Appeal Dismissed; HC Order on Section 153D Approval Upheld: SC

ACIT Vs Serajuddin And Co. (Supreme Court of India)

The matter arose from search and seizure proceedings conducted under Section 132 of the Income Tax Act, 1961 on 28 May 2008 against the assessee and related persons. Pursuant to the search, notices under Sections 153A and 142(1) were issued, and on 30 December 2010 the Assessing Officer (AO) passed assessment orders under Sections 143(3)/144/153A making various additions and disallowances. The assessee challenged the assessments before the Commissioner of Income Tax (Appeals) [CIT(A)], contending, among other grounds, that Section 153D had not been complied with. The Revenue maintained that the AO had obtained the Additional Commissioner of Income Tax’s prior approval before passing the assessment orders. The CIT(A), while partly allowing the appeals, rejected this objection, observing that it was unnecessary for the assessment orders to mention the approval and noting that a consolidated approval dated 30 December 2010 existed for the relevant assessment years.

The assessee appealed to the Income Tax Appellate Tribunal (ITAT), contending that the CBDT Circular dated 12 March 2008 had not been followed and that the approval under Section 153D had been granted mechanically without application of mind. Reliance was placed on the AO’s letter seeking approval and the Additional CIT’s approval letter. The ITAT examined these documents, referred to judicial precedents, and concluded that the approving authority had not applied its mind to the assessment records or draft assessment orders before granting approval under Section 153D. The ITAT accordingly set aside the assessment orders, rendering the Revenue’s cross-appeals infructuous.

The Revenue challenged the ITAT’s common order before the High Court. The High Court admitted the appeals on the question whether the ITAT was correct in holding that the approving authority had not applied its mind while granting approval under Section 153D. The Revenue argued that prior approval had in fact been obtained; that such approval was merely an administrative order and not justiciable; that only absence of sanction, and not the manner of granting it, could be challenged; that no hearing before the approving authority was mandatory; that any irregularity was procedural; that the Additional CIT already had the relevant records; and that any violation of natural justice required proof of prejudice. The assessee relied on the CBDT Circular, the Manual of Office Procedure, and several judicial decisions to contend that prior approval under Section 153D required genuine application of mind.

The High Court observed that Section 153D, introduced with effect from 1 June 2007, requires prior approval before an Assessing Officer below the rank of Joint Commissioner passes assessment or reassessment orders in search cases. Referring to the CBDT Circular dated 12 March 2008, the Manual of Office Procedure, and decisions including Rajesh Kumar v. Dy. CIT, Sahara India (Firm), Lucknow v. Commissioner of Income Tax, and Delhi High Court decisions concerning supervisory approval, the High Court held that prior approval could not be a mechanical exercise. It held that such approval must reflect application of mind and that the approving authority performs an important supervisory function.

Examining the correspondence between the AO and the Additional CIT, the High Court noted that the AO forwarded draft assessment orders shortly before the limitation date, while the approval letter merely granted approval for the assessment years without indicating that the draft orders had been examined. The Court observed that the approval letter contained no indication of the approving authority’s thought process and amounted only to a formal approval. It also noted that the assessment orders themselves did not mention that approval had been sought or obtained, contrary to the requirements stated in the Manual of Office Procedure. Holding that the CBDT instructions issued under Section 119 were binding on the Department, the High Court concluded that the ITAT had correctly held that the mandatory requirement of prior approval under Section 153D had not been satisfied, that the approval had been granted mechanically without application of mind, and that the assessment orders stood vitiated. The question of law was answered in favour of the assessee and against the Department, and the Revenue’s appeals were dismissed without costs.

The Revenue thereafter filed a Special Leave Petition before the Supreme Court. The Supreme Court condoned the delay and, after considering the facts and circumstances of the case, declined to interfere. The Special Leave Petition was dismissed, and the pending application(s) were disposed of. Consequently, the High Court judgment dismissing the Revenue’s appeals remained undisturbed.

SEO Title: Appeal Dismissed; HC Order on Section 153D Approval Upheld: SC

SEO Description: SC dismissed the SLP and declined to interfere with the HC judgment holding Section 153D approval was granted mechanically without application of mind.

Cases Discussed:

• Rajesh Kumar v. Deputy CIT, (2007) 2 SCC 181
• Sahara India (Firm), Lucknow v. Commissioner of Income Tax, (2008) 14 SCC 151
• ESS Advertising (Mauritius) v. Assistant Commissioner of Income Tax, (2021) SCC OnLine Del 3613
• Principal Commissioner of Income Tax-6 v. M/s. N.C. Cables Ltd., 2017 SCC OnLine Del 6533
• Yum! Restaurants Asia Pte. Ltd. v. Deputy Director of Income Tax, (2017) 397 ITR 665
• Syfonia Tradelinks Private Limited v. Income Tax Officer, 2021 SCC OnLine Del 2692
• German Remedies Limited v. DCIT, 2006 (1) Maharashtra Law Journal 517
• Dharampal Satyapal Limited v. Deputy Commissioner of Central Excise Gauhati, (2015) 8 SCC 519
• Managing Director, ECIL v. B. Karunakar, (1993) 4 SCC 727
• Haryana Financial Corporation v. Kailash Chandra Ahuja, (2008) 9 SCC 31
• State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364
• P.D. Agrawal v. State of Bank of India, (2006) 8 SCC 776
• Panicker (CGG) v. CIT, (1999) 237 ITR 443
• CIT v. M. Krishnan (N), (1999) 235 ITR 386
• Commissioner of Customs v. Indian Oil Corporation Ltd., 2004 (165) E.L.T. 257 (S.C.)

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

Delay condoned.

Having regard to facts and circumstances of the case, we are not inclined to interfere in the matter. The Special Leave Petition is dismissed.

Pending application(s) shall stand disposed of.