Approving Authority Has Acted As Mere Rubber Stamp While Granting Approval U/s 153D: Delhi ITAT Quashes Assessment Passed Without Application Of Mind

Section 153D of the Income Tax Act, mandates that no order of assessment or reassessment shall be passed by an AO below the rank of Joint Commissioner without the prior approval of the Joint Commissioner or a higher-ranking officer.

The Bench of the ITAT comprising of Saktijit Dey (Vice President) and Naveen Chandra (Accountant Member) observed that “the approval granted u/s 153D of the Act clearly indicates that the Approving Authority has neither examined the assessment records nor the seized materials. In fact, the letter of the Assessing Officer seeking approval also makes it clear that only draft assessment orders were sent for approval without any assessment record or seized material. It is further clear that on the very same day the letter of the Assessing Officer with draft assessment orders were received, approval u/s 153D of the Act was granted by the Approving Authority. The aforesaid facts clearly reveal that the Approving Authority, while granting approval u/s 153D of the Act has acted as a mere rubber stamp. The approval granted is completely mechanical without application of mind.” (Para 5.5)

Facts of the case:

The assessee is engaged in the business of chartered services, ground handling of international aircraft; to maintain, repair aircrafts etc. A search and seizure operation, carried out u/s 132 on the assessee, proceedings u/s 153A were initiated against the assessee. In course of the assessment proceedings, assessee's case was referred for Special Audit in terms of Section 142(2A). As observed by the AO, assessee did not comply with the queries raised by the AO as well as the Special Auditor. Thus, ultimately, assessment orders were passed u/s 153A r.w.s. 143(3) r.w.s 144.

The assessee filed a revision application u/s 264. While disposing of the revision applications, CIT set aside the assessment orders with direction to the AO to complete them de novo after providing due and reasonable opportunity of being heard to the assessee. Assessment proceedings for the impugned assessment years were taken up again by the AO. However, he ultimately completed the assessments more or less, repeating the additions made in the original assessment orders.

Against the assessment orders so passed, assessee preferred appeals before First Appellate Authority on the ground that the assessment orders are invalid due to lack of proper approval u/s 153D. The First Appellate Authority, however, did not find any infirmity in the approval granted u/s 153D.

Observations of Tribunal:

The Bench noted that the preliminary issue arising for consideration is whether the approval granted u/s 153D is in terms with the provisions contained therein and musters judicial scrutiny.

The Bench observed by plain reading of Section 153D that no order of assessment or reassessment in a search related case can be passed except with the prior approval of the Competent Authority.

The Bench further observed while referring the decision of the Delhi High Court in the case of PCIT vs. Anuj Bansal 2023 SCC OnLine Del 4159 that where the approval is granted without examining the assessment records and seized material, that too a single approval in case of various assessees and multiple assessment years, it does not meet the requirement of Section 153D.

The Bench reiterated while referring the decision of Coordinate Bench that “prior to the insertion of Sec. 153D of the Act, there was no provision for taking approval in cases of assessment and reassessment in cases where search has been conducted. Thus, the legislature wanted the assessments/ reassessments of search and seizure cases should be made with the prior approval of superior authorities which also means that the superior authorities should apply their minds on the material 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 authorities have to approve the assessment order.”

The Bench further reiterated while referring the decision of the Supreme Court in the case of Sahara India Vs CIT 169 Taxman 328 that “the twin conditions of 'nature and complexity of the accounts' and 'the interests of the revenue' are the prerequisites for exercise of power under section 142(2A).”

The Bench also reiterated while referring the decision of the Supreme Court in the case of Sahara India Vs CIT 169 Taxman 328 that “the requirement of previous approval of the Chief Commissioner or the Commissioner in terms of the said provision being an inbuilt protection against any arbitrary or unjust exercise of power by the Assessing Officer, casts a very heavy duty on the said high ranking authority to see to it that the requirement of the previous approval, envisaged in the section is not turned into an empty ritual. Needless to emphasise that before granting approval, the Chief Commissioner or the Commissioner, as the case may be, must have before him the material on the basis whereof an opinion in this behalf has been formed by the Assessing Officer. The approval must reflect the application of mind to the facts of the case."

The Bench found that the AO sent draft assessment orders in respect of six different assessees for various assessment years for approval of the Additional Commissioner in terms of section 153D, and on the very same day the Additional Commissioner has granted approval u/s 153D.

Therefore, on finding that the grounds raised on merits have become purely academic, the ITAT allowed the assessee's appeal.

Counsel for Appellant/Taxpayer: Gautam Jain

Counsel for Respondent/Department: Subhra Jyoti Chakraborty

Case Title: MDLR Airline (P) Ltd. verses DCIT

Case Number: ITA No. 1420/DEL/2023

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