Assessment based on Section 153D approval in mechanical manner without application of mind is invalid

Rajesh Ladhani Vs DCIT (ITAT Agra)

It is evident from the  CBDT Circular No. 3 of 2008, dated 12.3.2008 that the legislature in its highest wisdom made it compulsory that the assessments of search cases should be made with the prior approval of superior authority, so that the superior authority apply their mind on the materials and other attending circumstances on the basis of which the officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authority have to approve the Assessment order. Object of entrusting the duty of Approval of assessment in search cases is that the Additional CIT, with his experience and maturity of understanding should scrutinize the seized documents and any other material forming the foundation of Assessment. It is an elementary law that whenever any statutory obligation is casted upon any statutory authority such authority is required to discharge its obligation not mechanically, not even formally but after due application of mind. Thus, the obligation of granting Approval acts as an inbuilt protection to the taxpayer against arbitrary or unjust exercise of discretion by the AO. The approval granted under section 153D of the Act should necessary reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending.

In the above background of law and in the light of Order dated 27.03.2015 passed under section 153D of the Act, which gives legality to the impugned Assessment order, question which arises for our consideration is whether the said Approval granted by the Additional CIT, Central, Kanpur vide his order dated 27.03.2015 can be held to be granted after due application of mind and can be held to be valid in the eye of law?

To decide the above issue, order dated 27.03.2015 passed by the Additional CIT was again carefully perused. The contents of the Approval, as reproduced in Para 4, speak for itself loud and clear. The following inferences are inevitable from the bare reading of the said order. Draft Assessment orders were placed before the Additional CIT, Central, Kanpur on 27.03.2015 at 3.50 PM for the first time and soon on the same day it was granted. As clearly mentioned in the Approval under challenge, that prior to this date the case was never discussed with the authority granting the approval. The Additional CIT has further noted that even the questionnaire as was required to be issued with the approval of Additional CIT, in view of CBDT instruction was not issued with his approval. He further observed that since, there was no time left to analyze the issue of draft order on merit, therefore, the said order is approved, as specifically mentioned in the said order, solely relying upon the undertaking obtained from the AO that he has taken due care while framing the assessment that all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have been carefully considered by the authority seeking approval. Thus, the sanctioning authority delegated his statuary duty to grant Approval, after due application of his mind, to the same subordinate AO , whose action the Additional CIT, was supposed to supervise and adopting a short cut in the matter obtained an undertaking from the subordinate AO, accepting it on face value that all the issues have been taken care off while framing the assessment by the AO, and that all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have been carefully considered by the AO, the Additional CIT, granted Approval. Admittedly, the Additional CIT, without any consideration on merit in respect of issues on which addition was made granted the Approval on the undertaking of the AO and in view of stated paucity of time with him for granting Approval. This approach of the Additional CIT, Central has rendered the Approval to be an eyewash and idle formality and such a mechanically granted Approval is no approval in the eyes of law.

From the approval order dated 27.03.2015 of the Addl. CIT, we find that the Ld. AR has rightly pointed out that in the facts of case of AAP Paper Marketing Limited (supra) there may be some justification for the qualified approval in view of the fact that the limitation in that case was getting expired on the day when the draft assessment orders were put up before the Additional CIT, Central Circle, Kanpur for his approval. However, to the disadvantage of the revenue in the case on hands there can be no little justification for qualified approval as the proposal for approval was put up before the Additional CIT on 27.03.2015 at 3.50 PM and at the same time it was granted, without any application of mind on the pretext that limitation is going to get expired on 31.03.2015. Thus, in the case at hand despite availability of time, the Additional CIT has been taking excuse of limitation and has chosen to grant approval without application of his own mind but on the undertaking of the AO that “while completing the assessment as per the draft assessment order, all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have carefully considered.” In our view such a practice is required to be deprecated and we deprecate the same.

ITAT held that If the approval is granted by the superior authorities in mechanical manner without application of mind then the very purpose of obtaining approval is defeated. Moreover, where 4 clear days’ time was available with the administrative authority, it was a half-hearted approval and as such held as no approval in the eyes of law. Accordingly, we have no hesitation in declaring that the Approval granted by the Additional CIT, Central, Kanpur on 27.03.2015 is no approval in the eyes of law and therefore, the assessment made by the AO based on such an approval is also declared to be null and void.

FULL TEXT OF THE ITAT JUDGEMENT

This bunch of appeals are directed by the assessee, against the order dated 27.02.2019 passed by the Ld. CIT(A)-IV, Kanpur for the assessment year 2008­-09 and 2011-12.

