Mechanical Section 153D approval without proper review: ITAT Quashes Assessment

Dilip Constructions Pvt Ltd. Vs ACIT (ITAT Cuttack)

ITITAT Quashes Assessment as Joint Commissioner of Income Tax (JCIT) granted approval for the assessments in a “mechanical manner” without properly examining the relevant records and draft assessment orders, as mandated by Section 153D of the Income Tax Act, 1961.

The Income Tax Appellate Tribunal (ITAT), Cuttack Bench, has ruled in favor of Dilip Constructions Pvt Ltd., setting aside assessment orders for multiple assessment years. The tribunal’s decision hinged on the finding that the Joint Commissioner of Income Tax (JCIT) granted approval for the assessments in a “mechanical manner” without properly examining the relevant records and draft assessment orders, as mandated by Section 153D of the Income Tax Act, 1961.

The core issue before the ITAT was whether the JCIT had genuinely applied their mind before granting the approval order dated November 23, 2017, for the assessment orders under Section 153A of the Act. Section 153D requires prior approval from a JCIT for assessment or reassessment orders passed by an Assessing Officer (AO) below the rank of Joint Commissioner in cases related to search assessments under Section 153A.

The assessee argued that the JCIT’s approval was granted hastily and without a thorough review of the assessment records and the proposed assessment orders. The ITAT concurred with this contention after examining the approval order, which merely stated that approval was “hereby accorded as per the provisions of section 153D of the I.T.Act for passing the assessments in respect of the following cases,” without any indication of having perused the relevant documents.

The tribunal drew support from several judicial precedents. It cited the Bombay High Court’s decision in Smt. Shreelekha Damani, where the court held that an approval granted without considering relevant issues is invalid. The High Court emphasized that the validity of the approval goes to the root of the matter and must be based on a consideration of the relevant material on record, not just an empty ritual.

The ITAT also referred to a decision by the Delhi Bench in M3M India Holdings, where an assessment order was quashed due to the approving authority’s failure to demonstrate an independent application of mind. In that case, the short time frame between the submission of voluminous documents and the granting of approval raised suspicion about the thoroughness of the review.

Furthermore, the Cuttack Bench relied on its own previous decision in Geetarani Panda, where it was held that a mechanical approval to merely meet the requirements of law does not fulfill the supervisory authority’s duty towards both the assessee and the revenue.

In the present case, the ITAT noted that the AO sought approval on November 17, 2017, and the JCIT granted it just five days later. The approval order lacked any mention of the JCIT having examined the assessment records or the draft assessment orders. The tribunal dismissed subsequent letters from the JCIT attempting to clarify the approval process as attempts to “fill the gaps and procedural lacunas” after the fact.

The ITAT emphasized that the requirement of prior approval under Section 153D is not a mere formality but a crucial safeguard. It ensures that a higher authority exercises “judicious, vigilant and cautious efforts” to protect both the revenue’s interest in taxing the right income and the taxpayer’s right against arbitrary or unjust assessments. The tribunal stated that the application of mind by the approving authority should be evident from the approval order itself.

The tribunal concluded that the JCIT’s approval in the case of Dilip Constructions was granted in a “mechanical manner without application of mind.” Consequently, the assessment orders passed based on this approval were deemed “void and bad in law.” The ITAT set aside the orders of the lower authorities and quashed the assessment orders.

This decision underscores the importance of the approving authority under Section 153D diligently reviewing assessment records and applying their mind before granting approval, failing which the entire assessment process can be invalidated. The ruling provides significant relief to Dilip Constructions and reinforces the procedural safeguards enshrined in the Income Tax Act.

The ITAT also passed a similar order in the case of Shilpa Seema Constructions Pvt Ltd., which had identical facts and circumstances.

FULL TEXT OF THE ORDER OF ITAT CUTTACK

In the case of Dillip Construction Pvt Ltd., the cross appeals filed by the assessee and revenue are directed against the separate orders of the CIT(A) dated 28.6.2018 for the assessment years 2010-2011 and 2011-12. Further, the assessee has also filed appeals for the assessment years 2012­13 to 2016-17 against the separate orders dated 28.6.2018 of the CIT(A).

