Arch Pharmalabs Ltd. Vs ACIT (ITAT Mumbai)
At the cost of repetition, it may be reiterated that in the instant case, approving authority did not mention anything in the approval memo towards his/ her process of deriving satisfaction so as to exhibit his/her due application of mind. We may observe that Para 2 of the above approval letter merely says that “Approval is hereby accorded u/s. 153D of the Income-tax Act, 1961 to complete assessments u/s. 143(3) r.w.s. 153A of the I.T. Act in the following case on the basis of draft assessment orders…“which clearly proves that the Addl. CIT had routinely given approval to the AO to pass the order only on the basis of contents mentioned in the draft assessment order without any application of mind and seized materials were not looked at and/or other enquiry and examination was never carried out. From the said approval, it can be easily inferred that the said order was approved, solely relying upon the implied undertaking obtained from the Assessing Officer in the form of draft assessment order that AO has taken due care while framing respective draft assessment orders and that all the observations made in the appraisal report relating to examination / investigation of seized material and issues unearthed during search have been statedly considered by the AO seeking approval. Thus, the sanctioning authority has, in effect, abdicated his/ her statutory functions and delightfully relegated his/her statutory duty to the subordinate AO, whose action the Additional CIT, was supposed to supervise. The addl. CIT in short appears to have adopted a short cut in the matter and an undertaking from AO was considered adequate by him/ her to accord approval in all assessments involved. Manifestly, the Additional CIT, without any consideration of merits in proposed adjustments with reference to appraisal report, incriminating material collected in search etc. has proceeded to grant a simplicitor approval. This approach of the Additional CIT, Central has rendered the Approval to be a mere formality and can not be countenanced in law.
There are several decisions, which supports the view that approval granted by the superior authority in mechanical manner defeats the very purpose of obtaining approval u/s 153D. Such perfunctory approval has no legal sanctity in the eyes of the law.
As a result, the captioned appeals of revenue in ITA No. 8089/M/2011 & 8090/M/2011 are dismissed
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned 3 appeals for the captioned assessee ‘M/s Arch Pharmalabs Ltd.’ for Assessment Year 2004-05, 2005-06 & 2011-12 have been filed by the revenue against the order of Ld. Commissioner of Income Tax (Appeals) in short referred as ‘Ld. CIT(A)’, Mumbai. At the same time, the assessee has also filed 4 appeals for Assessment Year 2005-06, 2007-08, 2008-09 & 2011-12 against the order of Ld. CIT(A) and Cross Objections for Assessment Year 2004-05 & 2005-06 against the respective appeals filed by revenue.
2. Similarly appeals have been filed by the assessee in the case of another connected assessee captioned above namely M/s Arch Impex Ltd. raising similar grievance on an identical legal issue.
3. Since the legal issue of legitimacy of approval under S. 153D raised in all the appeals/ cross objections of both the assessee are similar, hence, all the matters were heard together and is being disposed off by this consolidated order.
4. At the commencement of hearing, Ld. AR representing both the assessee pointed out that both assessee captioned above have also filed the additional grounds of appeal whereby legality of approval granted by the designated superior authority u/s 153D have been challenged. It was further submitted that assessee M/s Arch Pharmalabs Ltd. has also filed the cross objection for Assessment Year 2004-05 & AY 2005-06 in revenues appeal and has also invoked Rule 27 of the ITAT Rules to seek remedy on legal fatality committed by the designated authority under S. 153D of the Act. It was submitted that all relevant facts for adjudication of legal issue are available on record and hence it was urged that the additional ground raised by the Assessee under Rule 11 of IT(AT) Rules, 1963 may kindly be admitted for adjudication.
4.1 On the other hand, Ld. DR opposed the legal objection raised belatedly and submitted before us written submission, which is reproduced below:-
5. The assessee has not offered any explanation for raising this ground earlier, though he has been seeking adjournments for over six years.
