DCIT, CENTRAL CIRCLE 28, NEW DELHI, NEW DELHI vs. MANOJ KUMAR SINGH, NEW DELHI

Now, a perusal of the assessment order shows that extensively electronic evidence alone have been relied including some forensically imaged data seized from the phone of assessee. After going through the assessment order, it appears that based on excel files and electronic evidences and the statements recorded, the AO has drawn conclusions leading to the additions of Rs.4,01,14,250/- u/s 28 of the Act, Rs.51,51,000/- u/s 69A of the Act and Rs,.29,06,780/- u/s 69AC of the Act. The assessee has challenged the same before the ld. CIT(A), where the assessee had succeeded partly as the Ld. CIT(A) has restricted the additions u/s 69C of Rs.62,75,991/- and accordingly both sides are in appeal.

Then from the copies of approval made available at pages 3-12 of the paper book, we observe that the approval for all the AYs for which assesse was show caused for search assessment u/s 153A, are similar in format and content. As for further convenient discussion, the approval given u/s 153D for AY 2013- 14 is scanned and reproduced below; ITAs No.2237 &3717/Del/2025

At the same time it is relevant to take note of fact as to how, this issue has been considered and dismissed by the ld. CIT(A) by following observations in para 22 of the order, which is reproduced as under:- “22. Ground No. 2 and Additional ground.2: The appellant challenges the assessment as being in violation of section 153D, alleging that the approval granted by the JCIT was mechanical and lacked application of mind. The AO explicitly stated that the assessment order was passed with the prior approval of the JCIT, Central Range-8 as documented in F.No.JCIT/CR-8/153D/2021- 5 ITAs No.2237 &3717/Del/2025 22/145 dated 30.03.2022. The provisions of section 153D do not require the JCIT to record satisfaction in any specific format or language. The appellant has failed to substantiate its claim of mechanical approval. No evidence was provided to demonstrate non-application of mind by the JCIT. The approval under section 153D was validly granted. This ground is dismissed.”

Ld. Sr. Counsel has submitted that the approval has been granted in consolidated manner and taking the Bench across pages 1 to 2 of the paper book, having letter seeking approval and pages 3-12 of PB, the impugned approval letters, it was submitted that separate approvals for AY 2011-12 to AY 2020-21 were issued u/s 153D of the Act on 30.03.2022 and all are verbatim similar, which shows there was non-application of mind and in a routine manner, the approvals were granted. The ld. Sr. Counsel submitted that in fact, the said approving authority has granted numerous approvals u/s 153D of the Act on 30.03.2022 and a list of same has been provided at pages 13 and 14 of the paper book. The ld. Sr. Counsel relied on a catena of decisions of Co- ordinate Benches at Delhi and decision of Hon’ble Delhi High Court in the case of Pr. CIT vs Shiv Kumar Nayyar [2024] 163 taxmann.com 9 (Delhi) and Hon’ble Supreme Court in the case of M/s Serajuddin and Company 163 taxmann.com 118, which has sustained decision of Hon’ble Orissa High Court, to submit that the law is now settled that approval granted u/s 153D of the Act should exhibit application of mind and cannot be a routine feature of completing the search assessment.

The ld. DR has opposed the aforesaid contentions and has submitted that approval granted is administrative in nature and there is no strict format for grant of the approval. It was submitted that approval mentions specific fact about the draft assessment order “as amended” being approved and further that evidences including electronic evidences were considered. It was further submitted that the procedure of search assessment includes active participation of the approving authority and therefore approving authority can be presumed to be sufficiently aware of the incriminating materials. It was submitted that particularly in the case of the present assessee, the approval was sought on 28.03.2022 and approval has been granted on 30.03.2022, thus, there was sufficient opportunity with competent authority to further go into the draft assessment orders.

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 docks as there is nothing in letter dated 28.03.22 by the AO to mention that at 7 ITAs No.2237 &3717/Del/2025 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 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.

Further it can be observed that in para 1.5 the objectives of the Manual are mentioned which states that the aim of this Manual is to apprise the user of “basic legal provisions relating to digital evidence in Income-tax Act and other laws including Information Technology Act and Indian Evidence Act.”