2. In the case of Shilpa Seema Constructions Pvt Ltd., the assessee has filed appeals for the assessment year 2010-2011 and 2012-13 against the separate orders of ld CIT(A) dated 28.6.2018.

3. The revenue has filed appeals for the assessment years 2015-16 & 2016-17 in IT(SS) A No.133/CTK/2018 and ITA o.387/CTK/2018 and the assessee has filed cross objections in the case of M/s. Shilpa Seema Constructions Pvt Ltd.

Application of assessees/appellants for admission of additional ground.

4. Both the assessees have also filed common additional ground of appeal for all the assessment years under consideration as under:

“ That the assessment order passed u/s.153A r/w section 143(3) is not sustainable in view of the fact that the proper procedure of law has not been followed by the ld authorities below while granting the approval u/s.153D of the Act. Therefore, the assessment order is liable to be quashed.”

Adjudication of application of additional ground of appellants in IT(ss) Nos.66 to 71/CTK/2018 and ITA No.292/CTK/2018 in the case of Dilip Construction Pvt Ltd., and in IT(SS) A Nos.64 to 65/CTK/2018 in the case of Shilpa Seema Constructions Pvt Ltd.

5. Before we deal with the grounds of appeals raised by the Assessees, we need to first consider the Assessee’s application dated 5.9.2018 for admission of the additional ground of appeal because it is a preliminary issue challenging the impugned assessment order on the legal ground that while granting the approval u/s.153D of the Act, proper procedure has not been followed and there was no application of mind by the approving authority.

6. Ld counsel for the assessee submitted that the additional ground sought to be raised in assesse’s appeals i.e. IT(SS) A Nos. 66/CTK/18 TO 71/CTK/2018 for AYs 2010-2011 to 2015-16 and ITA No.292/CTK/2018 for A.Y. 2016-17 in the case of Dilip Construction Pvt Ltd., (supra) and in IT(ss)A Nos.64 to 65/CTK/2018 in the case of Shilpa Seema Constructions Pvt Ltd for Assessment Years 2010-11 to 2012-13 is a legal ground which goes to the root of the matter, thus the same may kindly be admitted in the interest of justice. Placing reliance on the decision of Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. vs. CIT : [1998] 229 ITR 383 (SC), ld A.R. submitted that the powers of the Tribunal includes adjudication of question of law arising from the facts as found by the authorities below and having a bearing on the tax liability of the assessee, even when such objection or issue agitated as the additional ground being legal has been raised for the first time before the Tribunal. Ld A.R. prayed that the Tribunal has jurisdiction to decide the legal question/ground in a situation when same has not been agitated and raised before the lower authorities. Ld Counsel submitted that the additional ground raised by the assessee in these appeals is a pure legal ground which goes to the root of the matter and can be decided on the basis of record already available before the Tribunal without any extraneous materials or documents. Ld A.R. prayed that the additional ground may kindly be admitted for consideration and adjudication.

7. Replying to above, ld CIT DR strongly opposed to the admission of additional ground and submitted that from Form No.35, it is clearly discernible that the assessee has not raised such legal issue/ground before the CIT(A) and no such issue/objection has been raised before the AO during assessment proceedings.

8. On consideration of rival submissions and perusal of relevant appeal files, impugned assessment and first appellate order, paper book of the assessee spread over 440 pages, another paper book containing case laws spread over 293 pages and third paper book containing panchanama spread over 58 pages, we are of the considered view that from Form No.35 as well as assessment order, it is clearly discernible that the assessee has not raised legal issue pertaining to grant of approval of section 153D of the Act and thus, the same has been raised for the first time before the Tribunal. This is also not in dispute. In the case of NTPC (supra), as vehemently relied on by ld counsel for the assessee, Their Lordships speaking for the Apex Court has held thus:

“ . Under s. 254 of the IT Act the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.

