2024 (5) TMI 1502 - HC - Income Tax

Invalid approval granted u/s 153D - whether the competent authority has granted approval u/s 153D of the Act in an inappropriate manner, dehors the settled position of law? - HELD THAT - Approval u/s 153D cannot be accorded in a casual or mechanical manner. Rather, the said exercise involves due application of mind which must be reflected in the order of approval passed by the concerned statutory authority. Approval u/s 153D of the Act has been granted without due application of mind in the present case. Admittedly, the ITAT notes that the ACIT has approved the draft assessment order without verifying the record which was made available before the said authority. It is further seen that the approval in the present case was accorded on the same day when it was sent to the concerned authority. It is also noteworthy that 35 draft assessment orders were approved by the Additional CIT in one go on the said day.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment are:

Whether the Income Tax Appellate Tribunal (ITAT) erred in holding that the approval under Section 153D of the Income Tax Act was mechanical and invalid, without considering the merits of the additions made by the Assessing Officer (AO).
Whether the ITAT erred in dismissing the Revenue's appeal on a technical ground without deciding on the merits.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Approval under Section 153D

Relevant Legal Framework and Precedents: Section 153D of the Income Tax Act mandates that no assessment order shall be passed by an AO below the rank of Joint Commissioner without prior approval. The provision is intended to ensure that the approval process is not a mere formality but involves a genuine application of mind.
Court's Interpretation and Reasoning: The court emphasized that approval under Section 153D should not be accorded mechanically. It must reflect an independent application of mind by the approving authority. The court referred to previous cases, including Pr. Commissioner of Income Tax -15 v. Shiv Kumar Nayyar and PCIT v. Sapna Gupta, which highlighted the necessity of a thorough review by the approving authority.
Key Evidence and Findings: The ITAT found that the Additional CIT granted approval without verifying the records and did so on the same day the draft assessment orders were submitted. This indicated a lack of due application of mind.
Application of Law to Facts: The court applied the principles from previous judgments to conclude that the approval process in this case was flawed. The rapid approval of multiple cases in a single day further underscored the mechanical nature of the process.
Treatment of Competing Arguments: The Revenue argued that the ITAT erred by not addressing the merits of the case. However, the court found that the procedural lapse in the approval process was significant enough to vitiate the assessment orders.
Conclusions: The court concluded that the ITAT correctly identified the lack of proper approval under Section 153D, rendering the assessment orders invalid.

Issue 2: Dismissal on Technical Grounds

Relevant Legal Framework and Precedents: The court reiterated the importance of adherence to procedural requirements in tax assessments, as established in prior rulings.
Court's Interpretation and Reasoning: The court supported the ITAT's decision to dismiss the Revenue's appeal based on procedural lapses, emphasizing that such lapses cannot be overlooked.
Key Evidence and Findings: The ITAT's finding of a mechanical approval process was deemed sufficient to dismiss the appeal without delving into the substantive merits of the case.
Application of Law to Facts: The court applied the established legal principle that procedural compliance is crucial and cannot be bypassed.
Treatment of Competing Arguments: While the Revenue sought a merits-based review, the court maintained that procedural integrity must be upheld first.
Conclusions: The court upheld the ITAT's decision, affirming that the procedural defect justified the dismissal of the Revenue's appeal.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The approval under Section 153D of the Act cannot be merely a ritualistic formality or rubber stamping by the authority, rather it must reflect an appropriate application of mind."
Core Principles Established: The judgment reinforced the principle that statutory approvals must involve genuine application of mind and cannot be mechanical. The procedural requirements are integral to the validity of assessment orders.
Final Determinations on Each Issue: The court determined that the ITAT was correct in its finding that the approval under Section 153D was invalid due to the lack of application of mind. Consequently, the dismissal of the Revenue's appeal was justified.

In conclusion, the judgment emphasizes the necessity for procedural rigor in tax assessments, particularly regarding the approval process under Section 153D, and upholds the ITAT's decision to dismiss the Revenue's appeal due to procedural deficiencies.

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