2024 (7) TMI 1134 - AT - Income Tax

Erroneous approval granted u/s 153D - addition made on account of seized jewellery treating the same as unexplained investment - HELD THAT - Solemn object of entrusting the duty of Approval of assessment in search case is that the Additional CIT with his experience and maturity of understanding should at least minimally scrutinize the seized documents and any other material forming the foundation of Assessment. It is elementary that whenever any statutory obligation is cast upon any statutory authority such authority is required to discharge its obligation not mechanically not even formally but after due application of mind. Thus the 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 u/s 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. Approval granted by the superior authority in mechanical manner defeats the very purpose of obtaining approval u/s 153D of the Act. Such perfunctory approval has no legal sanctity in the eyes of the law. In the case of Serajuddin and Co 2023 (11) TMI 1254 - SC ORDER dismissed the Appeal filed by the Department of Revenue against the order 2023 (3) TMI 785 - ORISSA HIGH COURT wherein the Hon ble High Court had quashed the Assessment Order on the ground of inadequacy in procedure adopted for issuing approval u/s 153D of the Act by expressing discordant note on such mechanical exercise of responsibility placed on designated authority u/s 153D of the Act. Hence considering the above facts and circumstances we find considerable force in the plea raised by the Assessees in the Ground No. 1 of the Appeal which is against erroneous approval granted u/s 153D of the Act. In our opinion the approvals so granted under the shelter of section 153D does not pass the test of legitimacy. Thus the impugned Assessment order in consequence to such inexplicable approval lacks legitimacy. The impugned assessment in captioned appeal is non-est and a nullity and hence liable to be quashed accordingly the impugned assessment order and the order of the CIT(A) is hereby set aside by allowing Ground No. 1 of the Assessee.

Summary

Issues:
Appeal against assessment order for AY 2018-19; Validity of approval granted under section 153D; Addition of unexplained investment in jewellery under section 69A r.w.s 115BBE.

Analysis:
1. The appeal was filed against the assessment order for AY 2018-19, where the assessee declared income at Rs. 26,61,930, but the income was computed at Rs. 50,27,095 post search and seizure operation under section 132 of the Income Tax Act. The CIT(A) confirmed the addition of Rs. 15,19,998 for unexplained investment in jewellery but deleted the addition of Rs. 2,39,757 for cash seized during the search. The assessee challenged the assessment order on various grounds.
2. The main contention of the assessee was the validity of the approval granted under section 153D of the Act. The approval was granted in a generic and listless manner for 178 cases of 29 assessees, including the present case, without proper examination of facts or seized material. The approval lacked due application of mind, as per the CBDT Circular and judicial precedents, which require a thorough scrutiny of seized documents before granting approval.
3. The tribunal analyzed past judgments, including the Shreelekha Damani case, where the approval was deemed invalid due to lack of application of mind by the Additional CIT. Additionally, in the ACIT vs. Serajuddin and Co. case, the High Court quashed an assessment order due to inadequacy in the approval procedure under section 153D. The tribunal found merit in the assessee's plea against the erroneous approval and declared the assessment order as non-est and nullity, setting it aside.
4. As the assessment order was quashed based on the invalid approval, other grounds on merits became irrelevant. The tribunal allowed the assessee's appeal, setting aside the assessment order and the CIT(A)'s decision, rendering them null and void.

This detailed analysis highlights the key issues raised in the appeal, focusing on the validity of the approval granted under section 153D of the Income Tax Act, leading to the quashing of the assessment order for AY 2018-19.