6. In the letter dated 12.10.2020 submitted before the Hon’ble Tribunal, the Jt. CIT, Central Range-5, Mumbai has submitted that the Approval Folder in the Range Office is not readily available and appears to have been misplaced while shifting of office to Air India. The draft assessment orders in the case of M/s Arch Pharma Ltd. For AYs. 2004-05, 2005-06, 2007-08 & 2008-09 alongwith screenshot of properties gathered from computer backup, were submitted before the Hon’ble Tribunal to prove that draft assessment were indeed submitted to the Range Head. The Draft Assessment Orders in the case of Arch Impex Pvt. Ltd. were also submitted earlier.lt may be added here that the assessment records for A.Y. 2005-06 were subjected to Internal Audit and no procedural lapse was detected by the Audit Team. The assessee have not explained what prompted them to raise such objection after almost seven years of filing the appeal. Apparently, the assessees have raised the issue as an after-thought when the they became sure that the department is handicapped by the non-availability of the relevant records.
7. The Hon’ble High Court of Allahabad in Dr. V.S. Chauhan v. Director of Income-tax, Investigations [2011] 336 ITR 533 (Allahabad) / [2011] 245 CTR 145 (Allahabad) / [2011] 200 Taxman 413 (Allahabad) / [2011] 12 taxmann.com 230 (Allahabad) has held that the petition was liable to be dismissed on ground of laches since facts revealed that assessee was not serious in challenging search operation and on smelling out that block assessment proceedings might go against him sought to stall proceedings by filing writ petition and obtained stay order after two years from search.
8. The above view also finds support from the decision of the Hon’ble High Court of Bombay in the case of Kishore Jagjivandas Tanna Joint Director of Income Tax (Inv.) [2018] 98 taxmann.com 235 (Bombay) that “if people like wherein it is the petitioner, who is a businessman and prudent enough to know as to how monies, allegedly retained illegally, have to be recovered promptly and expeditiously. He does nothing despite a favourable order from this Court for more than a decade. Such a litigant does not deserve any relief in our discretionary and equitable jurisdiction.”
9. Further, it is held by the Hon’bleHigh Court of Bombay in the case of Ultratech Cement Ltd. Vs. Additional Commissioner of Income Tax (2017) 298 CTR 0437 (Bom) : (2017) 157 DTR 0253 (Bom) : (2018) 408 ITR 0500 ((Bom) that before an additional ground is allowed to be raised, the appellate authority must be satisfied that the ground raised could not have been raised earlier for good reasons (Para 23).
10. And it is held by the Hon’ble High Court of Punjab and Haryana in Commissioner of Income-tax (Central), Ludhiana v. A. Builders Ltd. [2013] 38 taxmann.com 255 (Punjab & Haryana) that “The Tribunal, thus, cannot permit a party to raise an entirely new plea for the first time for which no factual foundation has been laid before the Assessing Officer or CIT(Appeals).”
11. Identical is the view held by the Hon’ble High Court Of Calcutta in Indian Steel and Wire Products Ltd. v. Commissioner of Income tax [1994] 208 ITR 740 (CAL.)wherein it is held that “such additional plea which altogether changes the complexion of the case as originally brought before the Commissioner of Income-tax (Appeals) and the Tribunal in second appeal is not permissible to he raised at the stage of hearing.”
We consider that such additional plea which altogether changes the complexion of the case as originally brought before the Commissioner of Income-tax (Appeals) and the Tribunal in second appeal is not permissible to be raised at the stage of hearing. In the first instance, if permitted, such a course would defeat the scheme of the appellate forums conceived by the Legislature. The Tribunal is supposed to decide only issues which were the subject-matter of the first appeal. Otherwise, the Tribunal would be reduced to the first appellate authority. Such a situation was never in contemplation in the scheme of relief by way of appeal. It is a settled principle that such a course goes to abridge the statutory benefit of two adjudications contemplated by the statute. The first appeal would then get telescoped into the second appeal. Secondly, if permitted, the limitation as prescribed by section 253 for filing second appeal would get defeated, a situation which cannot be countenanced. Thirdly, it is fraught with the risk of being over-indulgent to a party reproachable for laches. Fourthly, where the ground canvassed as additional ground enlarges the claim of relief beyond what was claimed in assessment
12. Further, distinguishing the judgment of the Apex Court in the case of National Thermal Power Co. Ltd.the Hon’ble ITAT Mumbai Bench VJ’ in case of Jay Bharat Coop. Housing Society Ltd. v. Income-tax Officer , Ward 15(2)(4), Mumbai [2010] 125 ITD 90 (MUM.) / [2011] 11 ITR(T) 717 (Mumbai)/[2009] 125 TTJ 552 (Mumbai), has held as under
7. So far as judgment of the Apex Court in the case of National Thermal Power Co. Ltd. (supra) is concerned, it was rendered on those facts where during the course of appellate proceedings, the legal position on an issue was changed on account of judgment of the appellate authorities and in these circumstances, assessee was allowed to raise a new ground before the Tribunal and the Tribunal can admit the same, if all facts relating to that issue are available before the Tribunal and no investigation or verifications of the facts are required.
