Case Law Details
Akshata Realtors Pvt. Ltd. Vs ACIT (ITAT Raipur)
ITAT held that the Approval granted by the JCIT, Range Central, Raipur under section 153D on ‘presumption’ basis without thoroughly going through the seized material, assessment records etc. as perfunctory, without application of mind, mechanical in nature hence, invalid, bad in law and liable to be quashed. Consequentially, the entire Search Assessment Order passed u/s.153A r.w.s. 143(3) quashed as not sustainable when the Approval u/s.153D is held to be invalid and bad in law. The ITAT Raipur Bench deliberates upon a host of judicial pronouncements on the issue including inter alia the Judgments of the Allahabad High Court on the scope & purport of section 153D.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The assessee has filed this appeal against the order of ld. CIT(A)-I, Raipur, dated 05.01.2018 for the assessment year 2013-2014, on the following grounds :-
GROUND NO.I
That the ex-parte Appellate Order passed by the Learned Commissioner of Income Tax (Appeals) – I, Raipur (“the Ld.CIT(A)”) is highly unjustified, bad in law, without providing reasonable opportunity of being heard, against the principles of natural justice and not in accordance with the provisions of law. It is prayed that the Appellate Order passed under section 250 of the Act may please be cancelled on this ground alone.
GROUND NO.II
On the facts and in the circumstances of the case as well as in law, the Ld.CIT(A) has grossly erred in confirming an addition of Rs.47,60,61,000/- made by the Ld.AO invoking the provisions of section 56(2)(viia) of the Act which is highly unjustified, unwarranted, unsustainable, not proper on facts, dehors any incriminating material or documents seized in the course of search, based on presumptions & surmises, contrary to the principles of natural justice and not in accordance with the provisions of law.
Hence, it is prayed that the addition of Rs.47,60,61,000/- may please be deleted.
GROUND NO.III
That the appellant craves leave to add, amend, alter or delete all or any of the grounds of appeal at the time of hearing of the appeal.
2. Further, the Registry has received an application from the direction of the assessee on 25.05.2022, wherein the assessee has sought for admission of additional grounds of appeal, which read as under :-
1. That the appellant filed the aforesaid appeal before the Hon’ble Bench on 3rd May, 2018 against the ex-parte Appellate Order passed by the Ld. Commissioner of Income Tax (Appeals) – 2, Raipur confirming the Assessment Order passed u/s,143(3) by the Asst. Commissioner of Income Tax, Central Circle – 2, Raipur.
2. Without prejudice to the Grounds of Appeal raised in the Form Of Appeal as aforesaid, the Appellant prays for the admission and adjudication by the Hon’ble Tribunal, of the following Additional Ground of Appeal which is purely legal & goes to the root of the matter, which do not require investigation into, or examination of, any new facts or evidence that were not already available before the Ld.AO and Ld.CIT(Appeals); this merely involves interpretation of the provisions of the Income-tax Act, 1961 (‘the Act’) which the Hon’ble Tribunal is otherwise competent to do, in view of the principles laid down by the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT (1998) 229 ITR 383 (SC). Before Ground No. 1, the following ground may kindly be allowed to be added:
“That the Search Assessment Order framed under section 153A r.ws. 143(3) of the Act on the strength of purported approval granted by the Ld. Joint Commissioner of Income Tax, Range-Central is void ab initio, invalid, illegal and bad in law hence, deserves to be quashed and declared a nullity since, the mandatory prior approval granted is no approval in the eyes of law as the same has not been obtained on the Final Assessment Order passed, is mechanical, mere empty formality lacks due application of mind and further, the Search Assessment Order was passed based on invalid, inchoate and consolidated approval, accordingly, the Search Assessment Order is bad in law & legally unsustainable hence, it is earnestly prayed that the Assessment Order passed u/s.153A r.w.s. 143(3) may please be quashed and cancelled in limine.”
3. In view of the above, since the additional ground of appeal raised thus, goes to the root of the matter having a vital bearing on the tax liability of the appellant, it is prayed that the additional ground of appeal raised may kindly be admitted exercising plenary powers vested in your honours under Rule 11 of the Appellate Tribunal Rules, 1963 r.w. section 254 of the Income Tax Act, 1961.
3. During the course of hearing, in the present appeal, ld. AR argued only on the additional ground on the question of sustainability of assessment order dated 08.11.2016 passed u/s.153A r.w.s143(3) of the Act.