4. In the case of Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) : TC 7R.343, this Court, while dealing with the powers of the AAC observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. the AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.

5. The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal [vide, e.g., CIT vs. Anand Prasad (1981) 128 ITR 388 (Del) : TC 8R.1021, CIT vs. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) : TC 8R.547 and CIT vs. Cellulose Products of India Ltd. (1985) 44 CTR (Guj) 278 (FB) : (1985) 151 ITR 499 (Guj)(FB) : TC 8R.965]. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.

6. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits.”

9. In view of above, it is incumbent upon the Tribunal and considering the powers of the Tribunal, Hon’ble Supreme Court has held that any question of law arising from the facts found by the Income tax Department and having a bearing on tax liability of the assessee, then the legal question/ground raised for the first time before the Tribunal can be admitted and adjudicated and the Tribunal has jurisdiction to decide such additional ground. This view has also been reiterated and approved by the Hon’ble Bombay High Court while adjudicating the similar contention of the revenue in the case of PCIT vs Smt. Shreelekha Damani (2019) 307 CTR (Bom) 218, wherein, it was held that the legal ground challenging the validity of approval u/s.153D of the Act can be raised first time before the Tribunal.

10. In the present case, the appellants want to challenge the procedure adopted by the revenue authorities while granting approval u/s.153D of the Act on the basis of documentary evidence obtained from the departmental record. The appellants to raise additional ground which is purely legal and goes to the root of the matter and can be decided on the basis of material/relevant appeal record already before the Tribunal without any further exercise or extra material or documentary evidence.

11. The aforesaid additional ground of appeal is therefore admitted for adjudication on merits in view of the discretion conferred on the Tribunal under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 and the decision of the Hon’ble Supreme Court decision in the case of NTPC (supra) wherein it was held that any legal ground which can be decided on the basis of facts already available on record should be admitted for adjudication. Further the additional ground seeks to raise purely a question of law. Therefore, we admit the additional ground raised by the assessees in all the above captioned appeals of both the assessees and proceed to adjudicate the same.

Adjudication of Additional Ground.

12. At the time of hearing, ld counsel for the assessee submitted that while granting approval u/s.153D of the Act by the JCIT, proper procedure has not been followed. Ld counsel for the assessee submitted that no incriminating material was found for the assessment years under consideration. He referred to the provisions of section 153D of the Act, as per which, in search cases, the order of assessments or reassessments for each assessment year, referred to section 153A(1)(b) or Section 153B shall be passed by an Assessing Officer not below the rank of Joint Commissioner or by an AO with prior approval of the Joint Commissioner or the Additional Commissioner. He submitted that provisions of section 153D implies that the meaning of approval is not simple approval or approval of the order in the mechanical manner. While granting approval u/s.153D of the Act, almost same principle and procedure has to be adopted and followed as required for grant of approval u/s.151 of the Act. The Joint Commissioner must have to go through the seized documents, notices issued by the AO, submissions made by the assessee and also documents submitted by the assessee and then he had to apply his judicious mind to all the relevant records and thereafter he should proceed to grant approval to the AO to pass orders accordingly. He vehemently submitted that in the case of the assessee, the ld Jt. CIT has granted approval to pass the orders mechanical manner. In the said approval letter, it can be seen that JCIT has simply mentioned that “approval is hereby accorded as per the provisions of section 153D of the Act for passing the assessment orders in respect to the following cases”.