13. In the present case the records have been misplaced. Some of the records have been recovered partially. Therefore, it requires fresh investigation and enquiries for investigation or verifications of the facts. No adverse inference can be drawn against the revenue, for records being untraceable. In this regard Reliance in placed on the decision of the Hon’ble High Court of Rajasthan Commissioner of Wealth-tax v. Balu Ram Raghunath Kalla [1993] 69 TAXMAN 540 (RAJ.) wherein it is held that “There mavbe number of reasons for not challenging the judgment and it maybe negligence, carelessness, connivance, mistake or the like on the part of the authorities in not taking timely action………………….. “
14. In view of the aforesaid, it is humbly submitted that the Additional Grounds of Appeal shall not be admitted.
4.2. In rejoinder, Ld. AR submitted that additional grounds of appeal purely bear legal issue which goes to the root of the matter and thus the assessee should not be prevented to raise such legal question on the grounds of estoppel. It was reiterated that material available on record would demonstrate that the Addl. Commissioner (Authority giving approval to search assessments u/s. 153D of the Act) has granted approval in a casual and mechanical manner and without any application of mind. These fundamentally flawed approval renders the search assessment passed, in effect, without approval under S. 153D and consequently makes the whole assessment void and bad in law and hence, the legal objection may be admitted and adjudicated in the interest of justice.
4.3 We have considered the rival submission on admission of additional ground. Ld. DR objects on the pretext that the relevant documents were misplaced in the department. Further, the argument of the revenue that assessee has raised the legal grounds belatedly, alone cannot be reasons to deny the legal right of the assessee to raise the additional grounds. The Courts have consistently held that Income tax proceedings are not strictly adversarial in nature. It is trite that a fundamental error of law can be pointed out at any stage. There cannot be any estoppel available to Revenue on the ground that the assessee did not made the legal question before lower authorities. The legal issue is capable of being adjudged on the basis of material on record. An assessee in a pending proceeding, is entitled to raise legal grounds where relevant facts are discernible from the existing records. We, therefore reject the objections of the revenue in this regard.
5. In short, the prayer for admission of additional ground noted above which are not set forth in memorandum of appeal deserves to be entertained and thus are being admitted for adjudication in terms of Rule 11 of Income Tax (Appellate Tribunal) Rules 1963 owing to the fact that objections raised in additional ground is legal in nature for which relevant facts are stated to be emanating from existing records. Similarly, the cross objections filed by the Assessee seeking to inter alia challenge the legal sustainability of search assessments are also admitted for adjudication as such issue is cardinal and goes to the root of the search assessments impugned in this appellate proceedings.
6. To begin with, we shall take up the appeals of the assessee and revenue relatable to M/s Arch Pharmalabs Ltd. as noted below for adjudication purposes.
ITA No. 8089/M/2011 [ AY 2004-05-Revenue appeal] and CO/6/M/21 of the Assessee – Arch Pharmalabs Ltd. thereon; ITA No. 8090/M/2011 [AY 2005-06-Revenue appeal] and CO no. 7/M/21 of assessee thereon ; ITA No. 7595/M/2011[ AY 2005-06-Assesee Appeal]; 3752/M/2012[AY 2007-08-Assessee appeal]; 7597/M/2012[AY 2008-09-Assessee appeal]
7. As noted in the preceding para, the assessee, by way of additional grounds and cross objections has called in to question the validity, efficacy & maintainability of search assessments carried out by the AO which is cardinal and goes to the root of the matter. Therefore, the legal objection by way of additional grounds/ cross objections raised by the respective assessee requires to be adjudicated at the threshold.