4. Brief facts of the case are that the assessee is a resident company and has derived income from business of investment in property (real estates), income from house property and income from other sources. A search and seizure action u/s 132 of the Income Tax Act, 1961 was conducted on the business and factory premises of various companies and concerns relating to Crest Topworth Group of cases at Raipur, Mumbai, Pune, Nagpur, Ahmedabad and other places on 10/10/2012. Simultaneously, the residential premises of the directors and key persons of various concerns of this Group were also covered for action u/s 132(1) of the Act. Since the various concerns and individuals are interconnected and have business associations, they have been clubbed under the overall name as ‘Crest Topworth Group’. In connection to the search and seizure operation, the business premises of the assessee was also searched upon on 10.10.2012. Thereafter notice u/s.153A of the Act was issued to the assessee and in response to which the assessee has filed its return of income for the year under consideration declaring total income at Rs. Nil. During the search and seizure action, the AO found that the assessee has invested in the share of the company M/s Crest Steel and Power Ltd., and Topworth Pipes and Tubes Pvt. Ltd., in different F.Ys. Vide Part-B of the questionnaire u/s 142(1) dated 11.08.2014, the AO requested the assessee to furnish the source and details of investment made by him. The assessee made its submissions in this regard from which the AO noticed that the assessee has invested in the shares at the face value whereas the apparent value of the shares was higher. With a view to examine the applicability of the provisions of section 56(2) (vii), the AO asked the assessee to furnish the FMV of the shares so purchased. Further the assessee was asked to explain why addition should not be made u/s.56(2)(vii) of the Act. In response to which, the assessee furnished its reply on 05.11.2016 and submitted that the provisions of Section 56(2)(vii) of the Act are not applicable to the assessee’s case as the transactions relate to allotment and not transfer. However, the AO did not convince with the explanation of the assessee and passed the assessment order adding Rs.47,60,61,000/- to the total income of the assessee under the head income from other sources u/s.56(2)(viia) of the Act.
5. Being aggrieved with the assessment order, the assessee preferred appeal before the ld. CIT(A) and the ld. CIT(A) dismissed the appeal of the assessee sustaining the addition made by the AO.
6. Now, the assessee is in further appeal before the Tribunal against the order of ld. CIT(A).
7. Ld. AR before us submitted that the assessment framed by the AO u/s.153A r.w.s.143(3) of the Act is unsustainable. In this regard, ld. AR drew our attention to page 26 of the paper book filed by the assessee, which is a copy of the letter issued by the AO of the assessee to the JCIT (Central), Raipur seeking approval u/s.153D of the Act for framing the assessment in the case of the assessee along with other assessees. The same is reproduced hereunder :-
8. Further, the ld. AR drew our attention to page 25 of the paper book, wherein the JCIT vide letter dated 08.11.2016 approved the draft assessment as sought by the AO of the assessee u/s.153D of the Act, wherein the JCIT has given approval only on the basis of presumptions which is not permissible u/s.153D of the Act. The letter dated 08.11.20216 issued by the JCIT, Range-Central, Raipur is as under :-
9. It was further submitted by the ld. AR that the Search Assessment Order framed under section 153A r.ws. 143(3) of the Act on the strength of purported approval granted by the Ld. Joint Commissioner of Income Tax, Range-Central is void ab initio, invalid, illegal and bad in law, hence, deserves to be quashed. Ld AR also drew our attention to para 8 of the Assessment order, wherein the Ld AO has specifically referred to the date of submission by the assessee to queries of the Ld AO to explain regarding applicability of section 56(2)(via) of the Act, which was 05.11.2016. However, the draft assessment order as per the approval granted by the Ld JCIT were submitted to him on 03.11.2016. Ld AR on this count has put a question that how the orders could have drafted by the Ld AO and put up for the approval of Ld JCIT for approval U/s 153D without even considering the reply of the assessee which was not available with the Ld AO while the draft orders were put up for approval before the Ld JCIT. On this aspect itself ld AR argued that the Ld AO has prepared the order with prejudiced mind, without considering the submissions of the assessee. Ld AR further argued that it is apparent from records that the response of the assessee dated 05.11.2016 was considered by the Ld AO in its final order dated 08.11.2016 but it is not evident that the final amended draft order with assessee’s submission was considered by the Ld JCIT before granting approval u/s 153D. This clearly shows Ld JCIT has granted an illusory, ritualistic and pre functionary approval with a complete disregard to the provisions of section 153D. It was the submission that the Ld JCIT could never had the benefit, nor the occasion to examine or consider the submissions of the appellant to the Ld AO, so as to judiciously approve the draft Assessment order under the supervisory powers conferred upon him under the provisions of section 153D of the Income Tax Act. It is there for a unflinching and inescapable conclusion from these facts that “No Approval” was ever accorded by the Ld JCIT to the Order passed by Ld AO dated 08.11.2016, in the present case. Therefore, ld. AR submitted that the Assessment Order passed u/s.153A r.w.s. 143(3) may be quashed and cancelled.
10. To support his arguments, ld. AR relied on the following case laws:-
(i) Pr.CIT v. Subodh Agarwal in I.T.Appeal No.86 of 2022 (Date of Judgment: 12.12.2022) (Allahabad HC) (Pg.No.463 – 468 CLC)
(ii) Pr.CIT v. Sapna Gupta in I.T.Appeal No.88 of 2022 (Date of Judgment: 12.12.2022) 2022 (12) TMI887 (Allahabad HC) (Pg.No.469 – 474 CLC)
(iii) M/s. Goyal Energy & Steel Pvt. Ltd. v. ACIT, CC-2, Raipur in ITA No.240 to 243/RPR/2019 (Date of Order : 17.09.2021) (ITAT Raipur) (Pg.No. 1 – 22 CLC)
(iv) Ritanjali Khatai & Ors. v. ACIT, CC-1, Bhubaneswar in IT(SS) A.No.51 to 53/CTK/2019 (Date of Order: 08.04.2022) (ITAT Cuttack) (Pg.No.23 – 41 CLC)
(v) Arch Pharmalabs Ltd. v. ACIT (2021) 62 CCH 9 (ITAT Mumbai) (Pg.No.42 – 54 CLC)
(vi) PCIT v. Smt.Shreelekha Damani 2018-TIOL-2516-HC-MUM-IT(Bom.HC) (Pg.No.74 – 76 CLC) (vii) Inder International v. ACIT (2021) 35 NYPTTJ 374 (ITAT Chandigarh) (Pg.No.77 – 88 CLC)
(viii) Sh. Inder Pal Singh Arora v. DCIT2021 (6) TMI 933 (ITAT Dehradun) (Pg.No.89 – 95 CLC) (ix) Rajat Minerals (P.) Ltd. v. DCIT(2020) 181ITD 368 (ITATRanchi) (Pg.No.96 -110 CLC)
(x) Shri Navin Jain & Ors. v. DCIT in IT(SS)A.Nos.639 to 641/Lkw/2019 (Date of Order: 03.08.2021) (ITAT Lucknow) (Pg.No. 111-142 CLC)
(xi) Shri Saurabh Agarwal & Ors. v. DCIT in ITA No.263 to 267/Agr/2017 (Date of Order: 18.09.2019) (ITAT Agra) (Pg.No. 143 – 171 CLC)
(xii) Vijay Kumar Mittal HUF v. ACIT 2021-TI0L-898-ITAT-Jabalpur (ITAT Jabalpur) (Pg.No.172 – 189 CLC)
(xiii) ACIT v. Sh. Subash Dabas in ITA No.2399/Del/2016 (Date of Order : 25.11.2021) (ITAT Delhi) (Pg.No.190 – 257 CLC) (xiv) Geetarani Panda v. Asst. CIT (2018) 194 TTJ 915 (ITAT Cuttack)
(xv) Indra Bansal v. Asst. CIT [20181192 TTJ 968 (ITAT Jodhpur) (xvi) AAA Paper Marketing Ltd. Vs. ACIT (2017) 9ITR (Trib.)-OL 424 (ITAT Lucknow) (xvii) Rishabh Buildwell Pvt. Ltd. Vs. Dy.CIT(ITA No.2122/Delhi/2018, dated July 4, 2019)(ITAT Delhi)
(xviii)M/s India Holdings Vs. DCIT (2019) 71ITR (Trib.) 451 (ITAT Del.)
(xix) Uttarakhand Uthan Samiti Vs. ITO (2021) 86 ITR (Trib.) 695 (ITAT Delhi)
(xx) Dilip Constructions (P) Ltd. vs. Asstt. CIT (2020) 203 TTJ (Ctk) 422 (Pg.No.258 – 292 CLC)
(xxi) Rajesh Ladhani vs. Dy. CIT (ITA Nos. 106 to 108/Agra/2019) (ITAT Agra)
(xxii) Shri Tarachand Khatri Vs. ACIT, Central Circle, Jabalpur in ITA No.21/JAB/2019 (Date of Order : 17.01.2020)
(xxiii) Asstt. CIT vs. C.R. Mittal & Sons (HUF) [IT(SS)A No. 100/Jab/2014 (ITAT Jabalpur)
(xxiv) Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC) (Pg.No.55 – 73 CLC)
11. On the other hand, ld. CIT-DR relied on the order of the ld. CIT(A) and submitted that the AO has passed the assessment order after getting approval from the JCIT vide dated 08.11.2016. Ld CIT-DR, in support of the contention, the revenue has relied upon the judgment of Hon’ble Jurisdictional High Court of Chhatisgarh in the case of Bharat Krishi Kendra Vs Union of India reported in (2022) 136 com 245 dated March 15, 2022. Hon’ble Highcourt of Chhatiagarh in the said order has categorically held that:
“Provisions under section 151(2) mandate satisfaction of Joint Commissioner before issue of notice under section 148, hence, where Joint Commissioner recorded satisfaction on proposal of Assessing Officer by mentioning that it is a fit case for issuance of notice, approval under section 151 giving details of approving authority as Principal Commissioner in itself will not make approval invalid”
12. Regarding the contention of the Ld AR that the approval was granted prior the date of submissions / response by the assessee to Ld AO, Ld CIT-DR, has placed his reliance upon and submitted a copy of the judgment of the Hon’ble Allahabad in the case of Sahara Credit Cooperative Society Ltd. Vs. DCIT/ACIT, reported in 447 ITR 597 (Allahabad) dated April 20, 2022, where in at para 41 to 44, it has been held as under:-
“41. The learned counsel for the petitioner next submitted that the notice under section 148 of the Act was issued an 22-3-2021 by the DCIT/ACIT-3, Lucknow-New whereas the letter written by the member CIT-1/Lucknow to Additional CIT Range III (4), Lucknow communicating approval under section 151 for issuance of notice under section 148 of the Act was received by the A.O. on 24-32021. Thus on the date of issuance of notice i.e. on 22- 3-2021, the A.O. was not having any approval/sanction of ACIT-1 Lucknow.
42. In reply to the aforesaid submission, Sri. Manish Misra has stated that PCIT-1, Lucknow had granted approval under section 151 of the Act on 20-03-2020 and the approval was uploaded on the portal of the Department. Acting on the approval uploaded on the portal, the A.O. issued the notice under section 148 of the Act on 22-03-2020, without waiting for receipt of the paper copy of the approval.
