3 Important principles laid down by Hon’ble Mumbai Tribunal in case of Utility Supply Pvt. Ltd.w.r.t. quality of approvals and interpretation of statutes
Summary: The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, in a recent ruling in Utility Supply Pvt. Ltd. [ITA No. 3585/Mum/2024] dated 03.04.2025, outlined three significant principles concerning tax assessments and statutory interpretation. The tribunal clarified that the approval required from senior authorities before finalizing assessments after a search operation is not a mere formality but necessitates a reasoned application of mind based on examined material, cautioning against mechanical approvals granted under time pressure. Secondly, the tribunal provided guidance on interpreting terms not defined within a specific section of the law. It held that when a word lacks a definition in one section, its meaning should be derived from similar or analogous anti-abuse provisions elsewhere in the Act, aligning with legislative intent, particularly to prevent taxing genuine business transactions like stock-in-trade. Lastly, the ITAT underscored the importance of the principle of ‘stare decisis’, mandating that tax authorities, including the CIT(A), must adhere to the decisions of their predecessors on identical issues. Any deviation must be supported by cogent reasons, as arbitrarily disregarding established precedents undermines legal consistency and the rule of law. These principles offer clarity on procedural requirements for approvals and methods of statutory interpretation in tax matters.
The same are summarized as under :
1. Procedure and Quality of approval u/s 153D
The Tribunal has observed that the approval to be taken u/s 153D of the Act before passing the order u/s 153A of the Act is not a mere ritual or empty formality but has to be based on proper application of mind considering the purpose of legislature of keeping a check on assessment orders passed pursuant to search.
The approval u/s 153D has to be reasoned, based on examination of the relevant material available on record. In the approval, there should be some indication of the material examined and the order of approval is not to be mechanically granted but the same should be done, having regard to the material on record. It is the bounden duty of the AO to submit the draft assessment order, well in advance/time, so that approving authority will not face any immense pressure, due to paucity of time. Though the statute has not provided any format for granting an approval but the approval must reflect the basis of the material and reasons, on which the approval is granted.
The contention of department that there are periodic discussions by AO with his superior authority and the order is mere culmination of discussion process and hence approval cannot be said to be mechanical in short span of time is devoid of merits as the Assessing Officer is an independent quasi-judicial officer and therefore he is required to act or to pass the assessment order independently and without being influenced by any interference/indulgence of/by higher Authority. May be the higher authority was involved in process of investigation or enquiry etc. but could not have interfered in deciding the issue(s) and/or passing the assessment order by the AO, except granting or rejecting the approval u/s 153D of the Act. The Approving Authority after submitting the draft order and relevant material, is required to assess the proposed assessment order independently in the context of material available on record and to give reasons for granting the approval. Admittedly in this case, approval dated 27.12.2019, does not reflect any relevant material/findings/reasoning, which can substantiate the validity of such approval. Thus, the contention raised by the department is untenable.
The Tribunal after referring of various decisions has therefore quashed the approval u/s 153D of the Act and consequent assessment proceedings as void ab initio.
2. In absence of meaning of the word defined in a particular section, the meaning of the word in similar/analogus section has to be adopted even if such meaning is not specifically imported but other meanings are imported in the said section.
The provisions of s. 56(2)(vii) of the Act, provides for meaning of the word “property” in Explanation to s. 56(2)(vii) of the Act which taxes only “capital assets” being interalia, shares and securities. Hence, if shares and securities are held as ‘stock in trade’ and not ‘capital asset’ as defined u/s 2(14) of the Act, then s. 56(2)(vii) will not apply. However, the said provision applies only to ‘individual’ and ‘HUF’ but the assessee being a company provisions of s. 56(2)(viia) of the Act is applicable wherein there is no meaning of the word, ‘property’ expressly given. In such circumstances, the question before the Tribunal was “Whether, for the purpose of s. 56(2)(viia), the meaning of the word ‘property’ as given in s. 56(2)(vii) can be imported to clause (viia) so as to exclude ‘stock in trade’ from the purview of taxation?
The Hon’ble Tribunal observed that the provisions of s. 56(2)(vii) and 56(2)(viia) are both are anti abuse provisions to counter tax evasion. As per the Memorandum Explaining the Finance Bill, 2009 it can be seen that the provision of s. 56(2)(vii) of the Act was introduced to counter illegal laundering of money. Further, by way of Memorandum Explaining the Finance Bill, 2010, the said provisions were expanded and widened to include even company and firm. Hence, clause (viia) is mere extension of clause (vii). Further, the clause viia cannot be applied to regular business transactions. The assessee had kept the shares as stock in trade and were in regular course of business. Hence, provisions of s. 56(2)(viia) cannot be triggered.
It is further held that though clause (viia) imports various meanings from clause (vii) and specifically does not import the meaning of ‘property’, still, considering the intent and purpose of legislature, such meaning of the word ‘property’ must be deemed to be imported in clause (viia) as well. This is because, the words in similar/analogus provisions have to be adopted/imported in absence of specific meaning withing a particular section/clause.
The use of the words, “any property , being share of a company” used in clause (viia) has to be interpreted to mean that the shares of the company have to be property first. Thereafter, if there is no meaning assigned to the word ‘property’ then instead of adopting general meaning, the meaning has to be taken from a similar/analogous section or a section who from the genesis of the section which is section 56(2)(vii). Hence, the meaning of the word ‘property’ for clause (viia) has to be taken from clause (vii) instead of general meaning.
The aforesaid decision shows how a particular word in the provision has to be interpreted where there is no specific meaning assigned to such word.
3. Principles of Stare Decisis
The Hon’ble Tribunal observed that the CIT(A) has not followed order of his predecessor wherein identical issue was decided and merely stated in 1 line that he differs from the view of his predecessor without assigning any reasons. Such action is against the principle of ‘stare decisis’ (to stand by decided cases) which is as old, as the establishment of the courts. It is derived from legal maxim ‘stare decisis et non quieta movere’. It is best to adhere to decisions and not to disturb questions, which have been put at rest. When a point of law has been settled, it forms a precedent which is not to be ordinarily departed afterwards. When the same point comes for consideration again in litigation, the scales of justice must be kept even and steady. A principle of law should not change from case to case. The judgments are not to be altered or changed in accordance with the individual opinions or private sentiments of the judges. The primary duty of the judiciary is to maintain rule of law. The law does not change with the opinion of the judges. In a given case the opinion of the judges may change, the principles of law however must remain on surer foundations until there is any change in legislation, or the society needs such change, as reminded again and again by the Hon’ble Apex Court and High Courts.
Author Bio