13. Ld counsel for the assessee submitted that the draft assessment orders in the case of Dilip construction Pvt Ltd., and M/s. Shilpa Seema Construction Pvt Ltd., -assessees, were sent by the AO on 17.11.2017 and those were approved by the JT. CIT on 23.11.2017 and the order was passed by the Assessing Officer on 23.11.2017 i.e. on the same day when approval was obtained from Jt. CIT. Ld counsel for the assessee referred to letter dated 23.11.2017 of Jt. CIT given approval for making the assessment u/s.153D of the Act in a mechanical manner mentioning that “approval is hereby accorded as per the provisions of section 153D of the I.T.Act for passing the assessment orders” in respect of the assessee’s. Ld counsel for the assessee submitted that the object of entrusting the duty of Approval of assessment in search cases is that the Jt. 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. In the approval vide dated 23.11.2017 even the approval granting authority has not stated the relevant assessment records and draft orders perused or seen and discussion was held with the AO, which makes clear that the ld JCIT did not even peruse the relevant records and draft assessment orders and there was no discussion with the AO prior to grant of approval. Thus, the obligation of granting Approval acts as an inbuilt protection to the department as well as 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. He submitted that in this case, no such application of mind is reflected in the approval letter vide dated 23.11.2017 issued by the ld Jt. CIT for passing the assessment orders u/s.153D of the Act.

Ruling relied by the ld Counsel for the assessee.

14. Placing reliance on the decision of Hon’ble Bombay High Court in the case of Smt. Shreelekha Damani(supra). Ld A.R. submitted that when the approving authority exercises power u/s.153D of the Act recorded that he did not have enough time to examine the issues arising out of the draft order thus, same is said to be a mechanical exercise and, the Hon’ble High Court held that the approval is without application of mind and, therefore, the approval is invalid.

15. Further, placing reliance on the decision of ITAT Delhi in the case of M/s. M3M India Holdings vs DCIT ITA.No.2691/Del/2018 Assessment Year 2012-2013 dated 15.3.2019 and drawing our attention to paras 13 to 14, ld A.R. submitted that the approving authority did not mention in the approval if he has gone through assessment records or whether the assessment records were produced before him before granting approval u/s.153D of the Act in the matter, then it was held that the requirement of section 153D of the Act has not been satisfied. He submitted that in the identical and similar situation, the Tribunal held that the requirement of section 153D of the Act is not satisfied and also held that entire assessment order is vitiated and is null and void.

16. Reliance has also been placed on the decision of ITAT Cuttack in the case of Geetarani Panda & ors vs ACIT (2018) 32 TTJ 703 (CTK), wherein, it was held that when the approval u/s.153D of the Act was granted without proper application of mind, the order of assessment will be bad in law. The ld A.R. also referred to the CBDT Circular No.3 of 2008 dated 12.3.2008, which provided that the assessment orders in the search case should be made or passed with the prior approval of superior authority, so that the approving authority may have an opportunity to apply his mind on the material on record and other facts and circumstances on the basis of which draft assessment orders have been proposed to be passed. He submitted that to comply with the requirement of CBDT circular (supra), which is binding on the all revenue authorities, it is incumbent upon the approving authority that he should apply his mind to the assessment folders/file, relevant documents & evidence and draft assessment order which has not been done in the present case. He has also placed reliance on the decision of Hon’ble Bombay High Court in the case of CIT vs Akil Gulomali Somji in I.T.Appeal (L) No.1416/2012 order dated 15.1.2013 and submitted that the Hon’ble High Court approving the findings of the Tribunal held that not following the mandate of provisions of section 153D of the Act will render the related assessment orders void.

Ruling of ld Departmental Representative

17. Replying to above, ld CIT DR submitted that the Assessing Officer has framed the assessment after obtaining approval from Jt. CIT. Therefore, no irregularities have been committed in this case. He referred to the judgement of Hon’ble Karnataka High Court in the case of Gopal S.Pandit vs CIT, (2018) 96 taxmann.com 233 (Kar), wherein, it is held that provisions of section 153D do not require any opportunity of hearing to be given to the assessee by authority who has to approve draft assessment order passed by Assessing Officer. He submitted that once Jt. CIT has given approval means he has gone through all relevant assessment records, the draft assessment orders and thereafter conveyed his approval u/s. 153D of the Act to the Assessing Officer. Hence, no such irregularities have been committed by the Assessing Officer in framing the assessment. The contention of non-application of mind is not sustainable being baseless in view of the approval letter dated 23.11.2017 and recent report/letter of approving authority i.e. JCIT dated 4.1.2019.

