Act being the amounts mentioned in a diary seized from his office premises as expenses incurred by the appellant during his election campaign ignoring: (i) that the said diary did not belong to the appellant; (ii) the appellant never incurred the said amount during his election campaign in his constituency as the Expenditure Observer appointed by the Election Commission never challenged the same; (iii) the genuineness of the contents of the replies or the credibility of the evidence placed by the Appellant before him; and (iv) the evidences placed on record to show that the said amounts spent by many party workers on their own volition without the knowledge of the appellant. Thus, the addition so made should be deleted.
3. Without prejudice to the above, the Assessing Officer erred in law and on facts in making an addition of Rs.42,98,086/- as unexplained expenditure u/s 69C of the Act without appreciating that there were many duplicate / triplicate entries in the said diary and all the amounts cannot be aggregated for the purpose of computing the amount spent. Thus, the addition so made should be deleted.
The impugned assessment order is bad in law and on facts as it is based on a mechanical approval u/s 153D of the Act given by the Addl. CIT without application of his mind as a supervisory authority on the subject in law and on facts and the material available on the record. Thus, the same must be quashed.
5. Without prejudice to the above grounds, the assessing officer erred in law and on facts in charging tax u/s 115BBE of the Act whereas the additional tax liability was applicable w.e.f. AY 2017-18 and such addition otherwise does not attract the said section, which must be reversed.
Kailash Gahlot 6. The appellant craves the leave to add, substitute, modify, delete or amend all or any ground of appeal either before or at the time of hearing.”
3. It is relevant to mention here that this appeal was dismissed vide order dated 02.07.2024 by the co-ordinate bench. Later, the assessee filed Miscellaneous Application No. 280/Del/2024, which was allowed and this appeal was recalled vide order dated 30.01.2025 as under: - “8. From examination of record in light of aforesaid rival contentions, it is crystal clear that para no. 10 of impugned order mentions submissions regarding impugned orders being passed on mechanical approval under Section 153D of the Act without due application of mind. Para no. 11 of the order mentions that charging tax under Section 115BBC of the Act whereas the additional tax liability was applicable w.e.f. assessment year 2017-18 was not attracted. The above-said arguments inadvertently escaped adjudication. Ground of appeal no.3 regarding aggregate amount of Rs.42,98,086/- is being aggregated duplicate/ triplicate entries has not been adjudicated. The addition is based on entries in diaries by Rohit Sharma was rejected on the ground of absence of specific details and supporting documents and then accepting the same that contents against appellant. In absence of specific diaries which were contradictory. Accepting of contents of a third-party diary without independent corroboration was against law as laid down by the Hon'ble Supreme Court in Common Case [2017] 77 taxmann.com 245 (SC) and CBI Vs. V.C. Shukla [1998]
3. SCC 410 and thus apparent from record.
9. As per ratio of judgment in Shri Rashesh Manhar Bhansali vs. Addl. Commissioner of Income Tax, supra, it is well settled principles of law that non-consideration of detailed submissions would result in a mistake apparent from record in the order.
10. In view of above material facts and well settled principles of law, impugned order dated 02.07.2024 being unsustainable in law is set aside. The appeal is restored to its original number. The Registry is directed to fix the appeal for hearing on out of turn basis on 21.07.2025.”
Kailash Gahlot 4. The relevant facts giving rise to this recalled appeal are that the assessee along with Corporate International Financial Services Ltd. group of cases were searched under Section 132 of the Income Tax Act, 1961 (‘Act’) on 10.10.2018. The assessee had furnished its original Income Tax Return (‘ITR’) of the relevant year declaring income of Rs.1,66,73,890/- on 24.09.2015. As consequence of the search, notice under section 153A of the Act was issued to the assessee, who filed ITR declaring the same income as in the original ITR. The case was scrutinized and consequential assessment was completed at income of Rs.2,09,71,980/-, wherein an addition of unexplained expenditure of Rs.42,98,086/- was made. During the course of search under Section 132 of the Act, the office premises of assessee at Block-A, Prem Nursery, Najafgarh, New Delhi was also searched which resulted seizure of certain incriminating documents in the form of diary containing details of various expenditure, not found duly accounted for in regular books of accounts, relating to the Delhi Legislature Election (the assessee contested that election). The expenditure as per the seized diary, worked out to Rs.42,98,086/- whose source was not explained by the assessee during the course of the assessment proceedings, therefore, the Ld. Assessing officer (‘AO’) observing as under taxed the same under section 69C of the Act: - “6.3.1 The written submission filed by AR of the assessee has been perused and found that the assessee has mainly contended that the diary was found from the office of the assessee and not found from the possession of the assessee. The said diary was written by Shri Rohit Sharma and the same belongs to him for this effect the AR of the assessee has also filed the affidavit of Shri Rohit Sharma. Further, as regards it is also contended that