Dilip Constructions Pvt Ltd. Vs ACIT (ITAT Cuttack)
ITITAT Quashes Assessment as Joint Commissioner of Income Tax (JCIT) granted approval for the assessments in a “mechanical manner” without properly examining the relevant records and draft assessment orders, as mandated by Section 153D of the Income Tax Act, 1961.
The Income Tax Appellate Tribunal (ITAT), Cuttack Bench, has ruled in favor of Dilip Constructions Pvt Ltd., setting aside assessment orders for multiple assessment years. The tribunal’s decision hinged on the finding that the Joint Commissioner of Income Tax (JCIT) granted approval for the assessments in a “mechanical manner” without properly examining the relevant records and draft assessment orders, as mandated by Section 153D of the Income Tax Act, 1961.
The core issue before the ITAT was whether the JCIT had genuinely applied their mind before granting the approval order dated November 23, 2017, for the assessment orders under Section 153A of the Act. Section 153D requires prior approval from a JCIT for assessment or reassessment orders passed by an Assessing Officer (AO) below the rank of Joint Commissioner in cases related to search assessments under Section 153A.
The assessee argued that the JCIT’s approval was granted hastily and without a thorough review of the assessment records and the proposed assessment orders. The ITAT concurred with this contention after examining the approval order, which merely stated that approval was “hereby accorded as per the provisions of section 153D of the I.T.Act for passing the assessments in respect of the following cases,” without any indication of having perused the relevant documents.
The tribunal drew support from several judicial precedents. It cited the Bombay High Court’s decision in Smt. Shreelekha Damani, where the court held that an approval granted without considering relevant issues is invalid. The High Court emphasized that the validity of the approval goes to the root of the matter and must be based on a consideration of the relevant material on record, not just an empty ritual.
The ITAT also referred to a decision by the Delhi Bench in M3M India Holdings, where an assessment order was quashed due to the approving authority’s failure to demonstrate an independent application of mind. In that case, the short time frame between the submission of voluminous documents and the granting of approval raised suspicion about the thoroughness of the review.
Furthermore, the Cuttack Bench relied on its own previous decision in Geetarani Panda, where it was held that a mechanical approval to merely meet the requirements of law does not fulfill the supervisory authority’s duty towards both the assessee and the revenue.
In the present case, the ITAT noted that the AO sought approval on November 17, 2017, and the JCIT granted it just five days later. The approval order lacked any mention of the JCIT having examined the assessment records or the draft assessment orders. The tribunal dismissed subsequent letters from the JCIT attempting to clarify the approval process as attempts to “fill the gaps and procedural lacunas” after the fact.
The ITAT emphasized that the requirement of prior approval under Section 153D is not a mere formality but a crucial safeguard. It ensures that a higher authority exercises “judicious, vigilant and cautious efforts” to protect both the revenue’s interest in taxing the right income and the taxpayer’s right against arbitrary or unjust assessments. The tribunal stated that the application of mind by the approving authority should be evident from the approval order itself.
The tribunal concluded that the JCIT’s approval in the case of Dilip Constructions was granted in a “mechanical manner without application of mind.” Consequently, the assessment orders passed based on this approval were deemed “void and bad in law.” The ITAT set aside the orders of the lower authorities and quashed the assessment orders.
This decision underscores the importance of the approving authority under Section 153D diligently reviewing assessment records and applying their mind before granting approval, failing which the entire assessment process can be invalidated. The ruling provides significant relief to Dilip Constructions and reinforces the procedural safeguards enshrined in the Income Tax Act.
The ITAT also passed a similar order in the case of Shilpa Seema Constructions Pvt Ltd., which had identical facts and circumstances.
FULL TEXT OF THE ORDER OF ITAT CUTTACK