18. Ld CIT DR also referred to letter dated 19.12.2018 of Jt. CIT (BPU), Bhubaneswar, wherein, it is stated that the draft assessment orders as forwarded by the AO were examined by him and the issues involved were discussed with him in detail. After satisfying himself with the draft orders, he had given approval u/s. 153D of the Act for passing the order u/s.153A read with section 143(3) of the Act. By relying this letter, ld CIT DR submitted that it cannot be inferred that proper procedure has not been followed in this case while granting approval u/s.153D of the Act.

19. Placing rejoinder to above, ld counsel for the assessee submitted that the Assessing Officer has passed assessment orders u/s.153A r.w.s 143(3) of the Act on 23.11.2017 after receipt of letter from JCIT on 23.11.2017. Thus, the subsequent official correspondence i.e. letter dated 19.12.2018 has no relevance with the procedure adopted by JCIT for grant of approval u/s.153D of the Act and this communication between JCIT, Bhubaneswar and JCIT, Central, Bhubaneswar, which has been written after passage of time of more than one year cannot cure defects in the approval and cannot improve the approval granted without application of mind.. Ld A.R. vehemently pointed out that this letter has to be deemed as afterthought being an attempt to fill the gaps and procedural lacunas occurred in the procedure adopted by ld JCIT while granting approval under section 153D of the Act. Ld A.R. further submitted that another letter dated 4.1.2019 written by JCIT, Central, Bhubaneswar to Commissioner of Income Tax is another after thought attempt to curb and rectify the mistakes and lapses in the procedure adopted by JCIT, Bhubaneswar while mechanically granting approval u/s.153D of the Act without application of mind. He strenuously contended that the approval cannot be improvised or defects therein cannot be cured by submitting subsequent corresponding letters between the officers of the department. Ld A.R. submitted that the only relevant document is letter of approval dt.23.11.2017, which was issued by JCIT to the Assessing officer i.e. ACIT, Central Circle, Bhubaneswar for passing assessment orders and apparently approval has been granted by him without following due procedure and even without application of mind and without perusing relevant assessment records and draft assessment orders.

20. We have heard the rival submissions and perused the relevant materials placed on the record of the Tribunal, inter alia, various case laws cited both the sides. The CBDT Circular No. 3 of 2008, dated 12.3.2008, as referred by the ld AO clarifies 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 draft Assessment order.

21. In the above background of law and in the light of Order dated 23.11.2017 passed under section 153A r.w. s 143(3) of the Act and order of approval u/s.153D of the Act dt.23.11.2017, which provides validity to the impugned Assessment order, the main question which arises for our consideration is whether the said Approval granted by the ld. Joint CIT u/s.153D of the Act vide his order dated 23.11.2017 can be held to be granted after due application of mind and can be held to be valid in the eye of law as per intention of the legislature and mandate of the provision of section 153D of the Act?

22. Since we are adjudicating the controversy regarding validity of procedure and approval granted by the JCIT vide letter dated 23.11.2017, therefore, we find it necessary and appropriate to reproduce the relevant provisions of section 153D of the Act, which reads as under:

“‘153D. Prior approval necessary for assessment in cases of search or requisition.—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 sub­section (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.”

23. First of all, we observe that we are in agreement with the contention of ld CIT DR based on the judgment of Karnataka High Court in the case of Gopal S Pandit (supra), wherein, it was held that the provisions of section 153D of the Act do not require that any opportunity of hearing to be given to the assessee by the authority who has to approve the draft assessment order passed by the Assessing Authority. Therefore, there is no requirement of allowing opportunity of hearing to the assessee before granting approval under section 153D of the Act. It is also not a contention of the assessee/appellant that they were not provided due opportunities of hearing before granting approval.