Kailash Gahlot whatever written in diary is related to Shri Rohit Sharma. The contention of the assessee is not acceptable for the reason that a search and seizure action was carried out at the office premise situated at A-Block Prem Nursery, Najafgarh, New Delhi which is office of the assessee. During the course of search proceedings, a diary having details of expenses incurred during election period was seized and same was marked as Annexure A-2 from the premises owned and controlled by assessee. Therefore, in view of provisions of section 132(4A) and 292C of the Act, it can easily be presumed that this evidence belongs to the assessee only. On analysis of entries mentioned in diary, it clearly depicts that the expenses incurred and mentioned in the diary are related to election contested by the assessee wherein various items like flex board, Pamphlets/leaflets, Stickers, Halwai for food, purchasing Rassi, calendar vendor, Caps (Topi) for AAP, Flags etc. are written which establishes that the expenses are incurred on election material by the assessee out of his undisclosed income. Further, the diary found from the office of assessee means that the assessee has control over the diary and the same must have been prepared by Shri Rohit Sharma under the supervision and on the direction of assessee. The dairy contains details of expenses made during the election held in New Delhi in FY 14-15 in which the assessee contested election and was candidate from AAP party. Further, in the reply and affidavit filed by the assessee, it is stated by the assessee that shri Rohit Sharma is volunteer of Aam Aadmi Party and he contributed in many activities of the said election for promoting AAP. Although as per law and on facts, it is proved that diary belongs to assessee and even if consider that diary is of Sh. Rohit Sharma but the same was definitely maintained on the direction of assessee and the expenses incurred on these election materials have been made out of his undisclosed income. Therefore, as per discussion held above and on the basis of seized/incriminating material and findings made during the course of search as well as during the course of assessment proceedings. Accordingly, an amount of Rs. 42,98,086/- is treated as unexplained and added to the total income of the assesses u/s 69C of the Act as unexplained expenditure for the year under consideration and taxed us 115JB of the IT Act, 1061. (Addition: Rs. 42,98,086/-)”
Dissatisfied with the search assessment order, the assessee filed appeal before the Ld. CIT(A), but did not succeed. Hence, this appeal is before us.
Kailash Gahlot 6. During the course of hearing before us, the Ld. the Ld. Authorized Representative (‘AR’) argued the case not only on the merit of the case but also on the technical issues i.e. approval under section 153D of the Act. He contended that the approval had been given in mechanical manner and without application of mind. Hence, the order required to be quashed ab initio. On merit, the Ld. AR reiterated the submissions/arguments/ contentions as made/taken before the Ld. CIT(A).
First, we would decide the technical issue i.e. approval under section 153D of the Act and thereafter the merit of the addition.
The Ld. CIT(A) vide para 30 to 31 had dealt with the issue of approval under section 153D of the Act as under: - “30. 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 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 of obligations of the assessee, but only considers whether the Assessing Officer has fulfilled the requirements of section 153A/153C. The Hon'ble Karnataka High Court in its decision in Income Tax Appeal No. 63/2004 dated 23.2.2004 the case of Rishabchand Bhansali v. DCIT reported in [2004] 267 ITR 577. The Hon'ble Court has stated 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 (SIC-not)
Kailash Gahlot decide upon any rights of the assessee. The It. CIT, while examining the matter under the proviso to Section 1588G does not examine or adjudicate ирon the rights or obligations of the assessee, but only considers whether the AD has fulfilled the requirements of Chapter XIV."
31. In view of the above, the allegation of the appellant that the Additional Commissioner of Income Tax 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 approval.”
On merit, the Ld. CIT(A) observing as under dismissed the appeal: - “12. From the perusal of the contents of the diary, it is evident that the expenses were made for the purpose of election. It is an undisputed fact that the diary was authored by Shri Rohit Sharma. The fact that the diary was written by Shri Rohit Sharma is also not disputed. The only issue of dispute is that to whom the expenses mentioned in the diary belonged to. It is the claim of the appellant that the expenses were not incurred for the election purpose of the appellant. In support, the appellant has produced the copy of the affidavit of Shri Rohit Sharma the author of the diary.
13. In the affidavit, Shri Rohit Sharma stated that only an amount of Rs. 10,95,700/- was Incurred for promotion of AAM ADMI PARTY and its candidate in west Delhi constituencies. It was also stated in the affidavit that the amounts mentioned in the dairy is not the actual expense but estimates of expenses. In support of the affidavit, however, no other evidence was produced. The contents of the affidavit are not supported by any other evidence. The affidavit does not contain all the details mentioned/written in the document. There are instances of payment by cheque and through banking channels, however, the details of such transactions have not been stated by Shri Rohit Sharma. In the affidavit, the only a selective portion has been owned up.
