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Facts
A search and seizure operation u/s 132 of the Act led to an assessment order under section 143(3). The Assessee's appeal against this order was dismissed by the Ld. CIT(A). The Assessee then filed the present appeal, challenging the assessment proceedings on the grounds that the approval u/s 153D was mechanical and lacked application of mind.
Held
The Tribunal held that the approval granted under section 153D of the Act was mechanical and perfunctory, lacking independent application of mind. A single approval was granted for multiple assessees and assessment years, which violates the requirement for approval for 'each assessment year' for 'each assessee'.
Key Issues
Whether the approval granted under section 153D of the Income Tax Act, 1961, was mechanical and lacked independent application of mind, thus vitiating the assessment order.
Sections Cited
132, 143(3), 153D, 153A
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Income Tax Appellate Tribunal, DELHI
ORDER
PER YOGESH KUMAR, U.S. JM:
The present appeal is filed by the Assessee against the order of Ld. Commissioner of Income Tax (Appeals)-28, (‘Ld. CIT(A)’ for short), New Delhi dated 28/10/2022 for the Assessment Year 2016-17.
None appeared for the Assessee. Considering the issue involved in the present Appeal, we deem it fit to decide the Appeal on hearing the Ld. Department's Representative and perusing the material available on record.
Brief facts of the case are that,a search and seizure operation
u/s 132 of the Act carried out at the premises of sh. Deepak
Agarwal, Sh. Mukesh Kumar and ors wherein certain incriminating material related to the Assessee Company were also seized. An assessment order of assessment came to be passed on 24/12/2018 u/s 143(3) of the Income Tax Act, 1961 ('Act' for short) by making certain additions. Aggrieved by the assessment order dated
24/12/2018, the Assessee preferred an Appeal before the Ld. CIT(A).
The Ld. CIT(A) vide order dated 28/10/2022 dismissed the Appeal of the Assessee. As against the order of the Ld. CIT(A), the Assessee filed the present Appeal.
The Assessee challenged the assessment proceedings in Ground No. 2 & 3 of the Assessee contending that the approval u/s 153D of the Act is a mechanical and arbitrary approval without their being
any application of mind and also without satisfying the statutory pre- conditions of the Act as such the assessment so framed is null and void.
The Ld. Departmental Representative submitted that the draft
assessment order has been perused by the Additional Commissioner of Income Tax , Central Range-4, New Delhi while according the approval u/s 153D of the Act and the approval has been granted strictly in accordance with the provisions of the Act and there is no absence of application of mind, thus sought for dismissal of the Ground No. 2 & 3 of the Assessee.
We have carefully considered the submissions of the parties and also verified, material available on record and the case laws cited. The legal objection of transgression of requirement of approval under s.
153D of the Act is in question which has the effect on the very substratum of the assessment and consequential appellate proceedings.
For the purpose of deciding the issue of legality of approval
accorded u/s 153D of the Act and the consequential assessment proceedings, we shall straightway advert to the approval accorded u/s 153D of the Act. The approval under s. 153D of the Act dated
24/12/2018 granted by the Addl. CIT, Central Range-4, New Delhi addressed to ACIT, Central Circle-13, New Delhi, which has been reproduced in the order of the Ld. CIT(A). for the sake of convenience, the approval dated 24/1/22018 is reproduced as under:-
"To The Asstt. Commissioner of Income Tax. Central Circle-13, New Delhi Sub: Approval under the provisions of sec. 153D of the Income Tax Act, 1961, related in the case of Deepak Agarwal and Mukesh Kumar and Others group of cases (DOS: 23.07.2015)-Reg.
Ref.: Draft orders vide letter F.No. ACIT/CC-13/2018- 19/2854 dated 21.12.2018 Draft orders vide letter F.No. ACIT/CC-13/2018-19/2852 dated 19.12.2018 Draft orders vide letter F.No. ACIT/CC-13/2018-19/2856 dated 21.12.2018 Draft orders vide letter F.No. ACIT/CC-13/2018-19/2879 dated 23.12.2018 Please refer to the above subject and draft order submitted to this office in the following cases seeking approval u/s 153D of the Income Tax Act, 1961.
