ACIT Vs Serajuddin & Co. (Orissa High Court)
The Orissa High Court dismissed the Revenue’s appeals and upheld the Income Tax Appellate Tribunal’s (ITAT) decision setting aside assessment orders passed under Sections 143(3)/144/153A of the Income-tax Act on the ground that the mandatory approval under Section 153D had been granted mechanically without application of mind.
The case arose from a search and seizure operation conducted under Section 132, following which the Assessing Officer (AO) completed assessments for Assessment Years 2003-04 to 2009-10. The assessee challenged the assessments, contending that the mandatory prior approval of the Additional Commissioner of Income Tax under Section 153D had been granted mechanically, contrary to the CBDT Circular dated 12 March 2008 and the Manual of Office Procedure. Although the Commissioner (Appeals) rejected this contention, the ITAT accepted it and set aside the assessments.
Before the High Court, the Revenue argued that approval had in fact been obtained and that such approval was merely an administrative act not open to judicial scrutiny. It further contended that any irregularity in granting approval was procedural and did not invalidate the assessments.
Rejecting these submissions, the High Court held that Section 153D mandates prior approval by the superior authority before passing assessment orders in search cases, and such approval cannot be an empty formality. The approving authority is required to independently examine the draft assessment orders and relevant material before granting approval. Mechanical or rubber-stamp approval defeats the legislative purpose of providing supervisory scrutiny over search assessments.
Examining the approval letter issued by the Additional CIT, the Court found that it merely conveyed approval without indicating that the draft assessment orders had been examined or that any application of mind had taken place. The draft orders had been forwarded only two days before the limitation period expired, leaving insufficient time for meaningful scrutiny. The assessment orders themselves also failed to record that prior approval under Section 153D had been obtained, contrary to the CBDT Manual of Office Procedure.
The Court observed that instructions issued by the CBDT under Section 119 are binding on the Department and that the procedural safeguards prescribed therein cannot be ignored. It reiterated that where prior approval is a statutory safeguard, the approving authority must actively examine the proposal rather than merely endorse it. Since the approval in the present case was granted mechanically without application of mind, the assessment orders stood vitiated.
Accordingly, the High Court answered the substantial question of law in favour of the assessee, upheld the ITAT’s decision, and dismissed the Revenue’s appeals.
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