Kailash Gahlot 14. In the diary, there are names of some persons who are relative of the appellant Shri Kallash Gahlot. The brother of the appellant is Shri Harish Gahlot who is also called as HG Sir by many people. There are references in the diary about receipts and payments from Harish Gahlot (HG). Further, there is mention of direction to be sought from Shri Hitesh Gahlot Shri Viresh Gahlot and Shri Hitesh Gahlot are nephew of the appellant. There is mention in the diary about their appointment as counting agent (entry on page in the diary with the date of 9 February 2015). There is reference to monetary transaction for the counting agents on the same page. On page with the date of 12 February 2015, there is mention of receipt of Rs.50,000/- from HG Sir (1.e. Shri Harish Gahlot the brother of the appellant) Similarly, on the page with date 30 December 2015, there is mention of receipt of Rs.50,000/- from HG Sir. On this page there is also details of further payment made to various persons with their names mentioned on the same page.
15. Thus, the claim of the appellant that the contents of the diary do not pertain to him Is Incorrect. The affidavit of the author Shri Rohit Sharma is also a false affidavit.
16. In the diary there is mention of both receipts and payments. It is like running account wherein both the payments in cash as well as cheque has been mentioned.
If the diary is found, it is the duty of the author to explain the contents of the diary. The source of money received and the purpose of expenditure has to be explained by the author. In this case, the author has not been able to satisfactorily explain the contents of each entry. If Rs.2,00,000/- Is received on 02.01.2015 (as mentioned in the diary), it is the duty of the author to explain the source of cash so received. The author cannot do cherry picking and absolve himself from the legal responsibility of not explaining the entire contents of the diary.”
18. On the diary page with date 13 February 2015, there is mention of the appellant Shri Kallash Gahlot (referred as KG Sir) for various issues like speak with KG Sir for buses arrangement for 14th program; Mail sent to KG sir w.r.t 14th February buses schedule; speak with KG Sir for Manjeev expense on election date; speak with KG Sir on pending payment of vendors etc.
19. On one page of the diary, there is detail of expense by way of cash as well as cheque. There is mentioned of payment by way of cheque of Kailash Gahlot Rs.33,600/- alongwith other expenses made in cash. The same has not been explained.
20. The diary has been found from the premise of the appellant. The contents of the diary clearly indicate that these are relating to election expenses of the appellant.
21. In the first page of the diary, the phone number (011-25873455) of the author is that of the appellant. The website is written as www.kailashgahlot.in. The organization where the author is working is written as Shri Ram Chander Gahlot Charitable Trust with address at A Block, Prem Nursery, Gopal Nagar, Najafgarh, New Delhi. Shri Ram Chander Gahlot was the father of the appellant on whose name a charitable trust was created by the appellant and his family members. The trust is running a school named Shri Ram International School where Shri Rohit Sharma is apparently working. The address of the author on the diary is the address of the appellant. The mobile no. 9810032340 written on the first of the diary belongs to Shri Rohit Kailash Gahlot who happens to be the son of the appellant 22. Therefore, the claim of the appellant that being public office, the diary was left by someone is not a plausible explanation. There was a clear-cut link between the appellant and author of the diary. The author of the diary is a person basically working for the appellant and his concerns.
23. From the narration in the diary, it is clearly evident and established that it was containing the details of election of the appellant and the expenditure incurred for election of the appellant.
During the course of appellate proceedings, the appellant argued that the expenditure was of the party (AAM AADMI PARTY). However, in this regard, no confirmation from the party was produced in support of the claim. It was also argued that the expenditure related to other candidates also. However, the appellant could not furnish evidence to show that the expenses related to other candidates and that those candidates have disclosed such expenditure in its account.
25. It is trite of the law that the claim and arguments has to be supported by cogent evidences. However, in the impugned case, no evidence has been furnished by the appellant. Infact, the appellant has shifted the burden of evidence on Shri Rohit Sharma, a small-time employee who happened to Kailash Gahlot write the contents of the diary. Shri Rohit Sharma is witness of the appellant but has miserably failed to explain the entire contents of the document. Therefore, the arguments of the appellant are not acceptable evidences.
In view of the above discussion, it is held that the Assessing Officer was justified in making addition of Rs.42,98,086/- In the case of the appellant.
27. The appellant has not been able to explain the source of funds for making expenditure of Rs.42,98,086/-. Therefore, the Assessing Officer was justified Invoking the provisions of section 69C read with section 115BBE in the impugned case.
