Chemical Agencies Vs Office of The ACIT (ITAT Delhi)
Summary: The Delhi Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal and quashed the assessment order passed under Section 143(3) of the Income-tax Act, 1961 for Assessment Year 2019-20. The assessee had filed its return on 26.09.2018 declaring income of Rs.2,81,790/-. A survey under Section 133A was conducted on 31.10.2018 in connection with the assessee’s business of food chemicals and other items. According to the assessment proceedings, material impounded during the survey indicated cash sales allegedly not recorded in the books. The Assessing Officer considered cash sales of Rs.65,17,451/- recorded for the period from 10.09.2018 to 23.10.2018 and extrapolated the alleged undisclosed sales to the full year at Rs.5,28,63,769/-. A gross profit addition of Rs.56,47,066/- was consequently made, which was confirmed by the first appellate authority.
The assessee raised both jurisdictional/legal grounds and grounds challenging the additions on merits. The principal legal challenge concerned the Assessing Officer’s statement in paragraph 10 of the assessment order that the order was passed with the prior approval of the Joint Commissioner of Income Tax, Central Range-8, New Delhi, through a letter expressly referring to Section 153D. The assessee contended that the proceedings arose from a survey under Section 133A and not a search under Section 132. It was argued that statutory prior approval under Section 153D is prescribed for assessments under Sections 153A and 153C and was not required for an assessment under Section 143(3) following a survey. The assessee further argued that obtaining such approval resulted in intervention by the superior authority and amounted to external dictation and abdication of the Assessing Officer’s quasi-judicial powers.
The assessee relied, among other authorities, on Kankanala Ravindra Reddy Vs. ITO, Chandra Kishore Jha Vs. Mahaveer Prasad, Hexaware Technologies Ltd. Vs. ACIT, Tata Chemicals Ltd. Vs. Commissioner of Customs, Findoc Finvest Private Limited Vs. Deputy Commissioner of Income Tax and Anirudhsinhji Karansinhji Jadeja Vs. State of Gujarat. These authorities were cited for principles concerning compliance with statutory procedure, prejudice arising from action contrary to law, absence of estoppel against law and exercise of statutory discretion without external dictation.
The Tribunal noted that the assessment was admittedly a sequel to survey proceedings under Section 133A and that the law did not mandate the Assessing Officer to obtain prior approval from a supervisory authority for such an assessment. It found that paragraph 10 of the assessment order clearly recorded that approval had been obtained from the supervisory authority. Following the principle laid down by the Punjab & Haryana High Court in Findoc Finvest Private Limited, the Tribunal held that the approval constituted an interference with the Assessing Officer’s independent exercise of authority. The Tribunal therefore held that the assessment order under Section 143(3) dated 29.09.2021 could not survive and quashed the assessment order. Since the assessee succeeded on the legal ground, all other grounds concerning the alleged undisclosed sales, extrapolation, gross profit estimation and rejection of books under Section 145(3) were treated as academic and were not adjudicated. The assessee’s appeal was accordingly allowed.
Cases Discussed
- Chandra Kishore Jha Vs. Mahaveer Prasad — [1999] 8 SCC 266 (Supreme Court)
- Kankanala Ravindra Reddy Vs. ITO — [2023] 156 taxmann.com 178 (Telangana High Court)
- Hexaware Technologies Ltd. Vs. ACIT — [2024] 162 taxmann.com 225 (Bombay High Court)
- Tata Chemicals Ltd. Vs. Commissioner of Customs — [2015] 58 taxmann.com 126 (Supreme Court)
- Findoc Finvest Private Limited Vs. Deputy Commissioner of Income Tax — [2025] 172 taxmann.com 773 (Punjab & Haryana High Court)
- Anirudhsinhji Karansinhji Jadeja Vs. State of Gujarat — (1995) 5 SCC 302 (Supreme Court)
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal filed by the Assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-30, New Delhi, dated 09.09.2025 arising out of assessment order dated 29.09.2021 passed under section u/s 143(3) of the Act for the Assessment Year 2019-20. The word ‘Act’ herein this order would mean Income Tax Act, 1961.
2. The assessee has raised following grounds of appeal:-
1. Additional Ground: The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O, by ignoring the fact that the matter of assessee was not centralised within 15 days of issue of notice u/s 143(2) as per guidelines issued in F.No.225/126/2020/ITA-II dated 17/09/2020.
2. Additional Ground: The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O. which is passed with mechanical approval of Joint Commissioner of Income Tax, Central Range-8, New Delhi which in fact was not required. The reference letter of approval shows it is u/s 153D while the assessment of the assessee is completed u/s 143(3).
3. The Ld. CIT(A)has erred in law as well as on facts in confirming the order of A.O. passed without jurisdiction since the jurisdiction of the assessee was with ITO Ward- 47(2),Delhi as per the returns filed by the assessee, on the basis of notice issued by ward 47(1).
4. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order passed by AO without assuming jurisdiction in the absence of order u/s 127for the transfer of the jurisdiction from Ward 47(2) to 47(1).
5. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O based on notice issued u/s 143(2) of the Income tax Act, 1961 dated 29.09.2020 in violation of CBDT Instruction F.No.225/157/2017/ITA-II dated 23.06.2017.
6. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A. which is highly unjustified and against the principal of natural justice as the appellant had not been provided the copy of impounded material and statement of Mr. Sachin Agarwal recorded during the course of survey before using the same for making the impugned addition.
7. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O passed without justifying in holding that the Annexure A-3 to A-7 alleged to be impounded during the course of survey represents undisclosed sales of the assessee for the period from 10.09.2018 to 23.10.2018 totaling to Rs.65,17,451/-
8. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O passed by holding that the alleged cash sales is for 45 days and the total undisclosed cash sales of the assessee for 365 days is Rs.5,28,63,769/- as against the total turnover of Rs.4,08,29,273/-declared by the assessee in its return of income filed for the year under consideration
9. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O without considering the submission made by the appellant that the alleged impounded Annexures are in the nature of rough noting and jottings. Had the assessee done the cash sales corresponding unaccounted stock and cash must have been found during the course of survey.
10. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O which is highly arbitrary in computing the total undisclosed sales of the of assessee at Rs.5,28,63,769/-as against the alleged undisclosed sales of Rs.65,17,451/- found to be recorded in the impounded material. It is a settled law that unaccounted sales found during the course of survey/ search should be restricted to the incriminating material and thus no extrapolation is allowed as per law.
11. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O which was not justified in making addition of Rs.42,29, 101/- by estimating GP rate of 8% on the alleged undisclosed cash sales of Rs.5,28,63,769/- as against the GP rate of 4.73% declared by the assessee.
12. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O in making addition of Rs. 14,17,965/-by estimating GP rate of 3.27% being the difference of GP rate of 8% estimated by the AO on undisclosed turnover of Rs.5,28,63,769/- and GP rate of 4.73% disclosed by the assessee for the year under consideration on total disclosed turnover of Rs. 4,33,39,049/- of the financial year ending 31.03.2018.
13. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment order of A.O, in rejecting the books of accounts u/s 145(3) of Income Tax Act for estimating the higher GP of 8% without pointing out any single defect in the books of account.
3. The appellant has raised legal grounds of appeal as well as those on merits of addition. The ld. Counsel of the assessee submitted that as the legal grounds strike at the root of the matter, the same be adjudicated first in preference to other grounds. Explaining the brief factual matrix of the case, the ld. Counsel for the assessee submitted that Return of Income was filed on 26.09.2018 declaring income of Rs.2,81,790/-. Thereafter, a survey was conducted upon the assesseeu/s 133A on 31.10.2018. The appellant/assessee firm is engaged in the business of food chemicals and other items. Survey proceedings indicated through incriminating material that the assessee was indulging in cash sales which were not recorded in the books of accounts. After considering the noted sales of 45 days from 10.09.2018 to 23.10.2018 aggregating to Rs.65,17,451/-, statement of employees and owners, the ld. Assessing Officer telescoped the unaccounted sales for full year and proceeded to make GP addition of Rs.56,47,066/-. The ld. First Appellate Authority confirmed the findings of the ld. Assessing Officer. The appellant assessee is in appeal assailing the impugned appellate order.
4. Heard rival parties and perused the material available on record.
5. The ld. Counsel for the appellant assessee drew our attention to the findings recorded by ld. Assessing Officer on page-1 to 4 of the assessment order to conclusively drive home the point that the impugned assessment was arising out of survey proceedings u/s 133A and not any search proceedings u/s 132. The ld. Counsel preliminary contest to the impugned assessment order is that the same is void ab initio. It was argued that it is trite law that if an Assessing Officer is influenced in his decision making by any other authority, then his order cannot be treated as a valid order. To prove the point, the ld. Counsel drew our attention to para-10 of the Assessing Officer’s order on page-8 recording as under:- “…10. The order passes with the prior approval of Joint Commissioner of Income Tax, Central Range-8, New Delhi as accorded vide his office letter F.No.JCIT/CR8/153D/2021- 22/1276 dated 29.09.2021…..”