2. Since common issues are involved in these appeals, therefore, these appeals were heard together and are being disposed of by way of this consolidated order for the sake of consistency in view, convenience of parties and brevity.

3. The facts as per record are taken from ITA No.106/Agra/2019 for A.Y. 2009-10, as a lead and our decision in this appeal would equally apply to ITA No. 107/Agra/2019 for A.Y 2011-12, and with consequential effect in ITA No. 108/Agra/2019. The Grounds raised in this appeal read as under:

1. BECAUSE, the so-called approval as granted by the Learned Additional Commissioner of Income Tax, Central Range, Kanpur under section 153D for passing impugned assessment order dated 31.03.2015 under section 153A of the ‘Act’ is no approval in the eye of law, having been granted without application of mind and such a mechanically granted approval vitiates the assessment order rendering it to be held illegal and void ab-initio.

2. BECAUSE, while sustaining addition the Ld. CIT(A) in para-5.6 has observed that ‘on money’ paid by the appellant in acquisition of property is proved because the entries in relation to cheque amount is reflected in regular books of accounts, whereas consideration paid in cash is not reflected in books of accounts of the appellant’. Such findings recorded by the Ld. CIT(A) forming the basis for confirmation of addition is perverse ,wholly wrong and based on no evidence on records and thus vitiates the appellate order.

3. BECAUSE, Ld. CIT(A) has sustained the addition taking taken aid of deeming provisions under section 132(4) and 292C of the Act holding that ‘appellant’ has not rebutted the presumption of law failing to take note of the fact that under the facts and circumstances of the case no such presumption is available to the AO and furthermore, if any such presumption is available same being rebuttable, stood rebutted by filing Affidavit followed by cross-examination of the ‘appellant’ at the stage of assessment itself.

4. BECAUSE, while sustaining the addition the Ld. CIT(A) omitted to consider that the explanation as was furnished by the ‘appellant’ was further corroborated by the Affidavit of the ‘appellant’ followed by cross-examination by the ‘AO’ in relation to the contents of Affidavit.

5. BECAUSE, the Ld. CIT(A) has acted illegally and arbitrarily, purely motivated by consideration of presumptions, conjectures and surmises in concluding that sum of Rs. 49,00,000 was invested by the ‘appellant’ in property as alleged to be reflected in Page no. 32 and 37 of ‘Matrix Note Book Annexure A -1 and in adding the same to the Income of the ‘appellant’.

6. BECAUSE, while sustaining the addition of Rs. 49,00,000 as unexplained investment, the Ld. CIT(A) grossly erred in not appreciating that no property stated to be referred in seized paper was ever acquired by the ‘appellant’ and also that no cheque amount referred in the said seized paper was paid or received by the ‘appellant’.

7. BECAUSE, onus lays upon the ‘AO’ to prove that ‘appellant’ made the investment of Rs. 49,00,000/- which has not been recorded in books of account. In the entire proceedings commencing at the stage of Investigation Wing, assessment proceedings and upto the stage of appellate proceedings no evidence was brought on records to prove that any Investment was made by the ‘appellant’ or even to corroborate and also covert the jottings/discussion/planning into admissible piece of evidence.

8. BECAUSE, the ‘AO’ has made the addition purely on the basis of ‘Appraisal Report’ without any application of his own mind.

9. BECAUSE, while making the Assessment the authorities below made various observations and conclusions which are contrary to facts available on records. While making the addition submission made and evidences filed have been rejected arbitrarily.

10. BECAUSE, the order appealed against is arbitrary, illegal, contrary to the facts, material on record, law and principles of natural justice.

4. The Ld. Counsel of the assessee Shri Anurag Sinha, Advocate submitted that the so-called approval as granted by the Learned Additional Commissioner of Income Tax, Central Range, Kanpur under section 153D of the Act, which has led the foundation for passing impugned Assessment order dated 31.03.2015 under section 153A of the Act is no Approval in the eye of law as the purported Approval been granted without due application of mind and such a mechanically granted Approval vitiates the Assessment order rendering it to be held illegal and void ab-initio. He invited our attention to section 153D of the I.T Act, 1961, which mandates that no order of Assessment shall be passed except with the prior approval of the Joint Commissioner of Income Tax. It was submitted by the Ld. A.R that in the case at hand the Assessment order, though has apparently been passed after the Approval granted by the Additional CIT, Central Circle, Kanpur but the so-called Approval as granted under section 153D of the Act for passing impugned assessment order dated 31.03.2015 passed under section 153A of the Act is no approval in the eye of law. Assessee has drawn out attention to the copy of Approval order passed under section 153D of the Act by the Additional Commissioner of Income Tax, Central Circle, Kanpur which was obtained by the assessee exercising his right under the Right to Information Act, 2005. (APB, Pg. 63-64)