The approval u/s 153D in respect of the draft orders submitted by you in the above cases is hereby accorded.
(Rajesh Kumar) Addl. Commissioner of Income Tax, Central Range-4, New Delhi
On a perusal of the approval dated 24/12/2018 addressed by ACIT Central Range-4, New Delhi to the Addl. CIT, Central Circle-13,
New Delhi, it emerges that the Addl. CIT, has not uttered a word on the subject matter of additions. The approval is in the nature of Performa approval; the approval granted smacks of mechanical or perfunctory approval in a symbolic exercise of powers vested under s.
153D of the Act. Apart from the same, a single approval has been granted for 49 Assessees involving several Assessment Years.
The Hon’ble Jurisdictional High Court in the case of Pr.
Commissioner of Income Tax Vs. Shiv Kumar Nayyar (supra) held as under:-
“11. A plain reading of the aforesaid provision evinces an uncontrived position of law that the approval under Section 153D of the Act has to be granted for "each assessment year" referred to in clause (b) of sub-section (1) of Section 153A of the Act. It is beneficial to refer to the decision of the High Court of Judicature at Allahabad in the case of PCIT v. Sapna Gupta [2022 SCC OnLine All 1294] which captures with precision the scope of the concerned provision and more significantly, the import of the phrase- "each assessment year" used in the language of Section 153D of the Act. The relevant paragraphs of the said decision are reproduced as under:-
"13. It was held therein that if an approval has been granted by the Approving Authority in a mechanical manner without application of mind then the very purpose of obtaining approval Melody Enterprises Pvt. Ltd. Vs. ACIT under Section 153D of the Act and mandate of the enactment by the legislature will be defeated. For granting approval under Section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for "each assessment year" in respect of "each assessee" separately. The words 'each assessment year' used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. It was held that the "approval" as contemplated under 153D of the Act, This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 20/05/2024 at 21:34:51 requires the approving authority, i.e. Joint Commissioner to verify the issues raised by the Assessing Officer in the draft assessment order and apply his mind to ascertain as to whether the required procedure has been followed by the Assessing Officer or not in framing the assessment. The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power. *** 19. The careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to "each assessment year" is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order under Section 153A."
[Emphasis supplied] Melody Enterprises Pvt. Ltd. Vs. ACIT 12. 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.
13. Reliance can also be placed upon the decision of the Orissa High Court in the case of Asst. CIT v. Serajuddin and Co. [2023 SCC OnLineOri 992] to understand the exposition of law on the issue at hand. Paragraph no.22 of the said decision reads as under:- "22. As rightly pointed out by learned counsel for the assessee there is not even a token mention of the draft orders having been perused by the Additional Commissioner of Income-tax. The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was is missing in the aforementioned approval order. While elaborate reasons This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 20/05/2024 at 21:34:51 need not be given, there has to be some indication that the approving authority has examined the draft orders and finds Melody Enterprises Pvt. Ltd. Vs. ACIT that it meets the requirement of the law. As explained in the above cases, the mere repeating of the words of the statute, or mere "rubber stamping" of the letter seeking sanction by using similar words like "seen" or "approved" will not satisfy the requirement of the law. This is where the Technical Manual of Office Procedure becomes important. Although, it was in the context of section 158BG of the Act, it would equally apply to section 153D of the Act. There are three or four requirements that are mandated therein, (i) the Assessing Officer should submit the draft assessment order "well in time". Here it was submitted just two days prior to the deadline thereby putting the approving authority under great pressure and not giving him sufficient time to apply his mind ; (ii) the final approval must be in writing ; (iii) the fact that approval has been obtained, should be mentioned in the body of the assessment order."
