Prior Approval Of The Superior Officer Before Passing Of The Assessment/Reassessment Order Pursuant To A Search Operation Is A Mandatory Requirement: Orissa High Court

The Orissa High Court has held that the requirement of prior approval of the superior officer before an order of assessment or reassessment is passed pursuant to a search operation is a mandatory requirement of Section 153D of the Income Tax Act.

The division bench of Chief Justice S. Muralidhar and Justice M.S. Raman has observed that approval of the superior officer before an order of assessment or reassessment must not be given mechanically.

A search and seizure operation was conducted in the case of the assessee or respondent. A notice under Section 153A was served on the assessee. The Assistant Commissioner of Income Tax (ACIT) passed assessment orders under Sections 143(3), 144, and 153A of the Act, making various additions and disallowances.

The assessee filed the appeals before the CIT (A). One of the grounds for the challenge was the non-compliance with Section 153D, which requires the prior approval of the Additional Commissioner of Income Tax.

The department contended that the approval had been sought by the AO and granted by the Additional CIT prior to the passing of the assessment order.

The CIT (A), however, held that it is not necessary that the fact of approval of the Additional CIT be mentioned in the body of the assessment order.

The assessee filed further appeals before the ITAT. The assessee contended that the guidelines contained in Circular No. 3 of 2008, dated March 12, 2008, issued by the Central Board of Direct Taxes (CBDT), had not been followed. The so-called approval of the additional CIT under Section 153D had been granted in a mechanical manner without application of mind.

The ITAT held that the approving authority did not apply his mind to the relevant assessment records or to the draught assessment orders prior to granting approval to the AO under Sections 143(3), 144, or 153A. The assessment orders were accordingly set aside.

The department contended that the approval of the superior officer was distinct from the assessment order. It was a mere administrative order and not open to challenge before a court of law. In other words, it was submitted that the approval granted by the Additional CIT was not justiciable and could not form the basis for challenging the assessment order.

The court noted that there is not even a token mention of the draft orders having been perused by the Additional CIT. The letter simply grants approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved was missing from the aforementioned approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that they meet the requirements of the law.

The court, while upholding the order of the tribunal, stated that mere repetition of the words of the statute or mere "rubber stamping" of the letter seeking sanction by using similar words like ‘see’ or ‘approved’ will not satisfy the requirement of the law.

Case Title: ACIT, Circle-1(2), Bhubaneswar Versus M/s. Serajuddin & Co. Kolkata

Citation: I.T.A. Nos. 39, 40, 41, 42, 43, 44 & 45 of 2022

Date: 15.03.2023

Counsel For Appellant: Tushar Kanti Satapathy

Counsel For Respondent: S. Ganesh, Ramesh Singh, A.K. Parija, Sidhartha Ray

Click Here To Read The Order