Most Urgent/Time Barring
Dated: 27/03/2015

F.No. Addl. CIT (CR)/KNP/Draft Asstt/Ladhani Group/2014-15/2581 To,

The Dy. Commissioner of Income Tax, Central Circle, Agra

Sub: Proposal of approval u/s 153D for the assessment proceeding completed completed u/s 153A/153C of the Act in Ladhani Group of cases-regarding

“Please refer to your letter bearing F. No. DCIT/CC/Agra/Approval/2014-15/dated 26.03.2015 alongwith case records pertaining to the said cases as detailed in the said letter seeking approval u/s 153D of the Income Tax Act, 1961 was submitted in this office at 3.50 P.M on 27.03.2015

The approval is accorded in following 34 cases, solely relying on the undertaking given by the AO that while completing the assessment as per the draft assessment order, all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have carefully considered/kept in view as limitation for completion of these assessments are going to be expired on 31.03.2015:

In this context it would be extremely relevant to place on records that none of the above cases was ever discussed with the undersigned prior to submission of the draft assessment order so much so that even the questionnaire u/s 142(1) was not issued with the approval of the undersigned which was mandatory on your part in view of the guidelines of the Hon ’ble Board.

A copy of the final order issued in the above cases should be sent to this office for records.”

Encl: Case Records   

Sd.
R.K Chaturvedi
Addl. Commissioner of Income Tax
27.03.2015
(Central Range) , Kanpur

5. Ld. Counsel of the assessee placed reliance to the following case laws:

(a) AAP Paper Marketing Ltd. Vs ACIT (2017) (4) TMI 1371

(b) Shreelekha Damani Vs DCIT (2015) 173 TTJ (Mumbai) 332

(c) CIT Vs. Smt. Shreelekha Damani (2019) 307 CTR (Bom.) 218

(d) Geeta Rani Panda Vs ACIT (2018) 194 TTJ (Ctk) 915 (Cuttack)

(e) Shri Saurabh Agarwal Vs DCIT (2019) (9) TMI 866-Agra Bench

(f) Ghanshyam Vs ITO (2018) 194 TTJ UO (Agra) 25

(g) State Bank of India Vs ACIT in W.P No. 53 of 2018 (Bom.)

(h) Sabh Infrastructure Ltd Vs ACIT in W.P No. (C) 1357/2016 (Del)

(i) Sahara India (Firm) Vs CIT (2008) 300 ITR 403 (SC)

6. On the other hand, the Department represented by Ld. CIT D.R Shri Sunil Bajpayee and Sr. D.R Shri. Waseem Arshad who both have argued the matter from the side of Department submitted that the order passed under section 153D of the Act by the Additional CIT was merely an Administrative order and no civil or penalty consequences would flow from such an order against the assessee. Further, it was submitted that there is no requirement under the law for granting the hearing to the assessee by the Additional CIT/Joint CIT prior to giving Approval under section 153D of the Act for assessment or reassessment under section 153A of the Act.

6.1 The Ld. D.R.’s has also relied upon the definition of Approval and sanction given in Black’s law dictionary. It was further submitted by the Ld. DR’s that approval of Additional CIT is totally distinct from the Assessment order and is not required to be communicated. Hence, it is not open for challenge before the Court of Law. the Ld. DR’s relied upon decision in the matter of ‘Gopal S Pandit vs CIT’, 96 taxmann.com 233. It was further submitted that once the reason for Administrative Approval are not required to be communicated to the assessee then it is not permissible in law to permit the assessee to agitate the reasons for passing the Administrative Approval. It was submitted the Approval granted by the Additional CIT is not justiciable in law. It was submitted that the subject matter of the proceeding before the Tribunal is the Assessment order for which the existence of Approval is necessary and therefore, the Approval cannot be formed basis of challenging the Assessment order.

