Case Law Details
PCIT Vs Subodh Agarwal (Allahabad High Court)
The Allahabad High Court dismissed the Income Tax Department’s appeal against the decision of the Income Tax Appellate Tribunal (ITAT) in the case of PCIT Vs Subodh Agarwal. The dispute pertained to the 2015-16 assessment year, following a search and seizure operation under Section 132 of the Income Tax Act, 1961. The Assessing Officer (AO) had passed an assessment order under Sections 153A/143(3), making several additions. However, the ITAT quashed the assessment order, citing procedural lapses, particularly in the prior approval process under Section 153D, which requires a Joint Commissioner’s approval before finalizing such assessments. The Tribunal found that the approval was granted on the same day as the draft assessment order, covering 38 cases, making it impossible for the Approving Authority to conduct a proper review. This led to the conclusion that the approval process was merely mechanical, rendering the entire assessment invalid.
The Revenue argued that the approval under Section 153D was in place at the time of assessment and met legal requirements. Citing precedents, it contended that “approval” simply means confirmation or ratification by a higher authority. However, the Tribunal, relying on past rulings, emphasized that approval must involve due application of mind. The High Court upheld this view, stating that a mechanical exercise of power undermines procedural safeguards intended to protect both revenue interests and taxpayer rights. Given that no substantial question of law arose, the appeal was dismissed. The judgment reinforces the principle that prior approval under Section 153D is not a mere formality but a critical legal requirement ensuring fairness in search-based assessments.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
This is Income Tax Appeal under Section 260-A of the Income Tax Act, 1961 filed by the Department-Revenue, against the order dated 7.10.2021 passed by the Income Tax Appellate Tribunal, Lucknow Bench ‘A’, Lucknow whereby the appeal filed by the assessee has been allowed quashing the assessment order and the consequent order of CIT (A).
The dispute pertains to the assessment year 2015-16, with regard to which an appeal filed by the assessee was decided by an order dated 27.09.2018 passed by C.I.T. (Appeals)-IV, Kanpur.
Brief facts of the case are that pursuant to a search and seizure operation under Section 132 of the Income Tax Act conducted on 31.8.2015, the assessee was required to file Income Tax return under Section 153A of the Act. In response to the notice, assessee filed return under Section 153A of the Act for the aforesaid assessment year on 17.04.2017 which was originally e-filed on Form ITR-2 on 04.04.2017. The assessment in this case was completed under Section 153A/143(3) of the Act by Dy. C.I.T., Central Circle-1, Kanpur vide order dated 31.12.2017 and various additions were made.
It was submitted by the assessee that in search cases, the Assessing Officer before passing the assessment order, framed under Section 153A, 153C and 143(3), is required to take approval from the Joint C.I.T. under Section 153D of the Act, if the Assessing Officer is below the rank of Joint C.I.T. For the purpose of approval, the Approving Authority is required to see all search material including incriminating material, seized documents, appraisal reports, enquiries made by the investigation wing and various enquiries made by the Assessing Officer during the assessment proceedings and the reply submitted by the assessee, and after due application of mind and ascertaining that the Assessing Officer has appreciated the search material and other evidences in proper perspective, has to give approval to the draft assessment order and only on such approval, the Assessing Officer can pass an assessment order.
In the instant case, the Assessing Officer prepared the draft assessment order on 31.12.2017 for assessment year 2015-16. The approval of the draft assessment order under Section 153D was, however, given on 31.12.2017 itself and the final assessment order was passed on the same day i.e. on 31.12.2017 by the Assessing Officer. The attention of the Court is invited to the copy of the approval letter dated 31.12.2017 extracted in the order of the Tribunal wherein the name of the assessee for the assessment year 2015-16 appears at Sr. No. 6. It is demonstrated by the learned counsel for the assessee that as per this approval letter, the Additional C.I.T. granted approval of draft assessment orders under Section 153D in 38 cases which also included the case of the present assessee. The Tribunal having taken note of the said undisputed facts, came to the conclusion that it was humanly impossible for the Approving Authority to peruse the material based on which, the draft assessment order was passed. It was, thus, concluded that the Approving Authority granted approval under Section 153D of the Act in a mechanical manner which vitiated the entire proceedings. Reliance is placed on an earlier decision of the Tribunal in Navin Jain & Others Vs. Deputy C.I.T., Central Circle-II, Kanpur in I.T.A. No. 639 to 641/Lkw/2019 passed on 03.08.2021.