24. On careful consideration rival submissions, we note that the legal contention of the assessees regarding procedure for granting approval order dated 23.11.2017 u/s.153D of the Act can be summarized mainly on two points viz; (i) the approving authority i.e. ld JCIT has granted approval in a mechanical and hasty manner without even perusing the relevant assessment records and draft assessment orders placed before him and (ii) the approving authority has not applied his mind to the assessment records and draft assessment orders proposed to be passed by the Assessing officer as per mandate of section 153D of the Act, which is clearly discernible from the approval order dated 23.11.2017. As per mandate of section 153D of the Act, 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 sub-section (1) of section 153A of the Act without prior approval of the ld JCIT.

25. As per the decision of Hon’ble Bombay High Court in the case of Smt. Shreelekha Damani (supra), while granting approval, if the approving authority did not have enough time to analyse the issues arising out of the draft assessment orders, then clearly this was a case in which the higher authority had granted the approval without consideration of relevant issues. Their Lordships held that the question of validity of the approval goes to the root of the matter and could have been raised at any time and the Tribunal was justified in holding that there was no application of mind on the part of the authority granting approval and, therefore, approval was invalid. The relevant paras 4 & 5 of this judgement read as follows:

“ 4. This was not a case where no approval was granted at all. However, the Tribunal was of the opinion that the approval granted by the Additional Commissioner of Income Tax was without application of mind and, therefore, not a valid approval in the eye of law. The Tribunal reproduced the observations made by the Additional CIT while granting approval and came to the conclusion that the same suffered from lack of application of mind. The Tribunal referred to various judgments of the Supreme Court and the High Courts in support of its conclusion that the approval whenever required under the law, must be preceded by application of mind and consideration of relevant factors before the same can be granted. The approval should not be an empty ritual and must be based on consideration of relevant material on record.

5. The learned Counsel for the Revenue submitted that the question of legality of the approval was raised by the assessee for the first time before the Tribunal. He further submitted that the Additional CIT had granted the approval. The Tribunal committed an error in holding that the same is invalid.”

26. In almost similar facts and circumstances, the Delhi Bench in M3M India Holdings (supra), the Tribunal in para 14 held thus:

“ 14. Considering the facts of the case in the light of above discussion, it is clear that assessee filed last reply before assessing officer at Faridabad on 29th January 2014 and according to Learned Counsel for the Assessee, it contained more than 500 pages. Therefore, it is difficult for the Assessing Officer at Faridabad to go through these voluminous papers and prepare a draft order on 30th January 2014, so that the draft order could be transmitted to the Addl. CIT at Chandigarh on same day. In reply to RTI application, the assessing officer has reported that no record of mode of dispatch of assessment record to the Addl. CIT is available with the Assessing Officer. Similarly, no record is available as to how the draft order and assessment record have been received by Addl. CIT at Chandigarh. The Addl. CIT, Chandigarh did not mention in his approval dated 31st January 2014 (supra), if he has gone through the assessment record or that assessment record was produced before him. Since no details are available on record about the mode, through which, assessment record was transmitted by the assessing officer at Faridabad to Addl. CIT in Chandigarh and vice-versa by Addl. CIT, Chandigarh to Assessing Officer at Faridabad on the very next day would lead to suspicion, in explanation of A.O. if any, valid draft order was transmitted to the Addl. CIT within the time or if the Addl. CIT has communicated the approval under section 153D to the Assessing Officer at Faridabad on 31st January 2014. These facts would clearly show that the action of the Addl. CIT, Chandigarh granting approval in this case was, thus, a mere mechanical exercise, accepting the draft order as it is, without any independent application of mind on his part. Nothing has been clarified during the course of hearing to the effect that if Addl. CIT has gone through the assessment record, before accepting the draft assessment order. Thus, there was no application of mind on the part of the Addl. CIT before granting approval. The Addl. CIT, Chandigarh has merely gone through the draft assessment order as per PB-47. Therefore, the contention of Learned Counsel for the Assessee is justified that the approval was granted in a most mechanical manner without application of mind and such approval was intimated to assessing officer only on 5th February 2014, after passing of the assessment order on 31st January 2014. The above decisions are clearly applicable to the facts and circumstances of the case. In view of the above discussion, we are of the view that no valid approval/sanction have been granted by the Addl. CIT, Chandigarh before passing the assessment order in the matter. The requirement of Section 153D of I.T. Act, 1961, are not satisfied in this case. We accordingly hold that entire assessment order is vitiated and is null and void. We, accordingly, set aside the orders of the authorities below and quash the assessment order in the matter. Resultantly all additions stand deleted. In the result, Ground No.1.3 of the appeal of Assessee is allowed. “