6.2 The Ld. DR’s have further submitted that its Administrative Approval granted by the supervisory authority. It is not justifiable for which reliance was placed upon Space Wood Furnishers Private Limited of the Hon ’ble Supreme Court. It was also submitted by the learned DR’s that Hon’ble Bombay High Court in the matter of ‘CIT Vs Ratanbai N.K. Dubash’, 230 ITR 495 had held that “the power to determine the income vest in the authority exercising the quasi-judicial function, and it is in violation of principle of quasi-judicial function that can render the assessment invalid. The act of Administrative Approval by Additional CIT does not take away the quasi-judicial powers which still vests in AO and therefore Administrative act cannot invalidate the assessment”. Reliance was also placed to ‘CIT Vs Jai Prakash Singh’, 219 ITR 737 (S.C) for the proposition that charging sections fix the liability to tax and any violation of machinery section will not render the assessment order void. Reliance was also placed to the Hon’ble Delhi High Court in the case of ‘Dr. Pranoy Roy Vs DCIT’, in W.P (C) 4742/2018 & CM Appl.18248-18249/2018 to demonstrate as to what constitutes Judicial order is and what is Administrative order. Attention was drawn to Bangalore Bench of the ITAT in the case of M/s Toyota Kirloskar Motors (P) Ltd. Vs ACIT in ITA No. 828/Bang/2010 for the proposition that power of granting or not granting previous approval cannot be equated with appellate power. The DR’s thus, submitted that the subject matter of the challenge in the present appeal is assessment order for which the jurisdictional fact is the existence of Approval, therefore, the Approval itself cannot be the subject matter of adjudication. It was submitted by the DR’s that once the superior authority is agreeing to the finding of the lower authority then it is not required to record the reasons for so agreeing. It was further submitted that the recording of sanction or Approval is not required to be made in a particular manner. The same is discernible from the reasons recorded in the Assessment order. It was submitted by the DR’s that what could be challenged before the Tribunal is want of sanction and for that the Ld. DR’s relies upon the decision of the Mumbai Tribunal in the matter of ‘Pratibha Pipes & Structural Ltd DCIT’, 3874/Mum/2015 for the proposition that the Approval under section 153D of the Act has been held to be an Administrative procedure which requires to be complied with by the officers, who are discharging the Assessment functions. The Administration action of the Department is not very much relevant for the assessee to justify its case, on merits.

6.3. The Ld. DR’s further submitted that it is not within the sphere of the jurisdiction of the Tribunal to adjudicate the Administrative Approval granted by the Additional CIT, it was submitted that the Judgement by the Hon’ble Bombay High Court relied upon by the assessee in the matter of Shreelekha Damani is distinguishable as no question of law was framed by the Hon’ble High Court. It was further submitted that grant of Approval did not entail any civil consequences and therefore it cannot be subject matter of any judicial scrutiny by the Tribunal.

6.4. The Department has sought to distinguish the order dated 18th September 2019 passed by this Bench in the cases of Shri Saurabh Agarwal & Ors Vs DCIT, Central Circle, Agra (supra) on the strength of following Judgments:

(a) Narayanappa vs. CIT 63 ITR 219 (SC)

(b) Kailash Moudgil Vs DCIT 72 ITD 97 (Special Bench)

(c) M Bansal Vs CIT 195 ITR 247 (Allahabad)

(d) PCIT Vs ITAT 88 com 644 (Del)

(e) Presidency Talkies Ltd Vs ITO 25 ITR 447 (Mad.)

7. We have considered the rival submissions in the light of case laws relied upon by both the parties and order granting Approval dated 27.03.2015 passed under section 153-D of the Act, which was obtained by the assessee under the Right to Information Act, 2005 as reproduced by us above.