28. In view of the above, ground nos. 1 to 7 are dismissed.”
10. The Ld. AR argued that the approval was given mechanically and without application of mind. It was submitted that the procedure prescribed by CBDT in the Office Procedure Manual Volume-II (Technical) was not followed by the Ld. AO and the Range Head. Mr. Bindal, placing reliance on various orders of the coordinate benches quashing assessments on the mechanical approval of the assessment by the Range Head. He relied upon the decisions in case of Hon’ble Orissa High Court, in the case of Sirajuddin & Co. (2023) 150 taxman.com 146 (Orissa) and Anuj Bansal (2024) 466 ITR 251 (Delhi).
On the other hand, the Ld. CIT-DR defended orders of the Authorities below. The Ld. CIT-DR argued that the assessment based on seized material clearly demonstrated the application of mind not only by the Ld. AO but also by the Ld. Range Head, who approved the said assessment order under section 153D of the Act and that was why the unexplained election expenditure had been taxed in the right person’s hands and not in the hands Kailash Gahlot of the conduit brought in during the assessment proceedings as the conduit was person of meagre income and could not source the election campaign of assessee from his finds. The Ld. CIT-DR submitted that the real beneficiary of election expenditure recorded in the seized diary was the assessee who was one of the contestants of Delhi State Election in the relevant year. Mr. Sidhu, CIT-DR, drew our attention to the provisions of section 292C of the Act. He contended that section 292C of the Act had been rightly invoked as the incriminating material was seized from the office premises of assessee. The Ld. CIT-DR filed a detailed write-up on 20.05.2024. He placed reliance on the decision of the Hon’ble Allahabad High Court in the case of Jagmohan Ram Ram Chandra 274 ITR 405 to submit that the AO could not be precluded from assessing the income in the hands of genuine person. Further, reliance was placed on the decision of the Hon’ble Delhi High Court in the case of JRD Stock Brokers Pvt. Ltd. (ITA No. 544/2005, 134/2014 & CM Appl. No. 5666/2014 order dated 12.09.2018) and various orders of Tribunal in cases of entry operators, where the Tribunal has upheld commission income in the hands of entry operators and unexplained credits in the hands of real beneficiaries.
The Ld. CIT-DR further contended that the Ld. AR had not brought any material on the record to demonstrate that there was non-application of mind by the Range Head while approving the case under section 153D of the Act. Mere allegation would not be sufficed. It was further submitted that in the Kailash Gahlot Central Charges only few group cases, wherein search under section 132 of the Act conducted, were centralized. The Ld. Joint/Additional CIT/Range Head was actively involved in assessments of all search cases from beginning. It was submitted that in search and seizure assessments, the Ld. AO, as normal practice, discussed the cases and took guidance. The Ld. CIT-DR drew our attention to following paras of the guidelines for assessments in search and seizure cases issued by the CBDT vide F. No. 286/161/2006-IT (Inv.-11) dated 22.12.2006 which highlighted the consultative approach between the AO and the Range Head in search and seizure assessments: “Para 1.3 On receipt of the appraisal report and seized material, the Assessing Officer and Range Head should jointly scrutinize the appraisal report and seized material and prepare an Examination Note to decide: i. Cases where notices u/s 153A of the Income-tax Act, 1961 (the Act) are required to be issued. ii. Cases where notices u/s 153C of the Act are required to be issued. iii. Cases where notices u/s 148 of the Act are required to be issued. iv. Cases where seized material pertains to persons other than those whose cases have been centralized.
Para 2.2 ....... If considered necessary, issue of directions u/s 144A of the Act should be given by the Range Head.
Para 3.2.... The final show cause notice should be prepared in consultation with the Addl. CIT.”
The Ld. CIT-DR contended that the claim of non-application of mind must be proven by a finding of fact, for which the assessee must provide the corroboratory evidence to demonstrate the non-application of mind and mere allegation was not sufficient. The allegation of the Ld. AR that the approval Kailash Gahlot was a mechanical exercise and without application of mind by the Range Head was not correct as in Central Charges all search and seizure assessments were regularly supervised and monitored by the Range Head periodically. The AO and the Range Head both had followed various instructions/guidelines of the Board for completion of the search and seizure assessments and the assessment order was finalized by the AO after obtaining approval under section 153D of the Act from the Range Head, who approved the order after due examination and verification. It was further submitted that the approval granted by the Addl. CIT was in the nature of administrative power. The Range Head while approving the order under section 153D of the Act was not required to examine or adjudicate upon the rights or obligations of the assessee, but only considers whether the Ld. AO had done assessment as per the provisions of section 153A of the Act. Reliance was placed on the judgment of Hon'ble Karnataka High Court in the case of Rishabhehand Bhansali; 267 ITR 577. The Ld. CIT-DR submitted that in the given facts of the case, it was evident that the Addl. CIT had applied his mind on the issue involved and had accorded his approval in accordance with the provisions of the Act. Such approval could not be alleged as mechanical and without application of mind.