Assailing the order passed by the Tribunal, it is argued by Sri Gaurav Mahajan, learned Advocate for the appellant-Revenue that the prior approval as per the requirement of Section 153D of the Income Tax Act is necessary for assessment in cases of search or requisition. The pre-requisite condition of passing assessment order as per the provisions laid down under Section 153D had been fulfilled in the present case. The prior approval under Section 153D was very much in operation when the assessment in question has been framed on 31.12.2017. The requirement of law, thus, has been fulfilled and the validity of the assessment order in question cannot be questioned on the ground of alleged defect in obtaining prior approval under Section 153D of the Act as alleged by the assessee.
Placing the judgement of High Court of Karnataka in (2012) 17 Taxmann.com 120 (Kar.), Commissioner of Income Tax, Bangalore vs. Smt. Annapoornamma Chandrashekar, it is argued that the meaning of word
“approval” as defined in the Black’s Law Dictionary, 6th Edition has been noted therein and with reference to the decision of the Apex Court in Ashok Kumar Sahu Vs. Union of India AIR 2006 SC 2879, it was observed therein that when the power of approval is rested in a higher authority and such higher authority approves an order of the lower authority, it means that he has gone through the order of the lower authority. The previous approval means, an act of confirming, ratifying, assenting, sanctioning or consenting to the Act or thing done by another/lower authority. The word “approval”, in the context of an administrative act, does not mean anything more than the aforesaid acts. The submission, thus, is that considering the meaning of “approval” in the context of an administrative act, the consent/confirmation of the draft assessment order by the Approving Authority is good and sufficient exercise of power, for the purpose intended under the Act and was not subject to scrutiny by the Tribunal. The arguments, thus, is that the Tribunal had committed an illegality in quashing the assessment order on the premise that the act of approval was a mechanical exercise of power under Section 153D of the Act which vitiated the entire proceeding.
The submission is that the substantial question of law which arises for consideration before this Court is about the justification of the act of the Tribunal in ignoring the findings recorded by the Assessing Officer and setting-aside the assessment order on the sole ground of defect in the approval to the draft assessment order granted by the competent Approving Authority. Learned counsel for the Assessee, however, defended the order of the tribunal for the reasoning given therein.
Considering the submissions of the learned counsel for the parties and having perused the order of the Tribunal, in view of the undisputed facts before us about the manner in which the approval to the draft assessment order was granted under Section 153D for the assessment proceedings, by a letter dated 31.12.2017 in 38 cases placed before the approving authority in a single day, we are required to examine as to whether a substantial question of law arises for consideration before us so as to admit the present appeal.
To answer the same, we are required to go through the relevant provisions of the Income Tax Act. Section 132 provides the procedure for search and seizure operations in consequence of the information in possession of the Income Tax Authorities. Section 153A prescribes assessment in case of search or requisition. Section 153A provides that in the case of a person where a search is initiated under Section 132, the Assessing Officer shall issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years (and for the relevant assessment year or years) referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may apply accordingly as if such return were a return required to be furnished under Section 139.
Section 153D of the Act relevant for our purposes is to be noted hereinunder:
“Prior approval necessary for assessment in cases of search or requisition.
153D.—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 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 may be, is required to be passed by the Assessing Officer with the prior approval of the [Principal Commissioner or] Commissioner under sub-section (12) of section 144BA.”
The Tribunal while quashing the assessment order had relied upon its earlier decision in Navin Jain and Others (Supra) wherein a detailed discussion has been made with regard to the requirement of prior approval of superior authority on the draft assessment order under Section 153D, before passing the assessment order by the Assessing Officer. It was noted that the word ‘approval’ though has not been defined in the Income Tax Act but the general meaning of the word ‘approval’ in Black’s Law Dictionary, 6th Edition was to be seen. The decision of the Apex Court in Vijayadevi Naval Kishore Bharatia vs. Land Acquisition Officer (2003) 5 SCC 83 wherein the distinction between Approving Authority and Appellate Authority was drawn, had been noted. The decision of the High Court of Gauhati in Dharampal Satyapal Ltd. vs. Union of India (2019) 366 ELT 253 (Gau.) has been noted to record that grant of approval means due application of mind on the subject matter approved which satisfies all the legal and procedural requirements. There is an exhaustive discussion on the requirement of prior approval under Section 153D of the Act and it was noted that the requirement of approval cannot be treated as mere formality and the mandate of the Act that the Approving Authority has to act in a judicious manner by due application of mind in a manner of a quasi judicial authority, has been considered.
It was held therein 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 approval under Section 153D of the Act and mandate of the enactment by the legislature will be defeated. For granting approval under Section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for “each assessment year” in respect of “each assessee” separately. The words ‘each assessment year’ used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. It was held that the “approval” as contemplated under 153D of the Act, requires the approving authority, i.e. Joint Commissioner to verify the issues raised by the Assessing Officer in the draft assessment order and apply his mind to ascertain as to whether the required procedure has been followed by the Assessing Officer or not in framing the assessment. The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power.