8. The Revenue on the face of order dated 18.09.2018 passed by the Bench in the case of Saurabh Agarwal (supra) contended that in the case of S. Narayanappa (supra) it was held by the Hon’ble Supreme Court that only quasi-judicial proceedings can be challenged before the ITAT, not administrative proceedings. However as rightly pointed out by the Ld. A.R that in the case of Shri. Ghanshyam (supra) (APB 253-259) wherein Agra Bench had the occasion to deal with similar objection that sanction accorded by the Ld. CIT, in that case under section 151 of the Act before issuing Notice under section 148 of the Act to the assessee is Administrative in character and not quasi-judicial. The Agra Bench rejected the submission of the revenue, by preferring to place reliance upon subsequent Judgement of Hon’ble Supreme Court in the case of ‘Chhugamal Rajpal Vs S.P Chaliha’, 79 ITR 603(S.C) and therefore, in that case held Approval granted to be based on total non-application of mind. In this view of the matter since the issue raised in this appeal specifically stood dealt with by the Agra Bench in Ghanshyam (supra) in its right perspective, therefore, the contention raised by the revenue deserves to be rejected. Revenue has placed reliance upon K.M Bansal (supra) wherein the Hon’ble Jurisdictional High Court after being duly apprised of view held in the cases of S. Narayanappa (supra) & Presidency Talkies Ltd. (supra) has held that before the Notice is issued under section 148 of the Act the proceedings are Administrative proceedings but once such a Notice is served upon the assessee such Administrative proceedings becomes quasi-judicial in nature and assessee has a right to challenge such proceedings since the stage of its initiation. Further, In the case of ‘Sahara India (Firm) Vs CIT’, 300 ITR 403 (SC) (APB 284-289) Hon’ble Apex Court has ruled “that it is the civil consequence which obliterates the distinction between quasi-judicial and administrative function. Moreover, with the growth of the administrative law, the old distinction between a judicial act and an administrative act has withered away.” The contention raised by the DR’s that all proceedings prior to issuance of Notice under section 148 are administrative proceedings immune from challenge is a statement based on complete misreading and misunderstanding of law, because ‘Reasons Recorded’ and Approval sought under section 151 of the Act are always open for challenge. Authority in this regard can be derived from Hon’ble Bombay High Court Judgment in the case of ‘State Bank of India Vs ACIT’, in Writ Petition No. 53 of 2018 wherein vide Judgment dated 20th April 2018 (APB 267-270) the Hon’ble High Court held that “Similarly, the sanction under Section 151 of the Act is also a condition precedent to issue the reopening notice. Therefore, the Assessee is entitled to ask the Revenue whether or not, the condition precedent for reopening the assessment, i.e. date of posting of the notice and a copy of the sanction order from the superior authority as provided under Section 151 of the Act. However, this attitude of not supplying copy of the necessary sanction to the Petitioner when asked for, is not justified in the least. This is more so as it would be open to the Petitioner also to challenge that the Sanctioning Authority had not applied his mind while granting the sanction, making the reopening notice bad. Besides, also whether it has obtained from the specific authority provided in Section 151 of the Act can also be subject of jurisdictional challenge to the reopening notice.” View similar to this adopted by the Hon’ble Delhi High Court in the case of ‘Sabh Infrastructure Ltd Vs ACIT’, in Writ Petition No. (C) 1357/2016 order dated 25th September 2017 (APB 271-283).

9. In the above view of the matter and guided by the above statements in law particularly by the Jurisdictional High Court in K.M Bansal (supra) and as finally concluded by the Hon’ble Apex Court in the case of Sahara India Firm (supra) objection of the Ld. DR’s that act of granting Approval under section 153D of the Act by the Additional CIT is an Administrative act therefore, its validity is immune from challenge before the Tribunal, cannot be sustained and is hereby rejected.

10. The Ld. D.R’s have also contended that in the cases of Saurabh Agarwal (supra) this Bench in Para- 4.11 has referred and relied upon ‘Verma Roadways Vs ACIT’, 75 ITD 183 mentioning it be from Jurisdictional High Court order whereas it was delivered by the Allahabad Bench of ITAT and which in further appeal stood reversed by the Allahabad High Court. We have gone through the order passed in the case of Saurabh Agarwal (supra) and given careful thought to the Hon’ble Allahabad High Court Judgment in CIT Vs Verma Roadways delivered on 11.01.2018. We found that though vide Ground No.8 the Department had raised a specific ground challenging the order passed by the ITAT on the issue of grant of Approval by the CIT, in that case. However, the Hon’ble High Court through a detailed Judgment decided the Ground regarding validity of search and held proceedings under section 158BC of the Act to be validly initiated. In the referred case no argument was advanced by either party regarding validity of approval accorded by the Ld. CIT and no such issue was decided by a speaking order therefore, to our understanding such an order is sub-silento which is not binding. Therefore, no fault can be found in the order passed in the case of Saurabh Agarwal (supra).

11. Having held as above, the issue which now requires to be adjudicated is whether the Approval so granted in this case can be treated as valid in view of the mandate of the provisions of Sec. 153-D of the Act vis-à-vis the legislative intent of inserting the said section in the statute. Section 153-D read as under:

“No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of section 153A or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner. Provided that nothing contained in this section shall apply where the assessment or reassessment order, as the case maybe, is required to be passed by the Assessing Officer with the prior approval of the Commissioner under sub-section (12) of section 144BA.”

12. The Legislative intent can be gathered from the CBDT Circular No. 3 of 2008, dated 12.3.2008 which read as under:

“50. Assessment of search cases Orders of assessment and reassessment to be approved by the Joint Commissioner.

50.1 The existing provisions of making assessment and reassessment in cases where search has been conducted under section 132 or requisition is made under section 132A does not provide for any approval for such assessment.

50.2 A new section 153D has been inserted to provide that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner except with the previous approval of the Joint Commissioner. Such provision has been made applicable to orders of assessment or reassessment passed under clause (b) of section 153A in respect of each assessment year falling within six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A. The provision has also been made applicable to orders of assessment passed under clause (b) of section 153B in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A.