6. The ld. Counsel vehemently argued that the said findings of the ld. Assessing Officer clearly alludes that there was intervention of the Joint Commissioner of Income Tax, Central Range-8, New Delhi in the assessment order and that as the same is not permissible and would constitute an interference in Assessing Officer’s working, the assessment order dated 29.09.2021 has become non-est. The ld. Counsel argued that the assessee was subjected to a survey operation under Section 133A of the Income Tax Act on 31/10/2018, and not a search and seizure operation. The proceedings were initiated by issuing a notice u/s 143(2) and the assessment was framed u/s 143(3) of the Act. It was argued that the statutory mandate of obtaining prior approval under Section 153D is specifically restricted to assessments made under Sections 153A and 153C, which exclusively arise from search or requisition cases. There is absolutely no legal requirement or provision within the Act that mandates or permits the AO to obtain prior approval u/s 153D for an assessment framed under Section 143(3) pursuant to a survey u/s 133A. It was stated that the position is firmly established by the Hon’ble Supreme Court in the case of Chandra Kishore Jhav. Mahaveer Prasad 8 SCC 266, and it is a well-settled solitary principle that “if statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner”. This principle was further reiterated by the Hon’ble Telangana High Court in Kankanala Ravindra Reddy Vs. ITO 156 taxmann.com 178, holding that doing a thing in a manner not provided under the law means “it would have no existence in the eye of law”. By wrongfully invoking Section 153D for a Section 143(3) assessment, the AO has acted beyond statutory parameters, rendering the assessment invalid. It was argued that an act committed by a statutory authority contrary to the provisions of the law inherently causes prejudice to the assessee, entirely negating the need to prove any further specific or financial prejudice. The Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd Vs. ACIT 162 taxmann.com 225 Bom. HC) categorically dealt with this exact proposition, holding that “An act which is done by an authority contrary to the provisions of the statue, itself causes prejudice to assessee”. The Court ruled that all assessees possess a fundamental and indefeasible entitlement to be assessed strictly as per the law and by following the procedure prescribed by law. Therefore, when an authority proposes to take action without following due process, the said action itself results in a prejudice to assessee and there is no question of assessee having to prove further prejudice before arguing the invalidity of the action.
7. The ld. Counsel submitted that as held by the Hon’ble Apex Court in Tata Chemicals Ltd. v. Commissioner of Customs 2015] 58 taxmann.com 126 (SC), “there can be no estoppel against law,” and something that is illegal cannot be converted into something legal simply because an authority chose to act outside its prescribed statutory parameters. Thus, obtaining an inapplicable approval is not just a harmless administrative redundancy; it is a fatal jurisdictional defect that legally extinguishes the assessment order, severely prejudicing the assessee by violating the rule of law. It was argued that it is also a case of abdication of Quasi-Judicial Powers and influenced by external dictation by the ld. Assessing Officer. In support of his contention, our attention was invited to the decision of the Hon’ble Punjab & Haryana High Court in the case of Findoc Finvest Private Limited vs Deputy Commissioner of Income Tax [2025] 172 taxmann.com 773 (Punjab & Haryana), holding that “where there is no provision, the order of assessment would be vitiated in law if the Assessing Officer consults or seeks approval of the assessment from his superior officers”. In the said judgment, Hon’ble High Court held that an order passed under the influence and directions of superior officers would mean that “the Assessing Officer has abdicated his authority and, therefore, the order has become vitiated in law” Further reliance was placed upon the decision of the Hon’ble Supreme Court in Anirudhsinhji Karansinhji Jadeja vs State of Gujarat 5 SCC 302 holding that if a statutory authority is vested with jurisdiction, they must exercise it according to their own discretion. If the discretion is exercised under the direction or in compliance with a higher authority’s instruction, “it will be a case of failure to exercise discretion altogether” and constitutes an invalid “exercise of power on the basis of external dictation”. The AO in the present case failed to bear his own independent and unfettered judgment, instead forwarding a draft assessment to the JCIT for validation.
8. The ld. DR placed reliance upon the decision of lower authorities. The fact of inscription placed by the ld. Assessing Officer in para-10 of his order (supra) could not be satisfactorily controverted.
9. It is trite law discussed in judicial precedents hereinabove that due process of law would mean compliance to the law as it is and that what is required to be done in the manner and fashion prescribed has to be accomplished accordingly. In the instant case, the ld. Assessing Officer was concluding an assessment proceeding as a sequel to survey proceedings u/s 133A. The law does not mandate the ld. Assessing Officer to seek any prior approval of any supervisory authority. Para-10 of the Assessing Officer’s order (supra) clearly alludes that he had obtained the approval of his supervisory authority. The said act of the Assessing Officer is not supported by any provision of law. Thus, in view of the decision of the Hon’ble Punjab & Haryana High Court (supra), the same would constitute an act of interreference by the ld. Assessing Officer. Accordingly, we are of the considered view that in respectful compliance to the said decision of the Hon’ble Punjab & Haryana High Court (supra), the order u/s 143(3) dated 29.09.2021 cannot survive. We therefore set-aside the order of the lower authorities and quashed the assessment order u/s 143(3) dated 29.09.2021. The ground of appeal no.2 of the assessee is therefore allowed.
10. As the assessee has succeeded in legal ground of appeal no.2 and the assessment order has been quashed, all other grounds of appeal raised by the assessee has become academic.
11. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 29th July, 2026.