43. We find that there is no need for the paper containing approval being received physically before issuing the notice and the A.O. can proceed to issue a notice under section 148 of the Act if the approving authority has granted his approval and the approval has been communicated to the A.O. in any manner – including by uploading the approval on the portal of the Department. The notice under section 148 of the Act is not vitiated on the ground that the paper containing approval under section 151 was received by the A.O. after issuing the notice.
44. In view of the foregoing discussion, we are of the considered opinion that the petitioner did not make a true and full disclosure of all the material facts and the A.O. had reason to believe that the petitioner’s income for the relevant year had escaped assessment. The notice dated 22-03-2020 issued under section 148 of the Act as well as all the proceedings undertaken in consequence of the notice, including the order dated 25-01-2022 passed by the National Faceless Assessment Centre rejecting the petitioner’s objections against the notice, do not suffer from any such illegality so as to warrant any interference by this Court in exercise of its extraordinary discretionary Writ Jurisdiction.
45. The Writ Petition lacks merits and is, accordingly, dismissed.”
13. Carrying the argument further, Ld CIT-DR argued that in view of the aforesaid decision in the case of Sahara Credit Cooperative Society Ltd.(supra), there Lordships has clearly mandated that granting of approval is a must, whether it is done by communicating through paper or by way of uploading the same on the portal of department. It was thus the prayer of the revenue that the appeal the present case shall be adjudicated on its merits without going into the technicalities, so as to lead towards substantial justice. Therefore the order of Ld CIT(A) in affirmation of the Order of Ld AO deserves to be upheld.
14. We have considered the rival submissions and perused the record carefully. The issue before us is to decide as to whether the assessment framed by the AO u/s.153A r.w.s.143(3) of the Act after getting approval from the JCIT, Range-Central, Raipur in view of the provisions of Section 153D of the Act, is valid and sustainable or not, as has been raised by the ld. AR of the assessee during the course of hearing in the form of additional ground. On perusal of the assessment order we found that the AO has made addition u/s.56(2)(vii) of the Act under the head income from other sources as the assessee could not explain the source and details of the investment made by the assessee in M/s Crest Steel and Power Ltd. and Topworth Pipes and Tubes Pvt. Ltd. in different financial years. Before passing the assessment order, the AO has sought approval from the JCIT, Range-Central, Raipur vide letter dated 03.11.2016 in the case of the assessee along with other assessees. The JCIT, Range-Central, Raipur has approved the draft assessment orders u/s.153A r.w.s.143(3) of the Act vide letter dated 08.11.2016. Consequently, the AO has passed assessment order on 08.11.2016. On perusal of the approval given by the JCIT, Range-Central, Raipur, we found that the JCIT has given approval only on the basis of presumption that the AO after giving proper opportunity to the assessee, thoroughly verified the seized material and proposed for making addition, which in our opinion, without looking into the complex facts of the search assessment has been approved in a mechanical manner. Even the CIT(A) has also overlooked this technical error in the assessment order. Further, it is not clarified as to whether the assessment record in the case of the assessee has been seen by the JCIT or not. Therefore, the approval granted by the JCIT, Range-Central, Raipur in the case of the assessee is merely technical approval just to complete the formality and without application of mind as there was no examination of the seized documents, only on the presumption the approval cannot be granted. Thus, we hold the approval under section 153D of the Act has been granted in the case of the assessee was without application of mind, the same is invalid, bad in law and liable to be quashed.
15. Reliance can be placed on the case law relied on by the ld. AR of the assessee, in the following cases :-
(i) Pr.CIT v. Subodh Agarwal in I.T.Appeal No.86 of 2022 (Date of Judgment: 12.12.2022) (Allahabad HC):
“The approval of draft assessment order being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise, without application of independent mind by the Approving Authority on the material placed before it and the reasoning given in the assessment order. It is admitted by Sri Gaurav Mahajan, learned counsel for the appellant-revenue that the approval order is an administrative exercise of power on the part of the Approving Authority but it is sought to be submitted that mere fact that the approval was in existence on the date of the passing of the assessment order, it could not have been vitiated. This submission is found to be a fallacy, in as much as, the prior approval of superior authority means that it should appraise the material before it so as to appreciate on factual and legal aspects to ascertain that the entire material has been examined by the Assessing Authority before preparing the draft assessment order. It is trite in law that the approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case. The requirement of approval under Section 153D is pre-requisite to pass an order of assessment or reassessment.
Section 153D requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of “each assessment year” referred to in Clause (b) of sub-section (1) of Section 153A which provides for assessment in case of search under Section 132. Section 153A(1)(a) requires that the assessee on a notice issued to him by the Assessing Officer would be required to furnish the return of income in respect of “each assessment year” falling within six assessment years (and for the relevant assessment year or years), referred to in Clause (b) of subsection (1) of Section 153A. The proviso to Section 153A further provides for assessment of the total income in respect of each assessment year falling within such six assessment years (and for the relevant assessment year or years).
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.
