2025 (1) TMI 175 - AT - Income Tax

Assessment u/s 153A - Invalid approval granted u/s 153D - as argued approval granted by the superior authority u/s 153D is non-est approval being a mechanical and a perfunctory approval and suffers from the vice of non-application of mind - HELD THAT - On a perusal of the approval addressed by the Ld. Addl. CIT to the AO, it emerges that the Ld. Addl.CIT has not uttered a word on the subject matter of additions. The approval is in the nature of Performa approval; the approval granted smacks of mechanical or perfunctory approval in a symbolic exercise of powers vested u/s 153D of the Act. Approval memo is totally silent on the issues involved and has granted omnibus approval without any thoughtful process being discernible. The Order Sheet has not docketed any interaction or directions of the Ld. Addl. CIT in the course of assessment either. There is no other material to show involvement of the superior authority in the course of assessment. In the first para of the approval memo, it is mentioned that draft assessment order has been received for approval and in the second para of the approval memo, it was stated that the draft assessment order has been approved. Nothing else is discernible. Such mechanical approval cannot be countenanced - the assessment order based on ritualistic approval stands vitiated and thus quashed. Assessee appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment primarily revolves around the following core legal questions:

Whether the approval granted under Section 153D of the Income Tax Act, 1961, was mechanical and lacked application of mind, thereby vitiating the assessment orders?
Whether the additions made under Section 153A of the Act were justified, considering the alleged non-compliance with procedural requirements?
Whether the assessment orders can be sustained in light of the alleged perfunctory approval process?

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 under Section 153A shall be passed by an Assessing Officer without the prior approval of the Joint Commissioner. Judicial precedents, such as ACIT vs Serajuddin & Co., emphasize the necessity of a thoughtful approval process.
Court's interpretation and reasoning: The court observed that the approval granted by the Additional Commissioner of Income Tax was mechanical and lacked any indication of a thoughtful process. The approval merely stated that the draft assessment order was received and approved without further commentary.
Key evidence and findings: The communication between the Assessing Officer and the Additional Commissioner lacked substantive discussion or analysis of the issues involved, indicating a perfunctory approach.
Application of law to facts: The court applied the principles established in prior judgments, concluding that the mechanical nature of the approval process under Section 153D invalidated the assessment orders.
Treatment of competing arguments: The Revenue argued that the approval implied due application of mind. However, the court found this unconvincing due to the lack of any substantive reasoning in the approval memo.
Conclusions: The court concluded that the mechanical approval process under Section 153D vitiated the assessment orders, rendering them invalid.

Issue 2: Justification of Additions under Section 153A

Relevant legal framework and precedents: Section 153A deals with assessments in cases where a search is initiated. The procedural compliance, including approval under Section 153D, is crucial for the validity of such assessments.
Court's interpretation and reasoning: The court focused on the procedural lapse in obtaining approval under Section 153D, which overshadowed the merits of the additions under Section 153A.
Key evidence and findings: The court noted the absence of a detailed approval process, which is a prerequisite for validating additions under Section 153A.
Application of law to facts: The court applied the statutory requirements and judicial precedents to determine that the procedural lapse invalidated the additions made.
Treatment of competing arguments: The assessee argued the non-application of mind in the approval process, which the court found persuasive over the Revenue's defense of the approval.
Conclusions: The court held that the additions under Section 153A were not justified due to the invalid approval process under Section 153D.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The approval granted smacks of mechanical or perfunctory approval in a symbolic exercise of powers vested under s. 153D of the Act."
Core principles established: Approval under Section 153D must demonstrate application of mind and cannot be merely a formality. A mechanical approval process invalidates the assessment order.
Final determinations on each issue: The court quashed the assessment orders due to the invalid approval process under Section 153D, allowing the appeals of the assessee.

In conclusion, the judgment underscores the importance of a substantive approval process under Section 153D of the Income Tax Act, 1961. The court's decision to quash the assessment orders highlights the necessity for procedural compliance and thoughtful application of mind by the approving authority. The judgment serves as a precedent emphasizing that mechanical or perfunctory approvals cannot sustain the validity of assessment orders. All appeals filed by the assessee were allowed based on these findings.

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