We have heard both parties and have perused the material available on the record. The phrase “application of mind” which is at the core of the controversy here is a well-established expression in jurisprudence. In legal Kailash Gahlot parlance, approval and sanction are two different words having distinct shades of meaning depending on context wherein they are used (statutory interpretation, administrative law, corporate law, or criminal procedure). Approval is a formal expression of assent, usually given after an act is done, ratifying or confirming it. It is in the nature of post-facto recognition or confirmation. Approval often refers to supervisory/confirmatory consent by the higher authority. Whereas, Sanction is mandatory and jurisdictional without which, the proceedings are invalid. Sanction is more than mere approval. The Hon’ble Supreme court in the cases of Marathwada University v. Seshrao Balwant Rao Chavan, (1989) 3 SCC 132, Life Insurance Corporation of India v. Escorts Ltd., (1986) 1 SCC 264 and Kalpanath Rai vs State (1997) 8 SCC 732 have held that “approval” generally conveys a sense of confirmation of an act already done, while “sanction” conveys a prior permission or authorization before the act is done. The Hon’ble Supreme court in the case of Regional Manager v. Pawan Kumar Dubey, AIR 1976 SC 1766 have held that the approval and sanction are not synonymous. The context and statutory language wherein these words used determine the scope of these words; “sanction” and “approval”. The word 'approval' instead of 'sanction' has been used in section 153D of the Act.
The power to make assessment is confined to the AO only. Only directions issued under section 144A of the Act by the Range Head are binding. Therefore, while giving approval under section 153D of the Act, the Kailash Gahlot Range Head does not enter the realm of appellate jurisdiction and hence cannot go into the legal merits of the additions proposed in the draft order or other jurisdictional issues. Hence, the application of mind by approving authority must be ascertained in the limited context only.
The Hon’ble Delhi High Court (Full Bench), in the case of Kelvinator of India Ltd. 123 Taxmann 433 (FB), on the basis of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872, had drawn a presumption in the Income Tax matter that all official actions were performed regularly unless controverted by the corroboratory evidence. Thus; in the present case, the onus is on the assessee to rebut that the Addl. CIT while approving the case had not applied his mind. The Hon'ble Supreme Court, in the cases of State of Bihar vs PP Sharma AIR 1991 SC 1260, State of MP vs Harishankar Bhagwan (2010) 8 SCC 655, CS Krishnamurthy vs State of Karnataka AIR 2005 SC 2790 and State of Maharashtra vs. Ishwar Piraji Kalpatri AIR 1996 SC 722 has held that even in cases where the sanction order does not demonstrate the independent perusal of material and does not carry recital of reasons in view of the statutory presumption under section 114(e) of the Indian Evidence Act, 1872 if it is established that all the relevant material were duly put up for perusal before the authority, then the sanction cannot be considered as vitiated. In view of the presumption under 114(e) of the Indian Evidence Act, 1872 and the burden on the person challenging the non-application of mind and requirement of demonstrating the prejudice Kailash Gahlot caused due to such non-application of mind, if any, it is manifest that the validity of any approval must be tested rather than searching for an application of mind in such statuary orders, which is already presumed under 114(e) of evidence Act. Even otherwise, once the burden is on the party claiming non-application of mind, it will be easier to test the non-application of mind in any proceedings rather than ascertaining the reverse. The Ld. AR has not at all been able to rebut the presumption available under 114(e) of Evidence Act, 1872 by demonstrating as to how there has been non- application of mind in the approval order passed under section 153D of the Act. In the instant case, nothing has been placed on record to suggest that the Ld. AO and the Ld. Addl. CIT didn’t go through the relevant seized material and other material available in their possession/records including the appraisal reports. The allegation of non-application of mind has been made merely on the basis of absence of recitals of these acts in the body of the approval order under section 153D of the Act.
17. The Hon’ble Orissa High Court in the case of Sirajuddin & Co. (supra), which in turn had relied upon the decision of the Hon’ble Supreme Court in case of Rajesh Kumar (2007) 2 SCC 181, which was in respect of direction of the AO under section 142(2A) of the Act for special audit and Yum Restaurants Asia Pte. Ltd. 397 ITR 665, which was in respect of sanction under section 151(2) of the Act for initiating proceedings under section 147 of the Act. The orders under sections 142(2A) and or 151(2) of the Act for Kailash Gahlot initiating proceedings under section 147 of the Act are sanction orders issued to confer jurisdiction to the AO, which directly affect the rights & liabilities of the assessee under the Act, unlike the approval under section 153D of the Act which is an administrative approval by the supervisory authority confirming the proposed assessment order of the AO, who has valid jurisdiction. As discussed above, the sanction is quite different than that of approval. Hence, the case laws relied upon by the Ld. AR are in different context; hence, loss relevance.