8. Turning to the background facts briefly, a search and seizure operation was carried out on the assessee under section 132 of the Act in connection with Arch group of cases on 24.04.2008. Consequently, proceedings under S. 153A were initiated and assessment was framed under S. 153A r.w.s 143(3) of the Act relevant to assessment year 2003-04 to 2008-09 and assessment order under S. 143(3) was passed relevant to AY 2009-10. An approval dated 31.12.2010 from the Additional Commissioner of Income Tax(designated authority) was obtained by the AO under section 153D of the Act in respect of search assessment i.e. AY 2003-04 to 2009-10 in pursuance of his communication to the designated authority dated 29.12.2010. The assessment orders for various assessment years were consequently passed on the basis of such prior approval. As the legal controversy has cropped up on the legality of approval and consequent maintainability of respective assessments, it will be pertinent to reproduce the communication of AO and approval of designated authority for a ready reference.
8.1 The content of forwarding letter of AO dated 29/12/2010 to the designated authority seeking approval of draft assessment orders for various assessment years is reproduced hereunder;
“OFFICE OF THE
ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLEC-
32
R. N. 32(3), AAYKAR BHAVAN, M K ROAD, MUMBAI-400 020.
(022) 22030602
No. ACIT-32/Appr. u/s 153D/2010-11
Dated: 29.12.2010
To,
Addl. Commissioner of Income tax,
Central Range -VIII, Mumbai.
Sir,
Sub : Draft assessment orders under section 143(3) rws 153A in the case of M/s Arch Pharma Labs Ltd. For A.Ys 2003-04 to 2008-09 and 143(3) for A. Y. 2009-10 – reg. (Arch Group)
Kindly refer to the above.
2. I am submitting herewith a draft assessment order u/s 143(3)/153A for A.Ys. 2003-04 to 2008-09 and 143(3) for A.Y. 2009-10 in the case of M/s Arch Pharma Labs Ltd
3. Further, it is submitted that all seized materials and data on electronic devices copied during the search operation have been considered while framing assessment order.
4. Your kind approval is solicited as per provision of section 153D of the IT. Act, 1961 for completing the search assessments in the above mentioned case
Yours faithfully,
Asstt. Commissioner of
Income tax Central Circle-32,
Mumbai
Encl: As above:”
8.2 The approval memo of the designated authority on such draft assessment orders, which is subject matter of serious challenge, is also reproduced hereunder:
OFFICE OF THE
ADDL. COMMISSIONER OF INCOME-TAX
CENTRAL RANGE -VIII,
Room No.3, Ground Floor, Aayakar Bhavan,
M.K. Marg, Mumbai – 400 020.
(022) 22030602
No. Addl. CIT/CR. VIII/153D./2010-11
Dated: 31/12/2010
To,
The Asstt. Commissioner of Income-tax,
Central Circle-32,
Mumbai.
Sub : Approval u/s,153D of the I.T. Act in the cases of of Arch Group – Order u/s 143(3) r.ws. 153A for A.Ys. 2003-04 to 2008-09 & Order u/s 143(3) for A.Y.2009-10 – Reg.
Ref.: letter No.ACIT-32/Appr. u/s. 153D/2010-11 dated 29.11.2010.
***
Please refer to the above.
2. Approval is hereby accorded u/s.153D of the Income-tax Act, 1961 to complete assessments u/s. 143(3) r.w.s. 153A of the I.T. Act in the following case on the basis of draft assessment orders for the A.Ys. 2003-04 to 2008-09 and A.Y. 2009-10 u/s. 143(3) forwarded by you, vide your letter No.ACIT-32/ Appr. u/s. 153D/2010-11 dated 29-12-2010:
