2024 (9) TMI 1666 - AT - Income Tax

Invalid approval u/s 153D - exercise of the jurisdiction by non judicial or quasi judicial authority - HELD THAT - Merely by using the words consideration or mentioning that certain mandatory compliances have been done by the AO, the approving authority cannot justify the approval order so as to show that there has been actual consideration of the assessment record and the draft assessment order. The use of words approval in the statute does not merely mean a permission or sanction, but approval order should show that the reasons for reaching a finding in draft assessment order, were examined and that material relied by the AO for concluding that income was concealed or misreported, was on the basis of incriminating material and its evidentiary value to make addition has been examined by the AO. Argument of revenue that as the approving authority is well informed of the assessment proceedings in due course of supervision, so the approvals need not be very elaborate, rather goes against the revenue, as that cannot mean that when approval is given, the same is mere formality. We are of considered view that the approval is not given for validating an act of the AO. The approval order should indicate to the assessee that there is due exercise of powers of search assessment, under correct provisions of Act and admissible material relied to make additions. In the cases before us, the use of identical languages and reasoning in regard to different set of assessee for whom approval requests were independently received and on different dates the approval was granted, manifests that there was mechanical approval, without going through the records and draft assessment orders. Thus, we find force in contention of Ld. AR that giving an approvals of an assessee whose case was all together and for which already approval stood granted on 15.11.2019 shows quite mechanical way of handling this important quasi judicial power u/s 153D - Decided in favour of assessee.

Summary

Issues Involved:

1. Validity of approval under Section 153D of the Income Tax Act, 1961.
2. Application of mind by the approving authority.
3. Mechanical approval process.
4. Consequences of invalid approval on the assessment order.

Issue-wise Detailed Analysis:

1. Validity of Approval under Section 153D:

The primary issue in the appeals was the validity of the approval granted under Section 153D of the Income Tax Act, 1961. The appellants argued that the approval process was flawed as it did not demonstrate an independent application of mind by the approving authority. The Tribunal noted that the approval was granted on the same day the draft assessment orders were submitted, raising concerns about whether the approving authority had sufficient time to examine the draft orders and the accompanying assessment records thoroughly.

2. Application of Mind by the Approving Authority:

The Tribunal emphasized that the approval under Section 153D is a quasi-judicial function requiring the approving authority to independently apply its mind to the draft assessment orders. The Tribunal observed that the approval letters merely stated that "considering the facts as submitted," approval was granted, without indicating any independent examination of the draft orders or the assessment records. The Tribunal highlighted that the use of phrases such as "considering the facts" was insufficient to demonstrate that the approving authority had actively engaged with the material before it.

3. Mechanical Approval Process:

The Tribunal found that the approval process appeared mechanical, as evidenced by the identical language and reasoning used in the approvals for different assessees and assessment years. In particular, the Tribunal noted that a common and composite approval was granted for multiple assessees involving numerous assessment years, which suggested a lack of individualized consideration. The Tribunal concluded that such a mechanical approach undermined the integrity of the approval process and failed to meet the statutory requirements of Section 153D.

4. Consequences of Invalid Approval on the Assessment Order:

Given the findings of invalid approval, the Tribunal held that the consequential assessment orders were unsustainable. The Tribunal reiterated that the approval process is not a mere formality but a critical check to ensure that the assessment is conducted under the correct provisions of the Act and based on admissible material. The Tribunal concluded that the approvals granted in the cases before it were invalid, leading to the annulment of the assessment orders. Consequently, the appeals were allowed in favor of the assessees.

Conclusion:

The Tribunal's judgment underscores the importance of a thorough and independent application of mind by the approving authority in the approval process under Section 153D. The judgment highlights that a mechanical or perfunctory approach to granting approval undermines the statutory safeguards intended to ensure fair and lawful assessments. As a result, the Tribunal set aside the assessment orders, emphasizing the necessity for a judicious and reasoned approval process.