27. Furthermore, ITAT Cuttack Bench in the case of Geetarai Panda (supra) in paras 24 to 26 held that when the approving authority could not apply his mind and has accorded the approval mechanically to meet the requirements of law, the requirement was merely a formality. The Co­ordinate Bench also held that the said Supervisory authority had a duty towards both the assessee as well as the revenue which was failed to be performed. The relevant paras 25 & 26 read as follows:

“ 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.

26. Further, we find that the approving authority has required the assessing authority to conduct further enquiry in respect of opening cash in hand. The assessing authority thereafter has never communicated his findings of the further enquiry to the supervisory authority and not taken the approval of justification of his findings. Thus, in our considered opinion, alleged approval letter dated 27.3.2015 of the Addl. CIT, Range-1, Bhubaneswar does not constitute the approval which is envisaged by the provisions of section 153 of the Act. Thus, following the decision of the Hon’ble Bombay High Court in the case of Akil Gulamali Somji (supra), we hold that the impugned order of assessment is void and bad in law. Therefore, the impugned order of assessment is hereby cancelled….”

28. In view of above requirements of provisions of section 153D of the Act, as vehemently relied upon by ld counsel for the assessee, as noted above, when we logically analyse the procedure adopted by JCIT while granting approval u/s.153D of the Act in the case of both the assessees, then, first of all, we find it necessary and appropriate to reproduce verbatim the approval granted by JCIT for both the assessees. The approval in the case of Dilip Construction Pvt Ltd., available at page 3 of paper book is as under:

“ OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX (CENTRAL), AAYAKAR BHAWAN ANNEXE. 4^TH FLOOR. RAJASWA VMAR. BHUBANESWAR-751007

F. No .JCIT(Central) /BBSR/153D CC-1 BBSR/2017-18/ 3138 Date: 23.11.2017

To

The Assistant Commissioner of Income Tax,
Central Circle-1, Bhubaneswar

Sub: Approval of the Assessment orders u/s 153D of the LT. Act, 1961 in respect to the cases of M/s Dillip Construction P Ltd- Reg

Ref: Your letter no. ACIT/CC-l/BBSR/Report/2017-18/7 dated 17.11.2017 seeking approval of draft assessment orders u/s 153D

Approval is hereby accorded as per the provisions of section 15 3D of the I.T.Act tor passing the assessment orders in respect to the following cases.

Sd/-

Joint Commissioner of Income Tax (Central),
Bhubaneswar

End: Record for the AY 2010-11 to 2016-17 (In Seven Folders)

The approval granted in the case of Shilpa Seema Constructions Pvt Ltd., available at page 1 of paper book is as under:

“ OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX (CENTRAL), AAYAKAR BHAWAN ANNEXE. 4^TH FLOOR. RAJASWA VMAR. BHUBANESWAR-751007

F.No .JCIT(Central) /BBSR/153D CC-1 BBSR/2017-18/ 3137 Date: 23.11.2017

To

The Assistant Commissioner of Income Tax,
Central Circle-1, Bhubaneswar

Sub: Approval of the Assessment orders u/s 153D of the LT. Act, 1961 in respect to the cases of M/s Shilpa Seema Construction P Ltd- Reg

Ref: Your letter no. ACIT/CC-l/BBSR/Report/2017-18/8 dated 17.11.2017 seeking approval of draft assessment orders u/s 153D

Approval is hereby accorded as per the provisions of section 15 3D of the I.T.Act tor passing the assessment orders in respect to the following cases.