In the instant case, the draft assessment order in 38 cases, i.e. for 38 assessment years placed before the Approving Authority on 31.12.2017 was approved on same day i.e. 31.12.2017, which not only included the cases of respondent-assessee but the cases of other groups as well. It is humanly impossible to go through the records of 38 cases in one day to apply independent mind to appraise the material before the Approving Authority. The conclusion drawn by the Tribunal that it was a mechanical exercise of power, therefore, cannot be said to be perverse or contrary to the material on record.
(ii) Pr.CIT v. Sapna Gupta in I.T.Appeal No.88 of 2022 (Date of Judgment: 12.12.2022) 2022 (12) TMI887 (Allahabad HC), wherein the similar findings were offered by the Hon’ble High Court of Allahabad as in the case of Subodh Agrawal (supra) and held as under :-
Search and seizure—Assessment under s. 153A—Approval under s. 153D—Prior approval of superior authority means that it should appraise the material before it so as to appreciate on factual and legal aspects to ascertain that the entire material has been examined by the approving authority before preparing the draft assessment order—In the instant case, the draft assessment orders in 123 cases placed before the approving authority on 30th Dec., 2017 and 31st Dec., 2017 were approved on 31st Dec., 2017, which not only included the cases of assessee but the cases of other groups as well—It is humanly impossible to go through the records of 123 cases in one day to apply independent mind to appraise the material before the approving authority—Conclusion drawn by the Tribunal that it was a mechanical exercise of power, therefore, cannot be said to be perverse or contrary to the material on record—No substantial question of law arises for consideration
(iii) M/s.Goyal Energy & Steel Pvt. Ltd. v. ACIT, CC-2, Raipur in ITA No.240 to 243/RPR/2019 (Date of Order : 17.09.2021) (ITAT Raipur), wherein the approval granted by the JCIT was identical to the approval granted in the case of the present assessee, held as under :
22. On careful perusal of the approval order of JCIT, we find that the JCIT while granting approval on 22.12.2018 recorded that “ it is presumed that the AO has – given proper opportunity of hearing to the assessee, thoroughly verified the seized material and that there is no adverse finding, satisfy himself that all issues emanating from the record have been verified and additions wherever required have been proposed.”
23. Before us, the ld AR for the assessee vehemently argued that JCIT has granted approval under section 153D in a casual and mechanical manner and without any application of mind and that from the communication made to the JCIT by AO vide letter dated 14.12.2018, the AO had not made any iota of reference as to what are the seized materials nor furnishes any assurance with respect to approval and appraisal of all evidences and corresponding reply by the assessee. And that ld. JCIT approved the assessment order by presuming that the necessary opportunity has been given to the assessee and all the records, evidences and materials have been thoroughly verified. The JCIT granted bulk approval of 95 assessment orders which clearly defeats the intent and purpose behind insertion of section 153D brought in the statute by the Finance Act, 2007.
24.We find that the ld. JCIT while granting approval, presumed that Assessing Officer has given proper hearing to the assessee and thoroughly verified seized material and there are no adverse findings, satisfied himself that all the issues emanating from the records have been verified and additions wherever required have been proposed. We further find that there is no independent application of mind on the part of ld.JCIT while granting the approval.
25.We find that coordinate bench of Mumbai Tribunal while considering the similar ground of appeal in granting bulk approval of the assessment under section 153A, in case of Arch Pharmalabs Ltd Vs ACIT (supra) held that the approval accorded under section 153D is without any occasion to refer to the assessment records and seized material, if any, incriminating the assessee and hence such approval is in the realm of an abstract approval of draft assessment orders which was unsubstantiated and unsupported and consequently suffered from total non-application of mind. The relevant part of the order is extracted below;
“11.5 At the cost of repetition, it may be reiterated that in the instant case, approving authority did not mention anything in the approval memo towards his/ her process of deriving satisfaction so as to exhibit his/her due application of mind. We may observe that Para 2 of the above approval letter merely says that “Approval is hereby accorded u/s. 153D of the Income-tax Act, 1961 to complete assessments u/s. 143(3) r.w.s. 153A of the I.T. Act in the following case on the basis of draft assessment orders…”which clearly proves that the Addl. CIT had routinely given approval to the AO to pass the order only on the basis of contents mentioned in the draft assessment order without any application of mind and seized materials were not looked at and/or other enquiry and examination was never carried out. From the said approval, it can be easily inferred that the said order was approved, solely relying upon the implied undertaking obtained from the Assessing Officer in the form of draft assessment order that AO has taken due care while framing respective draft assessment orders and that all the observations made in the appraisal report relating to examination / investigation of seized material and issues unearthed during search have been statedly considered by the AO seeking approval. Thus, the sanctioning authority has, in effect, abdicated his/ her statutory functions and delightfully relegated his/her statutory duty to the subordinate AO, whose action the Additional CIT, was supposed to supervise. The addl. CIT in short appears to have adopted a short cut in the matter and an undertaking from AO was considered adequate by him/ her to accord approval in all assessments involved. Manifestly, the Additional CIT, without any consideration of merits in proposed adjustments with reference to appraisal report, incriminating material collected in search etc. has proceeded to grant a simplicitor approval. This approach of the Additional CIT, Central has rendered the Approval to be a mere formality and ca not be countenanced in law.
