Mechanical Section 153D Approval Invalidates Search Assessments: ITAT Delhi

Kehar Singh Vs DCIT (ITAT Delhi)

Summary: ITAT Delhi allowed Kehar Singh’s appeals for AYs 2014-15 to 2020-21 and quashed assessments passed under Section 153A read with Section 144 of the Income-tax Act, holding that the approval under Section 153D was granted mechanically and without proper application of mind. Search and seizure proceedings had been conducted on 04.03.2020, following which the AO made additions under Sections 68, 69 and 69A, Chapter VI-A and other heads. Before the Tribunal, the assessee primarily challenged the validity of the Section 153D approval.

The Tribunal found that the AO sought approval on 27.09.2021 and the Additional CIT granted it on the very same date through a single composite approval covering AYs 2014-15 to 2020-21. Although the approval referred to assessment records, the appraisal report and seized documents, the AO’s forwarding letter indicated that only draft orders were submitted for examination. The Tribunal also noticed standard observations concerning electronic data from hard drives, CDs, pen drives and mobile data even though no such electronic data had been seized, which indicated a perfunctory exercise.

Relying upon Delhi High Court rulings in PCIT v. Anuj Bansal and PCIT v. Shiv Kumar Nayyar, and noting the Supreme Court’s dismissal of the Revenue’s SLP in ACIT v. Serajuddin and Co., ITAT held that Section 153D approval cannot be a ritualistic formality or rubber stamp. Ground No. 5 was therefore allowed and all impugned assessments for the relevant years were quashed.

Cases Discussed

• 466 ITR 254 (Delhi) – PCIT Vs Anuj Bansal (Delhi High Court) — Relied upon. ITAT applied the principle that approval under Section 153D granted without considering the assessment record and incriminating evidence and without independently applying mind to the draft assessment order cannot be sustained.
• ITA No. 285/2024, dated 15.05.2024 – PCIT Vs Shiv Kumar Nayyar (Delhi High Court) — Relied upon. The Tribunal reproduced the Delhi High Court’s finding that Section 153D approval cannot be a ritualistic formality or rubber stamping and must reflect appropriate application of mind.
• SLP (Civil) Diary No. 44989/2023, order dated 28.11.2023 – ACIT Vs Serajuddin and Co. (Supreme Court) — Relied upon. ITAT noted that the Supreme Court dismissed the Revenue’s appeal against the Orissa High Court decision which had quashed an assessment over inadequacy in the procedure adopted for Section 153D approval and had disapproved mechanical exercise of the statutory responsibility.

FULL TEXT OF THE ITAT DELHI ORDER

These appeals are preferred by the assessee against the orders dated 22.05.2024 of the Commissioner of Income-tax (Appeals)-29, New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in Appeals No.CIT(A), Delhi-29/10451/2013-14 (for 2014-15); CIT(A), Delhi-29/10618/2014-15 (for 2015-16); CIT(A), Delhi-29/10981/2015-16 (for 2016-17); CIT(A), Delhi-29/10614/2016-17 (for 2017-18); CIT(A), Delhi-29/10487/2017-18 (for 2018-19); CIT(A), Delhi-29/10576/2018-19 (for 2019-20); & CIT(A), Delhi-29/10521/2019-20 (for 2020-21); arising out of the appeals before it against the orders dated 28.09.2021 passed u/s 144 r.w.s. 153A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Central Circle-27, New Delhi (hereinafter referred to as the Ld. AO).

2. Heard and perused the records. Search and seizure operations were conducted at the premise of Shri. Kehar Singh on 04-03-2020. Notice u/s 153A of the Act was issued on 08.06.2021. Thereafter, notices u/s 142(1) of the Act were issued on 07-07-2021 & 09-08-2021. However, assessee claims that all the aforesaid notices were not served upon the appellant, the appellant did not furnish any reply in response to the same. As the reply was not furnished by the appellant, the Ld. AO issued show cause notice u/s 144 of the Act dated 17-09-2021. Allegedly the aforesaid show cause notice was also not served upon the appellant and remained non-replied. The ld. AO completed proceedings u/s 153A r.w.s 144 of the Act vide order dated 28-09-2021 after making additions as tabulated under:-

3. Aggrieved by the same, the appellant filed appeal before the Ld. CIT-(A). The Ld. CIT-(A) dismissed the appeal filed by the appellant vide order dated 22-5-2024. Aggrieved by the same, the appellant is in appeal before the Tribunal.

4. At the time of hearing, the ld. AR has primarily argued on questioning the approval granted u/s 153D of the Act alleging the same was done in a mechanical manner. The ld. AR has relied a catena of decisions of the Hon’ble Delhi High Court and the coordinate benches of Delhi to contend that there are various discrepancies in the assessment order which only establish that the assessment order was passed without application of mind.

5. The ld. DR has, however, defended the same and submitted that the approval was duly granted on the basis of all the relevant materials like assessment record, appraisal report, incriminating evidences and approval was further granted for each assessment year separately.