Then, we would like to reproduce from this Manual as to how the Board perceived the relevance of various provisions of the different statutes and how specifically referred to the provisions of section 65A and 65B of the Indian Evidence Act, 1872 and directed that “accordingly while handling any digital 11 ITAs No.2237 &3717/Del/2025 evidence, the procedure has to be in consonance of these provisions.”. The relevant part in para 2.7.3 is as follows:- “2.7.1 The Information Technology Act-2000 has been enacted to provide legal recognition to transactions carried out by means of electronic data interchange and other means of electronic communication, which involve the use of alternatives to paper-based methods of communication and storage of information. The same enactment has also brought amendments in the Indian Penal Code, 1861, the Indian Evidence Act, 1872, the Bankers' Books Evidence Act, 1891 and the Reserve Bank of India Act, 1934. 2.7.2 As far as Income-tax Act, 1961 is concerned, it has been amended thrice by way of Finance Act, 2001, Finance Act, 2002 and Finance Act, 2009 respectively. • By way of first amendment, provisions of sub-section (12A) of section 2 was inserted to give legal recognition to the books of account maintained on computer and sub-section (22A) to section 2 was inserted to provide definition of 'document' which included “electronic record" as defined under Information Technology Act 2000. Under Information Technology Act 2000 an electronic record has been defined to include data, record or data generated, image or sound stored, received or sent in an electronic form or micro film or computer generated micro file. This definition of electronic record is wide enough to cover person in possession of computer, storage device, server, mobile phone, i-Pod or any such device. The above amendment has thus specifically given recognition to electronic record as admissible evidence at par with a 'document'. Further, the powers to impound/copy a document during a survey action u/s 133A and power to seize a document during a search and seizure operation has also been automatically extended to electronic records as a result of the amendment. • By way of second amendment, provisions of section 132 (l)(iib) were inserted facilitating access to the electronic devices including computer, containing document or books of accounts in the form of electronic records by making it obligatory for the person under control of such device to afford the necessary facility to inspect such records. 12 ITAs No.2237 &3717/Del/2025 By Finance Act, 2009, clause (c) was inserted in sub-section (1) of Section 282 providing that service of notice in the form of any electronic record as provided in Chapter IV of the Information Technology Act, 2000 (21 of 2000) will constitute valid service. 2.7.3 Under Indian Evidence Act there are several references to documents and records and entries in books of account and their recognition as evidence. By way of the THE SECOND SCHEDULE to the Information Technology Act Amendments to the Indian Evidence Act have been brought in so as to, incorporate reference to Electronic Records along with the document giving recognition to the electronic records as evidence. Further, special provisions as to evidence relating to electronic record have been inserted in the Indian Evidence Act, 1872 in the form of section 65A & 65B, after section 65. These provisions are very important. They govern the integrity of the electronic record as evidence, as well as, the process for creating electronic record. Importantly, they impart faithful output of computer the same evidentiary value as original without further proof or production of original. Accordingly, while handling any digital evidence, the procedure has to be in consonance of these provisions. 2.7.4 Under Indian Penal Code several acts of omission and commission relating to various documents and records are treated as offences. By way of the THE FIRST SCHEDULE to the Information Technology Act, Amendments to the Indian Penal Code have been brought in, so as to incorporate reference to Electronic Records along with the document.”

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 ITAs No.2237 &3717/Del/2025 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 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. 16 ITAs No.2237 &3717/Del/2025 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; “10. Before embarking upon the analysis of the factual scenario of the instant appeal, we deem it apposite to examine the underlying intent of the relevant provision of the Act i.e., Section 153D, which is culled out as under:-

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 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:-

It is observed that the Court in the case of Sapna Gupta (supra)refused to interdict the order of the ITAT, which had held that the approval under Section 153D of the Act therein was granted without any independent application of mind. The Court took a view that the approving authority had wielded the power to accord approval mechanically, inasmuch as, it was humanly impossible for the said authority to have perused and appraised the records of 85 cases in a single day. It was explicitly held that the authority granting approval has to apply its mind for “each assessment year” for “each assessee” separately.

A similar view was taken by this Court in the case of Anuj Bansal (supra), whereby, it was reiterated that the exercise of powers under Section 153D cannot be done mechanically. Thus, the salient aspect which emerges from the abovementioned decisions is that grant of approval under Section 153D of the Act cannot be merely a ritualistic formality or rubber stamping by the authority, rather it must reflect an appropriate application of mind.”

In the light of the aforesaid, we are inclined to sustain the ground no.2, which vitiates the whole assessment proceedings and consequential orders. Accordingly, the appeal of the assessee is allowed and consequently, the appeal ITAs No.2237 &3717/Del/2025