26. Similar view was taken by Coordinate bench of Delhi Tribunal in Sanjay Duggal & others (supra).
27. So far as the contention of ld CIT-DR that the assessment under section 153A is passed under the supervision of JCIT and that JCIT granted approval of the draft assessment after considering the material placed before him. We do not find any such satisfaction in the approval order that draft assessment after Considering the material placed before him, rather the ld JCIT recorded that it is presumed that the AO granted proper opportunity to the assessee etc…
28. In view, of aforesaid discussion and respectfully following the decisions of coordinate benches in Sanjay Duggal & others (supra) and Archpharma Labs & Acrh Impex P Ltd (supra), we find convincing force in the submissions of the assessee that the approval granted by JCIT suffer from non-application of mind and depends on presumption of proper performance of duty by A.O. such per functionary approval under section 153D cannot termed as legitimate. The consequential assessment orders based on non-est approval under section 153D, thus are void-abinitio on this ground alone. Considering the facts that we have allowed the appeal on the legal issues therefore, consideration of appeal on merit have become academic.
(iv) Ritanjali Khatai & Ors. v. ACIT, CC-1, Bhubaneswar in IT(SS) A.No.51 to 53/CTK/2019 (Date of Order: 08.04.2022) (ITAT Cuttack), wherein the Tribunal has held that the assessment framed u/s.153A/143(3) of the Act is not sustainable without proper approval u/s.153D of the Act. The relevant observations of the Tribunal are as under :-
11. On perusal of the above two approvals given in the case of two different assessees, we found that both the approvals are similar to each other. In both the approval letter, the JCIT has simply mentioned that approval is hereby accorded as per provisions of Section 153D of the Act for passing the assessment order, therefore, the arguments of the ld. CIT-DR that facts and circumstances along with the approval given in Dilip Construction Pvt. Ltd. and in the case of Ritanjali Khatai are different, cannot be accepted. Accordingly, we are in complete agreement with the contention of ld. AR of the assessee that the issue is covered by the decision of coordinate bench of the Tribunal in the case of Dillip Construction Pvt. Ltd.(supra), wherein the relevant observations of the Tribunal are as under :-
31. Before we proceed, we find it appropriate to consider the contention of ld CIT DR wherein, he submitted that as per letter dated 19.12.2018, the JCIT, the approving authority had given approval for passing order u/s.153A r.w.s 143(3) in both the cases after satisfying himself with the draft assessment orders. This letter has been written to the JCIT (Central) by approving authority i.e. JCIT (BPU) pertaining to the office communication regarding additional ground of appeal, which are being adjudicated but in view of approval order dated 23.11.2017, thus we are inclined to accept the contention of ld A.R. that this submission of approving authority is mere an attempt to fill the gaps and procedural lacunas occurred in the procedure adopted by JCIT while granting approval under section 153D of the Act and, therefore, the contention of ld A.R. in this regard hold the field.
32. Similarly letter dated 4.1.2019 issued by JCIT (Central), Bhubaneswar to the CIT (Audit & ITAT), Bhubaneswar is merely a covering letter supplying copy of the approval dated 23.11.2017, which cannot be treated as an explanation to the approval dated 23.11.2019 curbing the mistake in the procedure adopted by the JCIT while granting approval u/s.153D of the Act. On these subsequent letters/correspondences, we are of the considered view that for adjudicating legal ground of assessees challenging the validity of approval u/s.153D of the Act dated 23.11.2017, we have to evaluate said approval apparently by considering the totality of facts and circumstances and the manner in which such approval has been granted. This cannot be improvised by way of subsequent exercise or correspondence between the approving authority and the AO or other officers.
33. In view of foregoing discussion, we are inclined to hold that the ld JCIT has granted approval under section 153D of the Act in a mechanical manner without application of mind to the relevant assessment records and draft assessment orders submitted before him by the AO for grant of approval u/s.153D of the Act before passing the relevant assessment orders u/s.153A r.w.s 143(3) of the Act.
34. Considering the facts and circumstances of the case in the light of above discussion, it is amply clear that the AO vide latter dated 17.11.2017 requested the Approving Authority i.e. JCIT to grant approval u/s 153D of the Act and furnished relevant assessment records and draft assessment order before him for consideration prior to grant of approval. As we have already noted above that there is no requirement of mandate of section 153D of the Act that an opportunity of hearing should be allowed to the assessee before grant of approval u/s.153D of the Act but at the same time, it is also a requirement of mandate of section 153D of the Act that the approving authority must apply his mind to the relevant assessment records and draft assessment order before granting approval u/s.153D of the Act. As the requirement of grant of approval by the Superior authority is not merely a formality but it is a mandate and requirement of provisions of the Act.
35. In our considered and humble opinion, no procedure for grant of approval has been provided u/s.153D of the Act and the Income tax Rules, 1962. However, when legislature has enacted some provision to be exercised by a higher revenue authority enabling the AO to pass assessment or reassessment orders in the search cases, then, it is the duty of the approving authority to exercise such power by applying his judicious, vigilant and cautious efforts. We are of the view that the obligation on the approval granting authority is of two folds, one the one hand, he has to apply his mind to secure inbuild for the department against any omission or negligence by the AO in taxing right income in the hands of right person in the right assessment year and on the other hand he is also responsible and duty bound to do justice with the taxpayer/assessee by granting protection against arbitrary or unjust or unsustainable exercise and decision by the AO crating baseless tax liability on the assessee and thus he has to discharge his duties as superior authority. Thus, granting approval u/s.153D of the Act is not merely an official formality but it is a supervisory act which requires proper application of administrative and judicial skill by the authority on the application of mind and this exercise should be discernible from the order of approval u/s.153D of the Act.