The dismissal of SLP has no binding force in terms of Article 141 of the Constitution of India. Consequently, it has no binding precedent value, in contradiction with a reasoned order of the Hon’ble Supreme Court or an order passed in appeal. Reliance is placed on the decisions of the Hon’ble Supreme Court in the cases of Kunhayammed 245 ITR 360 and Khoday Distilleries Ltd. 104 taxmann.com 25 (SC)]. The Hon’ble Supreme Court, in the case of State of Orissa and Another v. Dhirendra Sundar Das And Others – [(2019) 6 SCC 270 (SC)] has clarified this position with the following observations at Para 9.27:
“9.27 It is a well settled principle of law emerging from a catena of decisions of this Court, including Supreme Court Employees’ Welfare Association v. Union of India & Anr. and State of Punjab v. Davinder Pal Singh Bhullar, that the dismissal of a S.L.P. in limine simply implies that the case before this Court was not considered worthy of examination for a reason, which may be other than the merits of the case. Such in limine dismissal at the threshold without giving any detailed reasons, does not
The approval under section 153D of the Act is mandatory as the Ld. Approving Authority has no option except to approve it within the statutory time available before the Ld. AO for completion of assessment. At best, the Ld. Approving Authority can only direct the AO to recheck on certain procedural aspects and due consideration of seized material, appraisal reports, etc., etc. The provisions of 153D of the Act are for maintaining the internal checks and balances only within the functioning of Income Tax Department and are not intended to provide any relief or adjudicate the rights of the assessee at that stage.
The Office Procedure Manual is not an/a order/direction under section 119 of the Act, but it is Standard Operating Procedure (‘SOP’). Non-proper follow-up of office procedure of the Income Tax Department by its lower authorities may be, at most, misconduct/insubordination. Hence, it may be irregular in office decorum but it will not invalidate any statutory function performed under the Act as it has no legal sanctity under the Act.
The Approving Authority under section 153D of the Act does not act as an Appellate Authority to reduce/enhance/allow/disallow any addition proposed in the draft assessment order while giving approval as the Addl. CIT is not empowered to do so under section 153D of the Act. In other word, the Kailash Gahlot Range Head cannot give any direction which may create any additional liability beyond what was proposed in the draft assessment order. That is why the opportunity of being heard is not mandated under section 153D of the Act. Thus, no prejudice can be caused to the assessee while granting approval under section 153D of the Act; therefore, the assessee cannot claim violation of natural justice. The 'application of mind' of the Range Head under section 153D of the Act has to be seen qua the procedure only as per the SOPs issued by CBDT and not qua the recitals about his own actions in relation to what was seen by him or how did he reach the satisfaction before granting such approval under section 153D of the Act. Nowhere under the Act, any procedure and manner of granting approval under scheme of section 153A to 153D of the Act has been prescribed. This again suggest that these oversight procedures are meant to safeguard the interest of Revenue and not meant to interfere with tax liability.
After the search, the search conducting Assistant/Deputy Director of Income Tax (Investigation) goes through the entire seized material and flags the core incriminating seized material with his analysis and proposed course of action to be taken in a very detailed manner in the form of a report known as ‘Appraisal Report’, which is handed over to the AO along with seized material and copy of the said ‘Appraisal Report’ is always endorsed to the concerned Principal Commissioner/Commissioner of Income Tax and Range Head/Addl. CIT/Joint CIT as per the SOP. Such ‘Appraisal Report’ normally Kailash Gahlot contains scanned copies of the core incriminating seized material; Hence, all the relevant core incriminating seized material are always available with the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act whether or not such recital is made in the approval order. Thereafter, the AO and Addl. CIT/Jt. CIT coordinate/communicate with each other in the context of search assessments as per the CBDT instructions mentioned in manual of office procedure as cited above. The entire process of monitoring is a continuous process even before the receipt of draft order seeking the final approval under section 153D of the Act. Even questionnaire issued by the AO are in the knowledge of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act. During meetings between the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act and the AO, the relevant seized material, suggested line of actions in the Appraisal Report, submissions of the assessee, etc., etc. are perused by both Authorities; namely, Range Head and the AO. Hence, there can be no situation where the relevant material is not in the knowledge of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act even if the same has not been specifically recited in the approval order. Thus, the association, formally or informally, of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act are from beginning after receipt of the Appraisal Report as inbuilt in the SOPs and mere absence of its recitals in the order under section 153D of the Act cannot infer otherwise as 'non-application of mind' of the Range Head under section 153D Kailash Gahlot of the Act. Neither the AO nor the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act works in isolation as far as search assessments are concerned. Basically, they work as team during the course of search assessments. 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.