[Emphasis supplied]
14. During the course of arguments, learned counsel for the assessee apprised this Court that the Special Leave Petition preferred by the Revenue against the decision in the case of Serajuddin (supra), came to be dismissed by the Supreme Court vide order dated 28.11.2023 in SLP (C) Diary no. 44989/2023.
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.
Melody Enterprises Pvt. Ltd. Vs. ACIT 16. In the present case, the ITAT, while specifically noting that the approval was granted on the same day when the draft assessment orders were sent, has observed as under:-
"10. We have gone through the approval granted by the ld. Addl. CIT on 30.12.2018 u/s 153D of the Act which is enclosed at page 36 of the paper book of the assessee. The said letter clearly states This is a digitally signed order.
The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 20/05/2024 at 21:34:51 that a letter dated 30.12.2018 was filed by the ld. AO before the ld. Addl. CIT seeking approval of draft assessment order u/s 153D of the Act. The ld. Addl. CIT has accorded approval for the said draft assessment orders on the very same day i.e., on 30.12.2018 for seven assessment years in the case of the assessee and for seven assessment years in the case of Smt. NeetuNayyar. It is also pertinent in this regard to refer to pages 68 and 69 of the paper book which contains information obtained by Smt. NeetuNayyar from Central Public Information Officer who is none other than the ld. Addl. Commissioner of Income-tax, Central Range-S, New Delhi, under Right to Information Act, wherein, it reveals that the ld. Addl. CIT had granted approval for 43 cases on 30.12.2018 itself. This fact is not in dispute before us. Of these 43 cases, as evident from page 36 of the paper book which contains the approval u/s 153D, 14 cases pertained to the assessee herein and Smt. NeetuNayyar. The remaining cases may belong to some other assessees, which information is not available before us. In any event, whether it is humanly possible for an approving authority Melody Enterprises Pvt. Ltd. Vs. ACIT like ld. Addl. CIT to grant judicious approval u/s 153D of the Act for 43 cases on a single day is the subject matter of dispute before us. Further, section 153D provides that approval has to be granted for each of the assessment year whereas, in the instant case, the ld. Addl. CIT has granted a single approval for all assessment years put together."
Notably, the order of approval dated 30.12.2020 which was produced before us by the learned counsel for the assessee clearly signifies that a single approval has been granted for AYs 2011-12 to 2017-18 in the case of the assessee. The said order also fails to make any mention of the fact that the draft assessment orders were perused at all, much less perusal of the same with an independent application of mind. Also, we cannot lose sight of the fact that in the instant case, the concerned authority has granted approval for 43 cases in a single day which is evident from the findings of the ITAT, succinctly encapsulated in the order extracted above.” 10. Significantly, 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 Section 153D of the Act. The Orissa High Court made wide ranging observations towards the manner and legality of approval under s.
153D of the Act. The Hon’ble High Court inter-alia observed 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 justiciable. Where the Court finds that the approval is granted mechanically, it would vitiate the assessment order itself. 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 ratio of judgment delivered in the case of ACIT vs Serajuddin & Co. Kolkata; PCIT vs Anuj Bansal; PCIT vs Shiv Kumar Nayyar; and PCIT vs Subhash Dabas (supra) has held in chorus that the approval granted under s. 153D of the Act, if granted mechanically, will vitiate judgment in the case of ACIT vs Serajuddin & Co. Kolkata was dismissed as reported in (2024) 163 taxmann.com 118 (SC).
As noted above, in the instant case, a single approval u/s 153D has been accorded in respect of 49 Assessees involving several Assessment Years, there is no mentioning of seized material in the other material to show involvement of the superior authority in the approval granted by the ACIT. Applying the ratio of judgments delivered as noted above, the assessment order based on ritualistic approval stands vitiated and thus quashed by allowing Ground No. 2 &3 of appeal of the Assessee.
In the result, the appeal of the Assessee in is allowed.
Since, we have quashed the Assessment Order on the ground of erroneous approval accorded u/s 153D of the Act, we do not consider it necessary to address on other legal and factual contentions raised in the other grounds of Appeal of the Assessee.