36. In our humble understanding the provisions of section 153D of the Act has been introduced by the legislature in its cautious wisdom to make it mandatory on the supervisory authority/approving authority to discharge the duty towards both the assessee as well as revenue to follow the proper procedure and to apply his mind on the material, relevant evidences and other documents including materials found during search & post search investigations and explanation & supporting documents of the assessee to the issue show caused to him by the AO, on the basis of which the AO wants to pass or frame assessment or reassessment orders and after such exercise by perusing and going through the relevant assessment folders/files alongwith proposed draft orders and also by applying his mind has granted approval u/s.153D of the Act. This is the minimum required exercise by the approving authority before granting approval u/s.153D of the Act. The approving authority has undertaken any such exercise should be discernible from the order of the approval and the subsequent internal correspondence between the lower authorities have no relevance and the defects or omissions or non-application of mind cannot be cured or rectified by any other exercise or working undertaken by the approving authority after grant of approval and after passing the assessment orders u/s.153A of the Act by the Assessing officer.
37. The provisions of section 153D of the Act was inserted by the Finance Act, 2007 w.e.f. 1.6.2007. In our humble understanding of said provision, the legislative intent for insertion of said provision is clear inasmuch as prior to insertion of provision u/s.153D, there was no provision for taking approval in cases of assessment or reassessment where search and seizure operation was conducted u/s.133A of the Act. Therefore, in our considered view, the legislature wanted the assessment/reassessment of search and seizure cases should be made and orders should be passed with the prior approval of superior authority, which also means that the superior authority should apply his mind on the materials on the basis of which the AO is making or passing assessment orders and after due application of mind to material in the hands of department while initiating search proceedings, material found & seized during the course of search and also material or information unearthed or gathered during post search investigation and enquiry alongwith explanation, documentary evidence and other relevant material or information submitted by the assessee during search and assessment proceedings, the superior authority has to grant the approval u/s.153D of the Act for passing assessment/reassessment orders in the search cases.
38. Further, in our considered view, the approval u/s.153D of the Act cannot be treated as an official formality but the provision has been inserted by the legislature with some specific and useful purpose. It is apparent that the purpose behind enactment of the said provision in the Statute by the legislature are of two folds viz (i) before approval, the Sr. Authority will ensure that the assessee should be protected against undue or irrelevant addition & disallowances in the assessment and (ii) the approving granting authority will also ensure that proper enquiry investigations are carried out by the Assessing Officer on all the relevant materials including material in hands of the department at the time of initiating search proceedings, material or documents found and seized during search operation and materials found and unearthed during post search investigations and enquiries. Therefore, said provision provides and requires application of mind by the approving authority of the department which, in turn, provides safeguard to the both the parties i.e. revenue and the assessee. Therefore, the provisions of section 153D of the Act cannot be treated as a mere formality and mandate therein required to be followed by the approving authority in a judicious manner by due application of mind in a manner of cautious judicious or quasi judicial authority. This view has also been expressed by Pune Bench of the ITAT in the case of Akil Gulamali somji, in ITA Nos.455 to 458(Pune) of 2010 vide order dated 30.3.2012, wherein, it was held that when the approval was granted without proper application of mind, the order of assessment will be bad in law. We also take respectful cognizance of the fact that the Hon’ble Bombay High Court in the case of Akil Gulamali Somji (supra) has concurred with the said findings and view taken by the Pune Tribunal that not following the provisions of section 153D of the Act will render the related order of assessment void.
39. In view of foregoing discussion, we reach to a logical conclusion that it is the duty of the approving authority to act in accordance with the mandate and provisions of law while granting approval and discharging statutory function lay on his shoulders by following proper procedure and also by applying his judicious and cautious mind to the relevant assessment folders/files and draft assessment orders while granting approval u/s.153D of the Act. This is not a formality but a statutory duty of the approving authority with a corresponding obligation on him to examine relevant record and assessment orders and thereafter grant the approval. We are cautious about that the reasons for granting approval may not be a subject matter of challenge or are not required to be mentioned in the order of approval but the manner and the material on the basis of which approval has been granted can be challenged by the assessee and following proper procedure and application of mind by the approving authority should be discernible from the order of approval. No other evidence or documents is required to be considered or appreciated as the approval should be self-speaking that it has been granted by the ld JCIT by following due procedure and due application of mind to the relevant records and orders. The scope and issue agitated by the assessee by way of legal ground in the present case is not that of grant of hearing or representation to the assessee at the time of granting approval but the main grievance and legal objection of the assessee is that the approving authority has granted approval without application of mind and without looking into the seized materials and investigation report and draft assessment/reassessment orders and this fact should be clearly discernible from the approval order and no other extraneous material/document can be seen in this regard.