50.3 Applicability-These amendments will take effect from the 1st day of June, 2007.”

13. It is evident from the CBDT Circular that the legislature in its highest wisdom made it compulsory that the assessments of search cases should be made with the prior approval of superior authority, so that the superior authority apply their mind on the materials and other attending circumstances on the basis of which the officer is making the assessment and after due application of mind and on the basis of seized materials, the superior authority have to approve the Assessment order. Object of entrusting the duty of Approval of assessment in search cases is that the Additional CIT, with his experience and maturity of understanding should scrutinize the seized documents and any other material forming the foundation of Assessment. It is an elementary law that whenever any statutory obligation is casted upon any statutory authority such authority is required to discharge its obligation not mechanically, not even formally but after due application of mind. Thus, the obligation of granting Approval acts as an inbuilt protection to the taxpayer against arbitrary or unjust exercise of discretion by the AO. The approval granted under section 153D of the Act should necessary reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending.

14. In the above background of law and in the light of Order dated 27.03.2015 passed under section 153D of the Act, which gives legality to the impugned Assessment order, question which arises for our consideration is whether the said Approval granted by the Additional CIT, Central, Kanpur vide his order dated 27.03.2015 can be held to be granted after due application of mind and can be held to be valid in the eye of law?

15. To decide the above issue, order dated 27.03.2015 passed by the Additional CIT was again carefully perused. The contents of the Approval, as reproduced in Para 4, speak for itself loud and clear. The following inferences are inevitable from the bare reading of the said order. Draft Assessment orders were placed before the Additional CIT, Central, Kanpur on 27.03.2015 at 3.50 PM for the first time and soon on the same day it was granted. As clearly mentioned in the Approval under challenge, that prior to this date the case was never discussed with the authority granting the approval. The Additional CIT has further noted that even the questionnaire as was required to be issued with the approval of Additional CIT, in view of CBDT instruction was not issued with his approval. He further observed that since, there was no time left to analyze the issue of draft order on merit, therefore, the said order is approved, as specifically mentioned in the said order, solely relying upon the undertaking obtained from the AO that he has taken due care while framing the assessment that all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have been carefully considered by the authority seeking approval. Thus, the sanctioning authority delegated his statuary duty to grant Approval, after due application of his mind, to the same subordinate AO , whose action the Additional CIT, was supposed to supervise and adopting a short cut in the matter obtained an undertaking from the subordinate AO, accepting it on face value that all the issues have been taken care off while framing the assessment by the AO, and that all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have been carefully considered by the AO, the Additional CIT, granted Approval. Admittedly, the Additional CIT, without any consideration on merit in respect of issues on which addition was made granted the Approval on the undertaking of the AO and in view of stated paucity of time with him for granting Approval. This approach of the Additional CIT, Central has rendered the Approval to be an eyewash and idle formality and such a mechanically granted Approval is no approval in the eyes of law.

16. The Lucknow Bench of the ITAT in the case of “AAP Paper Marketing Limited Vs ACIT”, (2017) (4) TMI 1371-ITAT Lucknow, (APB-122-129) co­incidentally where the ITAT had the occasion to consider the validity of approval granted by the same Additional CIT, Central Circle, Kanpur while quashing the assessments vide Para-14 held as under:

“In the present case ACIT has granted impugned approval half­heartedly without application of mind and without considering and perusing the material on record. Thus, we are inclined to hold that there has been no application of mind by the ACIT before granting the approval. Consequently, we hold that the assessment orders made u/s 143(3) of the Act r.w.s 153A of the Act in the case of M/s Siddhbhumi Alloys Ltd. for Assessment Year 2006-07 is bad in law and deserve to be annulled, thus, we ordered accordingly. Finally additional ground of appeal raised by the assessee by way of Rule 27 of the ITAT Rules in ITA No. 321/Lkw/2016 for the Assessment Year 2006-07 is allowed.”

17. From the approval order dated 27.03.2015 of the Addl. CIT, we find that the Ld. AR has rightly pointed out that in the facts of case of AAP Paper Marketing Limited (supra) there may be some justification for the qualified approval in view of the fact that the limitation in that case was getting expired on the day when the draft assessment orders were put up before the Additional CIT, Central Circle, Kanpur for his approval. However, to the disadvantage of the revenue in the case on hands there can be no little justification for qualified approval as the proposal for approval was put up before the Additional CIT on 27.03.2015 at 3.50 PM and at the same time it was granted, without any application of mind on the pretext that limitation is going to get expired on 31.03.2015. Thus, in the case at hand despite availability of time, the Additional CIT has been taking excuse of limitation and has chosen to grant approval without application of his own mind but on the undertaking of the AO that “while completing the assessment as per the draft assessment order, all the observations made in the appraisal report relating to examination/investigation as also the issues identified in the course of examination of seized material have carefully considered.” In our view such a practice is required to be deprecated and we deprecate the same.