In cases of Smt. Shreelekha Damani (2019) 307 CTR 218 (Bom), Sunrise Finlease (P) Ltd (2018) 403 ITR 512 (Guj) and PPC Business & Products (P) Ltd. (2017) 398 ITR 71 (Del), the Hon’ble High Court has held that the approval under section 153D of the Act is administrative in nature. It does not require elaborate reasoning. The absence of detailed discussion in the approval under section 153D of the Act does not make the assessment invalid, unless it is shown that there was no application of mind at all. The requirement is only that the approving authority applies its mind before granting approval. The Hon’ble Delhi High Court in the case of PPC Business & Products (P) Ltd. (supra) has categorically held that it is not a quasi-judicial order and elaborate reasoning in the approval under section 153D of the Act does not by itself vitiate assessment. Further, Hon’ble Delhi High Court in the case of Pepsi Foods (P) Ltd (2014) 367 ITR 112 (Del) has held that the function of the approving authority under section 153D of the Act is administrative to ensure that assessments framed by subordinate officers are not arbitrary. The Kailash Gahlot Hon’ble Supreme Court in the case of Sahara India (Firm) (2008) 300 ITR 403 has held that where approval is statutory but administrative, it need not record elaborate reasoning. Its purpose is supervisory control, not adjudication. It is equally a well-settled position on the law of precedent that a ruling of a court is to be read, understood and interpreted in the context of not only the issue that was under adjudication but also in the context of the points of arguments canvassed by both the sides. Though there is plethora of judicial precedents on this aspect, it will suffice here to reproduce the relevant part of the judgment of the Hon’ble Supreme Court in the case of Sun Engineering Works (P) Ltd.; 198 ITR 297, which is self-explanatory: “It is neither desirable nor permissible to pick out a word or sentence from the judgment of this court, divorced from the context the question under consideration and treat it to be the complete law declared by this court. ….”.
24. In the case of UOI & Ors. v. Dhanwanti Devi & Ors; 6 SCC 44, the Hon’ble Supreme Court observed as under:
“9. …….What is of the essence in a decision is its ratio and not every observation found therein nor what logically follows from the various observations made in the judgement. Every judgment must be read as applicable to the particular facts proved, since the generality of the expressions which may be found there is not intended to be exposition of the whole law, but governed and qualified by the particular facts of the case in which such expressions are to be found.
Therefore, in order to understand and appreciate the binding force of a decision is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of
The Ld. AR has not brought any material before us to demonstrate that the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act had not any occasion to discuss the case at any point of time or peruse the incriminating material including the Appraisal Report which already was endorsed to his office of by the search conducting Assistant/Deputy Director of Income Tax (Investigation). The Ld. AR has also not brought any material before us to demonstrate that the SOP was substantively not followed by the Range Head while approving the assessment under section 153D of the Act and how it led to serious prejudice affecting the rights & liabilities of the assessee. The word 'each assessment year' in section 153D of the Act refers to the AYs mentioned in section 153A(1)(b) of the Act. Hence, once the assessment orders are being made for six AYs under section 153A(1)(b) of the Act, the approval under section 153D of the Act has also to be for each of six years but in no way it is stating that such approvals has to be through separate letters for each AY. The word "each' is not to be read qua approval but it is qua assessment order for each of relevant AYs. It is a many- to-one mapping as many times there may be common/interlacing of issues, both factual and legal running across multiple years of the same assessee or various assessees of the same searched group.
Kailash Gahlot 26. In view of the above discussion and case laws relied by us, we are of the considered view that the approval under section 153D of the Act is administrative in nature and any defect/error having crept therein is a curable one and not fatal. However, in the case in hand no such fact of any ‘non-application of mind’ and any error in approval under section 153D of the Act has been brought on the record by the Ld. AR. The involvement of the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act is a continuous process and not a onetime activity. Hence, the claim that the approval was accorded in a very limited time, by itself does not indicate that the approval is given mechanically in haste without application of mind as no prejudice is caused on approving the draft assessment order in a limited time, once the Range Head/Addl. CIT/Joint CIT/Approving Authority under section 153D of the Act is fully aware of the background material. Therefore, we hold the action of Range Head/Addl. CIT/Joint CIT justified while approving under section 153D of the Act. In view of the discussion herein before, we are not inclined to interfere with the finding of the Ld. CIT(A) that the approval granted under section 153D of the Act is a valid in the eyes of the law. We therefore, dismiss the jurisdictional/technical ground raised by the appellant assessee. The ground no. 4 stands dismissed accordingly.