It was noted that the obligations of the approval of the Approving Authority serves two purposes:
- On the one hand, he has to apply his mind to ensure the interest of the revenue against any ommission or negligence by the Assessing Officer in taxing right income in the hands of right person and in right assessment year.
- On the other hand, superior authority is also responsible and duty-bound to do justice with the tax-payer by granting protection against arbitrary or creating baseless tax liability on the assessee.
The Tribunal has further noted that the provisions contained in Sections 153A to Section 153D provide for separate notice to be given to assessee for assessment for each year as specified in Section 153A of the Act; the assessee has to file separate ITR for each year as specified in Section 153A of the Act; separate assessment orders are to be passed for each year as specified in Section 153A of the Act.
It was observed that this is an important concept mentioned in Section 153A of the Act, which is peculiar to the scheme of the said Section. Keeping in view of this basic fundamental features of Section 153A, if Section 153D is scrutinized, then, it would become manifest that an important phrase is employed in the text of Section 153D, which is “each assessment year”. The reading of the provisions in Section 153A and 153D conjointly makes it clear that separate approval of draft assessment order for each year is to be obtained under Section 153D of the Income Tax Act. In its erudite judgement with the discussion on the legislative intent of Section 153A to 153D and the meaning of the “approval” as defined in Black’s Law Dictionary as also the decisions of the Apex Court in the case of Sahara India vs. CIT and Others (2008) 300 JTR 403 (SC) where the discussion on the requirement of prior approval of Chief Commissioner or Commissioner in terms of provision of Section 142(2A) of the Act had been made, it was noted that the Apex Court has held therein that the requirement of previous approval of the Chief Commissioner or Commissioner in terms of the said provision being an in-built protection against arbitrary or unjust exercise of power by the Assessing Officer casts a very heavy duty on the said high ranking authority to see that the approval envisaged in the section is not turned into an empty ritual. The Apex Court has held therein that the approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case.
The above discussion made in the judgement of Tribunal dated 3.08.2021 in the case of Navin Jain Vs. Dy. C.I.T. (Supra) has been relied by the Tribunal, in the instant case, to arrive at the conclusion that the mechanical approval under Section 153D of the Act would vitiate the entire proceedings in the instant case.
For the reasoning given in the case of Navin Jain (Supra), as extracted in the impugned order passed by the Tribunal, as noted above, there cannot be any two opinion to the requirement of prior approval of the Joint Commissioner to the draft assessment order prepared by the Assessing Officer, as per the mandate of Section 153D of the Income Tax Act.
The approval of draft assessment order being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer, cannot be said to be a mechanical exercise, without application of independent mind by the Approving Authority on the material placed before it and the reasoning given in the assessment order. It is admitted by Sri Gaurav Mahajan, learned counsel for the appellant-revenue that the approval order is an administrative exercise of power on the part of the Approving Authority but it is sought to be submitted that mere fact that the approval was in existence on the date of the passing of the assessment order, it could not have been vitiated. This submission is found to be a fallacy, in as much as, the prior approval of superior authority means that it should appraise the material before it so as to appreciate on factual and legal aspects to ascertain that the entire material has been examined by the Assessing Authority before preparing the draft assessment order. It is trite in law that the approval must be granted only on the basis of material available on record and the approval must reflect the application of mind to the facts of the case. The requirement of approval under Section 153D is pre-requisite to pass an order of assessment or re-assessment.
Section 153D requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of “each assessment year” referred to in Clause (b) of sub-section (1) of Section 153A which provides for assessment in case of search under Section 132. Section 153A(1)(a) requires that the assessee on a notice issued to him by the Assessing Officer would be required to furnish the return of income in respect of “each assessment year” falling within six assessment years (and for the relevant assessment year or years), referred to in Clause (b) of sub-section (1) of Section 153A. The proviso to Section 153A further provides for assessment of the total income in respect of each assessment year falling within such six assessment years (and for the relevant assessment year or years).
The careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to “each assessment year” is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order under Section 153A.
In the instant case, the draft assessment order in 38 cases, i.e. for 38 assessment years placed before the Approving Authority on 31.12.2017 was approved on same day i.e. 31.12.2017, which not only included the cases of respondent-assessee but the cases of other groups as well. It is humanly impossible to go through the records of 38 cases in one day to apply independent mind to appraise the material before the Approving Authority. The conclusion drawn by the Tribunal that it was a mechanical exercise of power, therefore, cannot be said to be perverse or contrary to the material on record.
As the facts are admitted before us, the questions of law framed on the factual issues related to the findings recorded by the Assessing Officer are not open to agitate within the scope of the present appeal being in the nature of second appeal. No substantial question of law arises for consideration before us.
The Appeal is dismissed being devoid of merit.
Author Bio