18. ITAT, Mumbai Bench in the case of “ Shreelekha Damani” (supra) (APB-130-137) annulled the assessment holding as under:

“Coming to the facts of the case in hand in the light of the analytical discussion hereinabove and as mentioned elsewhere, the Addl. Commissioner has showed his inability to analyze the issues of draft order on merit clearly stating that no much time is left, inasmuch as the draft order was placed before him on 31.12.2010 and the approval was granted on the very same day. Considering the factual matrix of the approval letter, we have no hesitation to hold that the approval granted by the Addl. Commissioner is devoid of any application of mind, is mechanical and without considering the materials on record. In our considered opinion, the power vested in the Joint Commissioner/Addl Commissioner to grant or not to grant approval is coupled with a duty. The Addl Commissioner/Joint Commissioner is required to apply his mind to the proposals put up to him for approval in the light of the material relied upon by the AO. The said power cannot be exercised casually and in a routine manner. We are constrained to observe that in the present case, there has been no application of mind by the Addl. Commissioner before granting the approval. Therefore, we have no hesitation to hold that the assessment order made u/s. 143(3) of the Act r.w. sec. 153A of the Act is bad in law and deserves to be annulled. The additional ground of appeal is allowed.”

19. The above order so passed by the ITAT, Mumbai Bench was subjected to judicial scrutiny in appeal before the Hon’ble Bombay High Court and the Hon’ble High Court approved the order passed by the Mumbai Bench of the ITAT which is found reported as “PCIT Vs Smt. Shreelekha Damani”, (2019) 307 CTR (Bom.) 218(APB- 138-139) wherein in Para-7 the Hon’ble High Court held as under:

7. In plain terms, the Addl. CIT recorded that the draft order for approval under s. 153D of the Act was submitted only on 31st Dec. 2010. Hence, there was not enough time left to analyze the issue of draft order on merit. Therefore, the order was approved as it was submitted. Clearly, therefore, the Addl. CIT for want of time could not examine the issues arising out of the draft order. His action of granting the approval was thus, a mere mechanical exercise accepting the draft order as it is without any independent application of mind on his part. The Tribunal is , therefore, perfectly justified in coming to the conclusion that the approval was invalid in eye of law. We are conscious that the statue does not provide for any format in which the approval must be granted or the approval granted must be recorded. Nevertheless, when the Addl. CIT while granting the approval recorded that he did not have enough time to analyze the issues arising out of the draft order, clearly this was a case in which the higher authority had granted the approval without consideration of relevant issues. Question of validity of the approval goes to the root of the matter and could have been raised at any time. In result, no question of law arises.”

20. Similar view has been adopted by the Cuttack Bench in the case of Geetarani Panda (supra) (APB140-154) wherein following order passed under section 153D of the Act by the Additional CIT was subjected to challenge before the ITAT on the ground of non-application of mind. ITAT held as under:

23. In the instant case, the alleged approval letter dt. 27th March, 2015 of the Addl. CIT, Range-1, Bhubaneswar reads as under:

“Despite a reminder given on 19th March, 2015 to submit the time barring draft assessment orders for approval under s. 153D on or before 23rd March, 2015, the draft orders in M/s NeelachalCarboMetalicks (P) Ltd. Group of cases has been received in this office only on 26th March, 2015 in the afternoon. The draft orders having being submitted only 5 days before final orders are getting barred by limitation, I have no other option but to accord the approval to the same as the approval is statutorily required under s. 153D, even though there is no time left for undersigned to ensure that all the points raised in the appraisal report, the appellate proceedings, audit inspection etc. are duly taken into account, and the enquiries and investigations that are required to be made are actually made before finalization of the assessment orders.

It would have been much better and in the interest of Revenue if you had submitted the draft orders at least one month earlier so as to allow the undersigned sometime to go through and analyse the same vis-a-vis the appraisal report and seized records. It also goes without saying that you never cared even to discuss these cases with the undersigned for guidance and line of investigation to be taken.

However, despite all this, I have gone through the material available on records and some of the observations, in respect of the following cases are given in subsequent paras.”