6. As we appreciate the aforesaid contentions and the material before us, we find that the assessee had placed on record copy of letter dated 11.05.2022 by which the assessee had sought inspection of the seized material and had requested for providing photocopy thereof from the assessment record of the necessary evidences. On page No.s 2-15 of the paper book, the assessee has filed the request for approval made by the Assessing Officer and also the approval granted. After going through the same, we find that the request for approval was made by the ld. AO by letter F.No.DCIT/CC-27/153d/2021-22/638 dated 27.09.2021 which was received in the office of the ld. Addl. Commissioner of Income-tax, Central Range-7, New Delhi, on 27th September, 2021 and on the same date the approval was granted by letter F.No.Addl.CIT/CR-7/2021-22/634 dated 27.09.2021.

7. After going through this set of evidences available at pages 2-15, we are of the considered view that only one approval u/s 153D was granted by letter F.No.Addl.CIT/CR-7/2021-22/634 and by marking check mark (“✔”) for each year the approvals are shown to have been issued for each year, but, as a matter of fact, there is no change in the No. of letter being F.No.Addl.CIT/CR-7/2021-22/634 under which the approval u/s 153D of the Act was issued by the competent authority. Thus, there is no dispute that a composite approval was sought and granted in the case of the assessee for assessment years 2014-15 to 2020-21.

8. Then we find that although at the time of granting approval the ld. competent authority has mentioned that:

“Approval is hereby accorded u/s 153D of the Income Tax Act, 1961 to the draft assessment order as amended in the following case, on the basis of the detailed discussion with you time to time, information available on record, facts mentioned in the Appraisal Report and relevant seized documents perused by you & brought to the notice of undersigned.”

7. However, the aforesaid seems to be some sort of mechanical exercise only because in the corresponding letter from the ld. AO dated 27.09.2021 (supra) only draft orders were submitted for examination. There is no reference that appraisal report or seized documents were also forwarded. In fact, it is pertinent to observe that vide letter dated 27.09.2021 (supra), the AO had made a request that “online approval u/s 153D may kindly be accorded.” This shows that certainly, the assessment records were not forwarded, what to talk of appraisal report and relevant seized documents.

8. Furthermore, as we examine the approval dated 27.09.2021, we find that in para 3, the ld. competent authority has mentioned as follows:-

“3. Copies of the final assessment orders should be forwarded to this office immediately after passing the orders. Proposal for retention of seized material should also be forwarded to this office within time as per IT Act, 1961. Before passing the final order, in case, there is requirement of protecting the interest of revenue, permission u/s 281B from Pr. CIT(C)-3, New Delhi should be taken. Office note, indicating additions in relevant assessment years should be indicated in all Assessment Years, 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 date. You have also certified to the undersigned that all information available in AIR/CIB/from other Law Enforcement Agencies have been properly scrutinized by you before finalizing the draft assessment order. Please ensure that penalty is levied under proper section of the Income Tax Act, 1961.”

9. The aforesaid observations of the ld. competent authority, as emphasized above in bold italics by us, when considered in the light of the alleged incriminating evidences used in assessments, we find that in fact, no data was seized in electronic format from hard drive/CDs/pen drives/mobile data so as to necessitate making these observations by the ld. competent authority. The aforesaid observations and directions only indicate that in a perfunctory manner without application of mind post completion of assessment, on the draft orders the approval has been granted.

10. It is now settled proposition of law that the approval so granted without taking into consideration the assessment record, incriminating evidences and the approval not exhibiting the reasons for granting the approval independently on the draft assessment order cannot be sustained. Reliance in this regard is placed on the decision of the Hon’ble Delhi High Court in the case of PCIT vs. Anuj Bansal, 466 ITR 254 (Del). Further we find that Hon’ble jurisdictional High Court in the case of PCIT vs. Shiv Kumar Nayyar in ITA No. 285/2024 (Del), dated 15.05.2024, has decided the similar legal issue in favour of the assessee and against the Revenue. The relevant findings of the Hon’ble Delhi High Court are reproduced as under :-

“15. 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.”

11. In the case of ACIT, Circle-1 (2) Vs. Serajuddin and Co. the Hon’ble Supreme Court in SLP (Civil) Dairy No. 44989/2023 vide order dated 28/11/2023, dismissed the Appeal filed by the Department of Revenue against the order dated 15/03/2023 in ITA No. 43/2022 passed by the Hon’ble High Court of Orissa at Cuttack, wherein the Hon’ble High Court had quashed the Assessment Order on the ground of inadequacy in procedure adopted for issuing approval u/s 153D of the Act by expressing discordant note on such mechanical exercise of responsibility placed on designated authority under section 153D of the Act.

12. In the light of the aforesaid, we are inclined to allow the ground No.5 and, consequently the appeals of the assessee for relevant years before us stand allowed and the impugned assessments for the relevant years involved are quashed.

Order pronounced in the open court on 15.03.2024.