2024 (2) TMI 35 - AT - Income Tax

Assessment u/s 153A - validity of approval u/s 153D - scope of approving authority orders/powers - addition of Undisclosed income on the basis of documents obtained from bank - HELD THAT - The approving authority is necessarily required to objectively evaluate such draft assessment order with due application of mind on various issues contained in such order so as to derive his/her conclusive satisfaction that the proposed action of AO is in conformity with subsisting law. AO is obligated to pass the assessment order exactly, as per approval/directions of the designated authority. Inevitably, this evaluation is to be made on the basis of material gathered at time of search as well as obtained in the course of the assessment proceeding. The requirement of law is to grant approval not merely as a formality or a symbolic act but a mandatory requirement. Section 153D of the Act bestows a supervisory jurisdiction on the designated authority in respect of search related assessment and thus enjoins a salutary duty of statutory nature. The designated superior authority is thus expected to confirm to the statutory requirement in letter and spirit. A bare glance at the approval so accorded makes it evident that such approval is generic and listless and accorded in a blanket manner without any reference to any issue in respect of any of the 5 assessment years. Apparently, the approval has been granted on a dotted line without any availability of reasonable time which firms up the belief towards non application of mind. Besides, the approval has been granted in a consolidated manner for all assessment years for which voluminous assessment orders were prepared. The whole sequence of action apparently appears to be illusory to merely meet the requirement of law as an empty formality. It is also alleged on behalf of assessee that the draft assessment orders are not available on record which allegation has not been rebutted. The draft assessment orders showing some marking / initials etc. could have given a valuable input on the applicability of mind and could throw some light on objectivity applied owing to total silence on any delineation on these aspects in the approval memo. obligation of granting Approval acts as an inbuilt protection to the taxpayer against arbitrary or unjust exercise of discretion by the AO. The approval granted under section 153D of the Act should necessarily reflect due application of mind and if the same is subjected to judicial scrutiny, it should stand for itself and should be self-defending. There are long line of judicial precedents which provides guidance in applying the law in this regard. 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 the above approval letter issued by the Addl. Commissioner merely says that the approval has been granted in view of the letter of the A.O. Approval granted by the superior authority in mechanical manner defeats the very purpose of obtaining approval u/s 153D. Thus Draft Assessment Orders were approved, solely relying upon the implied undertaking obtained from the Assessing Officers in the form of draft assessment orders 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 stately considered by the AO seeking approval. Thus, the sanctioning authority had in effect abdicated its statutory functions and delightfully relegated its 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 to accord approval in all assessments involved. Manifestly, the Additional CIT, without any consideration of merits in proposed additions 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 cannot be countenanced in law .Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of additions based on undisclosed income.
2. Validity of rejection of books of accounts by the Assessing Officer.
3. Legitimacy of the assessment orders passed under Section 153A.
4. Validity of approval under Section 153D of the Income Tax Act.

Summary:

Issue 1: Deletion of Additions Based on Undisclosed Income
The Revenue challenged the deletion of additions made by the Assessing Officer (AO) on account of undisclosed income for Assessment Years (AY) 2005-06 to 2009-10. The CIT(A) had deleted these additions, which were based on documents obtained from the bank and seized documents. The Tribunal upheld the CIT(A)'s decision, noting that the additions were not substantiated by incriminating material found during the search.

Issue 2: Validity of Rejection of Books of Accounts
The Revenue contended that the CIT(A) erred in holding that the AO was incorrect in rejecting the books of accounts of the assessee for AY 2005-06 and 2007-08. The Tribunal found that the AO's rejection of the books of accounts was not justified and upheld the CIT(A)'s decision to delete the additions.

Issue 3: Legitimacy of Assessment Orders under Section 153A
The assessees argued that the assessment orders passed under Section 153A were illegal, bad in law, and without jurisdiction as no incriminating material was found during the search. The Tribunal observed that the assessment orders were passed without any incriminating material and were thus invalid.

Issue 4: Validity of Approval under Section 153D
The assessees challenged the validity of the approval granted under Section 153D, arguing that it was mechanical and without application of mind. The Tribunal found that the approvals were granted in a blanket manner without any reference to specific issues for each assessment year. The approval process lacked due application of mind, making the assessment orders non-est and a nullity. The Tribunal quashed the assessment orders for all the assessment years in question.

Conclusion:
The Tribunal dismissed the Revenue's appeals and upheld the assessees' cross-objections, quashing the assessment orders due to invalid approval under Section 153D and lack of incriminating material to justify the additions. The Tribunal emphasized the need for due application of mind in granting approvals under Section 153D.