24. In our considered view, the provisions contained in s. 153D as enacted by the Parliament cannot be treated as an empty formality. The provision has certain purpose. It is apparent that the purpose behind the enactment of the above provision in the statute by the Parliament is two-folds. Firstly, the approval of the senior authority will ensure that the assessee is not prejudiced by the undue or irrelevant addition or assessment. Secondly, the approval by senior authority will also ensure that proper enquiry or investigations are carried out by the assessing authority. Thus, the above provision provides for mental application of a senior officer of the Department, which in turn, provides safeguard to both i.e., Revenue as well as the assessee. Therefore, this important provision laid down by the legislature cannot be treated as a mere empty formality. The same view was expressed by the Pune Benches of the Tribunal in the case of Akil Gulamali Somji vs. ITO in ITA Nos. 455 to 458 (Pune) of 2010, order dt. 30th March, 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. The Hon ’ble Bombay High Court in the case of CIT vs. Akil Gulamali Somji in IT Appeal (L) No. 1416 of 2012, order dt. 15th Jan., 2013 concurred with the view of the Tribunal that not following of the provisions of s. 153D of the Act will render the related order of assessment void.

25. In the instant case, we find that the supervisory authority has himself admitted that because of reasons stated by him, could not apply his mind and has accorded the approval mechanically to meet the requirements of law as the requirement was merely a formality. The said supervisory authority had a duty towards both the assessee as well as the Revenue which was failed to be performed in the instant case.

21. It is the bounden duty of the Additional Commissioner of Income Tax to act in accordance with the law, while discharging statutory functions an obligation is casted upon him by the Act to apply his mind while according the approval. There is a statutory duty on the Additional Commissioner of Income Tax with a corresponding obligation on him to examine the record and thereafter accord the statutorily required Approval. The reason for granting the Approval may not be subject matter of the challenge but the manner and the material on the basis of which the approval was granted can always be examined by the Tribunal to come to the conclusion whether the Approval was granted in a mechanical manner or after applying mind looking into the record. No evidences required to be appreciated as the approval is self-evident, i.e., that it was granted by the Additional Commissioner of Income Tax without application of mind and without looking into the record.

22. We may record that the decisions relied upon by the ld. DR are factually distinguishable as none of the order has examined this aspect of the matter which is subject matter of present litigation i.e non-application of mind by the superior authorities at the time of granting the Approval. The sum and substance of the decisions relied upon by the Ld. DR’s was that the assessee was not entitled to any hearing or representation at the time of grant of approval. As mentioned hereinabove the scope and ambit in the present litigation is not that of grant of hearing or representation at the time of Approval but whether the Approval can be granted by the superior authority without application of mind without looking into seized material, investigation report, the draft assessment order etc can be held sustainable in the eyes of law. We had already answered that such an approval is bad in law and cannot be sustained.

23. The last submission made by the Ld. DR’s was that the matter may be sent back to the AO to pass a fresh assessment order after seeking the approval from the competent authority. In this regard we are of the opinion that the Revenue is not entitled to second inning, for correction of its own mistake. Assessee cannot be made to run again for many more years for contesting the litigation. Hon’ble Supreme Court also in the case of Parashuram Pottery Works Co. Ltd. v. ITO 106 ITR 1 observed that “It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (emphasis supplied) In view of these peculiarity of the facts we are of the opinion that second inning cannot be granted to the revenue.

24. In view of the above, we hold that if the approval is granted by the superior authorities in mechanical manner without application of mind then the very purpose of obtaining approval is defeated. Moreover, where 4 clear days’ time was available with the administrative authority, it was a half-hearted approval and as such held as no approval in the eyes of law. Accordingly, we have no hesitation in declaring that the Approval granted by the Additional CIT, Central, Kanpur on 27.03.2015 is no approval in the eyes of law and therefore, the assessment made by the AO based on such an approval is also declared to be null and void.

25. We therefore, quash the Assessment orders under section 153A of the Act dated 31.03.2015 for Assessment Year 2009-10 & 2011-12 in ITA No.106/Agra/2019, ITA No. 107/Agra/2019 and all collateral proceedings taken up in pursuance of the said Assessment orders also do not survive. As the Assessment orders itself are quashed all other issues challenging the merits of the addition, in respective appeals arising out of impugned assessment proceedings, are rendered to be academic and not adjudicated upon.

ITA No. ITA No. 108/Agra/2019

Since the foundation of the penalty order is the Assessment order dated 31.03.2015 passed under section 153A of the Act, which in view of our decision in ITA No. 106/Agra/2019 stands quashed and no more survives. Therefore, in view of the Hon’ble Supreme Court Judgment in the case of K.C Builders Vs ACIT 265 ITR 562 (S.C) holding that where an order of assessment or reassessment on the basis of which penalty has been levied on the assessee has itself been cancelled by the Tribunal, the penalty cannot stand by itself and the same is liable to be cancelled. Accordingly, consequential penalty of Rs. 9,80,000/- is directed to be deleted.

26. In the result, all three appeals of the assessee are allowed.

Order pronounced in the open Court on 06/11/2019