Sd/-

Joint Commissioner of Income Tax (Central),
Bhubaneswar

End: Record for the AY 2010-11 to 2016-17 (In Seven Folders)

29. From the above, first of all, we note that the Assessing Officer has requested the ld JCIT to grant approval u/s.153D vide letter dated 17.11.2017 in both the cases. The JCIT has granted approval in both the cases by only stating that “ Approval is hereby accorded as per the provisions of section 153D of the I.T.Act for passing the assessments in respect of the following cases”.

30. In this approval, we are unable to see any mention by the approving authority that he has perused the relevant assessment records and draft assessment orders proposed to be passed by the Assessing Officer. The Assessing Officer issued letter seeking approval on 17.11.2017 and approval has been granted on 23.11.2017 that after a passage of five days time from the approval order as reproduced hereinabove. From the above, it is very much clear that the approving authority i.e. the ld JCIT has not even bothered to mention that he has perused the relevant assessment records and draft assessment orders for which he has granted approval u/s.153D of the Act as per the mandatory requirements of the said provisions of the Act.

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 or 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.

42. Resultantly, additional ground of the assessees is allowed in IT(ss)A Nos.66 to 71/CTK/2018, ITA No.292/CTK/2018 in the case of Dilip Constructions Pvt Ltd., and IT(ss) A No.64 to 65/CTK/2018 in the case of Shilpa Seema Constructions pvt Ltd.

Grounds on merits.

43. As by the earlier part of this order, we have held that the assessment orders are void and bad in law and, consequently, the Assessment orders have been quashed, hence all other issues or grounds challenging the merits of the additions or disallowances in respective appeals arising out of impugned assessment proceedings, are rendered to be academic and not being adjudicated upon.

44. In the result, appeals in the case of M/s. Dilip Constructions Pvt Ltd., for the assessment years 2010-2011 to 2016-17 are allowed on legal grounds and appeals in the case of Shilpa Seema Constructions Pvt Ltd., for the assessment years 2010-11 and 2012-13 are also allowed on same legal ground.

IT(ss)A Nos.133 and ITA No.387/CTK/2018 for AYs: 2015-16 & 2016-17 filed by the Revenue and C.O. Nos.46 & 47/CTK/2018 filed by the assessee in the case Shilpa Seema Constructions Pvt Ltd.

45. Ld representatives of both the parties agreed that in the cross objection No.3 for assessment years 2015-16 and 2016-17, the assessee has raised similarly worded ground of appeal as that of the additional ground raised by the assessee for assessment years 2010-11 & 2012-13. Both the parties have also agreed that facts and circumstances for both the assessment years are identical to the appeal of other assessment years on grant of approval u/s.153D of the Act. Therefore, our findings and conclusion recorded in the earlier part of this order would apply mutatis-mutandis to the cross objection No.3 of the assessee for A.Y. 2015-16 and 2016-17. Hence, we allow the Ground No.3 of cross objection filed by the assessee as the same falls within the ambit of approval granted by the JCIT u/s.153D of the Act on 23.11.2017.

Revenue’s appeals in ITA Nos. 134 & 135/CTK/2018: AYs; 2010­2011 & 2011-12 in the case of Dilip Construction.

46. Since, we have quashed the assessment orders while adjudicating additional ground of the assessees, the grounds raised by the revenue have become academic & infructuous and hence, the same are not being adjudicated upon.

Revenue’s appeal in IT(ss) A No.133/CTK./2018 and ITA No.387/CTK/2018 for A.Y.. 15-16 & 16-17 in the case of Shilpa Seema Constructions Pvt Ltd.

47. As we have quashed the assessment orders while considering cross objection No.3 of the assessee, the appeals filed by the revenue for the assessment years 2015-16 & 2016-17 have become academic & infructuous and hence, the same are not being adjudicated upon.

48. In the result, appeals filed by the revenue are dismissed and cross objections filed by the assessee are allowed.

Order pronounced on 29 /11/2019.