40. In view of above, we are inclined to hold 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 of approval u/s.153D and mandate of enactment by the legislature will be defeated. In the present case, the approving authority, the ld JCIT got five days time but from the order of approval, we are unable to see any exercise by the approving authority and even in the approval orders (supra), he has not mentioned that the relevant appeal folders/files alongwith assessments/reassessment orders have been perused or any discussion or consultation has been made with the AO prior to granting of approval u/s.153D of the Act. Accordingly, we are compelled to hold that the approval granted by the ld JCIT in the appeals under consideration has been granted in a mechanical manner without application of mind and that the assessments/reassessment orders passed by the AO on such approval are declared to be void and bad in law. We hold so.
41. In view of aforesaid discussion, we clearly find that approving authority has not applied his mind to the relevant assessment records and draft assessment orders prior to granting approval to the Assessing officer for passing assessment orders u/s.153A/143(3) of the Act. Therefore, the contention of ld A.R. of the assessee is justified and sustainable that the approval was granted in most mechanical manner without application of mind and respectfully following the proposition rendered by Hon’ble Bombay High Court in the case of Smt. Shreelakha Damani (supra), the order of ITAT Delhi Bench in the case of M3M India Holdings (supra) and decision of ITAT Cuttack Bench in the case of Geetarani Panda (supra), we hold that no valid approval has been sanctioned or accorded by the ld JCIT before allowing the AO to pass the relevant assessment orders. From the relevant approval orders dated 23.11.2017, it is vivid that ld JCIT has not mentioned in the approval orders that he has gone through the relevant assessment records/files/folders and draft assessment orders for granting approval. These facts clearly show that the approval had been granted in a mechanical manner without application of mind and, thus, no valid approval has been granted by the ld JCIT before authorising the AO to pass assessment orders u/s.153A of the Act. Accordingly, all assessment orders are vitiated and thus same are void being bad in law. The requirement of mandate of section 153D of the Act has not been satisfied in both the cases and accordingly we hold that the all assessment orders are vitiated and thus same are void being bad in law. We, accordingly set aside the impugned orders of lower authorities and quash the assessment orders by allowing additional ground of the assessees in all appeals filed by both the assessees having identical and similar facts and circumstances.
12. Thus, respectfully following the above observations of the Tribunal and especially the fact that the approval u/s.153D of the Act given by the JCIT for passing assessment orders in case of assessee and other group concern is without application of mind as the JCIT has not mentioned in the approval orders that he has gone through the relevant assessment records/files/folders and draft assessment orders for granting approval, therefore, we hold that the impugned order passed by the CIT(A) affirming the assessment order passed by the AO, is not unsustainable. Accordingly, we allow the ground No.2 of the assessee and cancel the assessment order framed u/s.153A/143(3) of the Act.
16. In the present appeal, the JCIT, Range-Central Raipur has granted approval on the presumption basis, which in our opinion is not permissible. When the approval is not valid, then the assessment framed u/s.153A r.w.s.143(3) of the Act in the case of the assessee is not sustainable.
17. Before concluding and offering our final view on the issue, this is pertinent to mention here that the case laws relied upon by the Ld CITDR are distinguishable on facts, have no bearing on the issue under discussion in the present appeal, thus the same are not of any help to the revenue to support their contentions. The judgment in the case of Bharat Krishi Kendra Vs Union of India (supra) was decided in favour of the revenue only on the reason that where “Joint Commissioner recorded satisfaction on proposal of Assessing Officer by mentioning that it is a fit case for issuance of notice, approval under section 151 giving details of approving authority as Principal Commissioner in itself will not make approval invalid”, this is altogether on different footing than the facts of the present case, where approval was granted by the Ld JCIT himself but on the basis of certain presumptions without verifying the seized material by himself, even the responsibility of satisfaction was placed on shoulders of the AO. We therefor of the view that guidance of the Hon’ble Jurisdictional High Court of Chhatisgarh in the case of Bharat Krishi Kendra Vs Union of India (supra) cannot be adopted for deciding the issue in the present appeal. Regarding the judgment in the case of Sahara Credit Cooperative Society Ltd. Vs. DCIT/ACIT (supra), Hon’ble Allahabad High Court has emphasised on the issue of communication of the approval, whether same is done physically or through uploading the same on portal of the department makes no difference, however in the present case no such issue has been agitated, thus the same has no bearing on the issue to be decided herein.
18. In view of the above discussion and observations, respectfully following the decision of the Hon’ble High Court of Allahabad as well as orders of the coordinate benches of the Tribunal referred to above, in absence of any submission or decisions contrary to what has been emerged by the observations herein above, we do not have any reason to upheld the order of the authorities below, consequently we hold that the order of Ld CIT(A) in affirmation of the order of Ld AO u/s.153A r.w.s.143(3) of the Act is unsustainable and derives to be quashed and we do so. Accordingly, the assessment order in the case of the assessee u/s.153A r.w.s.143(3) of the Act stands cancelled. Thus, the legal ground raised by the assessee in the form of additional ground is allowed. Since, we have allowed the legal ground of the assessee, other grounds, though not argued by the ld AR, are not adjudicated upon.
19. In the result, the appeal of assessee is allowed.
Order pronounced in pursuance to the Rule 34(4) of ITAT Rules,1963 on 27/03/2023.
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