On merit, the Ld. AR has not brought any material on the record to controvert the finding of the Ld. CIT(A). From the perusal of the extracted Kailash Gahlot contents of the diary in impugned order, it is evident that the expenses were made for the purpose of election. The said diary was admittedly authored by Shri Rohit Sharma. The issue in dispute here is that by whom the expenses mentioned in the diary incurred and belonged to. The material available on the record and circumstantial evidence clearly pin-point that the expenses mentioned therein were not incurred for the election purpose and for the exclusive benefit of the appellant assessee. Owning of part expenses in absence of any corroboratory material by Shri Rohit Sharma the author of the diary in affidavit is prima-facie inadmissible as Shri Rohit Sharma is of meagre income and have not any source to meet such expenditure without any purpose. In the affidavit, Shri Rohit Sharma stated that only an amount of Rs.10,95,700/- was incurred for promotion of AAM ADMI PARTY and its candidates in west Delhi constituencies; however, the AAM ADMI PARTY has not admitted so to have source it and have accounted for. In the said diary, we notice that payments have been actually done as evident from the narration therein. There are instances of payment by cheque/banking channels also. Hence, the said expenses cannot be claimed estimates of expenses. We notice that the affidavit Shri Rohit Sharma does not contain and own all the details mentioned in the seized diary. In the affidavit, the only a selective portion has been owned up by Shri Rohit Sharma.
The Ld. CIT in para 14 has held as under:
Kailash Gahlot 14. In the diary, there are names of some persons who are relative of the appellant Shri Kallash Gahlot. The brother of the appellant is Shri Harish Gahlot who is also called as HG Sir by many people. There are references in the diary about receipts and payments from Harish Gahlot (HG). Further, there is mention of direction to be sought from Shri Hitesh Gahlot Shri Viresh Gahlot and Shri Hitesh Gahlot are nephew of the appellant. There is mention in the diary about their appointment as counting agent (entry on page in the diary with the date of 9 February 2015). There is reference to monetary transaction for the counting agents on the same page. On page with the date of 12 February 2015, there is mention of receipt of Rs.50,000/- from HG Sir (1.e. Shri Harish Gahlot the brother of the appellant) Similarly, on the page with date 30 December 2015, there is mention of receipt of Rs.50,000/- from HG Sir. On this page there is also details of further payment made to various persons with their names mentioned on the same page. The Ld. AR failed to contradict the above finding by submitting the confirmation of third parties to whom the payment was done. Section 292C is clearly attracted here to draw the inference that the material belonged to the appellant assessee in whose possession the same was seized proved unless otherwise. Shri Rohit Sharma in his affidavit has not explained the entire contents, source of money received and purpose of expenditure. In the diary there are clear cut narration of the appellant assessee, Shri Kallash Gahlot (referred as KG Sir) on various pages for various issues like speak with KG Sir for buses arrangement, Mail sent to KG sir w.r.t 14th February buses schedule; speak with KG Sir for Manjeev expense on election date; speak with KG Sir on pending payment of vendors etc. etc. In the first page of the diary, the phone number (011-25873455) belonging to the appellant is mentioned. The website is written as www.kailashgahlot.in. The organization where the author Shri Rohit Sharma is working is written as Shri Ram Chander Gahlot Kailash Gahlot Charitable Trust (in father name of the appellant assessee) with address at A Block, Prem Nursery, Gopal Nagar, Najafgarh, New Delhi. Shri Rohit Sharma is a person basically working for the appellant and his concerns.
In view of the above, we are not inclined to interfere with the finding of the Ld. CIT(A) that the expenditure of Rs.42,98,086/- is unexplained expenditure of the appellant assessee under section 69C of the Act. We therefore, dismiss the ground challenging the taxability of expenditure of Rs.42,98,086/- under section 69C of the Act in the hands of the appellant assessee. The ground nos. 1 to 3 stand dismissed accordingly.
The last issue is regarding the applicability of tax rate of 60% in accordance with section 115BBE of the Act. The applicability of tax rate of 60% was not in the Act in the relevant AY. Therefore, the old provisions of section 115BBE of the Act wef 01.04.2013 is held applicable here. The tax should be charged as per the law applicable in the relevant year. Hence this issue is decided in favour of the assessee to the extent of applicability of tax rate of 60% only.
In the result, the appeal of the assessee is partly allowed as above.