2025 (1) TMI 970 - AT - Income Tax

Assessment u/s 153A - Validity of Approval granted u/s 153D - mechanical nature of the approval process - single approval u/s 153D has been accorded for multiple AYs HELD THAT - In the first para of the approval memo the Addl. CIT referred the letter of the A.O. dated 17/12/2019 and in the second para it was stated that the on the basis of discussion held from time to time the approval u/s 153D is granted in respect of seven cases. The approval dated accorded u/s 153D is bearing the printed date of 17/12/2019 and hand written date of 18/12/2019 and the same has been signed on 18/12/2019. There is not even mentioning of any draft assessment order or the assessment records or the seized materials in the said approval letter. Such mechanical approval cannot be sustainable in law in the light of judicial dicta available. The approval memo is totally silent on the issues involved and has granted omnibus approval without any thoughtful process being discernible. A single approval u/s 153D has been accorded comprising out of seven Assessment Years. Thus the assessment order based on ritualistic approval stands vitiated and thus quashed by allowing Ground of appeal of the Assessee.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the approval granted under Section 153D of the Income Tax Act was validly executed, considering the alleged mechanical nature of the approval process.
Whether the assessment order passed under Section 153A read with Section 143(3) is valid, given the approval process under Section 153D.
Whether the principle of natural justice was violated due to the ex-parte order passed by the CIT(A) without providing the Assessee an opportunity to be heard.
Whether the assessment order is valid in the absence of incriminating material found during the search.
Whether the assessment order was passed in violation of mandatory provisions and procedures prescribed under the law, including the requirement for a Document Identification Number (DIN).

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Approval under Section 153D

Relevant Legal Framework and Precedents: Section 153D mandates that the approval for assessment orders must be granted with due application of mind, and not mechanically. Precedents such as Pr. Commissioner of Income Tax Vs. Shiv Kumar Nayyar and ACIT vs Serajuddin & Co. emphasize the necessity for independent application of mind by the approving authority.
Court's Interpretation and Reasoning: The court noted that the approval granted was mechanical, as it was a single approval for multiple assessment years without specific mention of the draft assessment orders or seized materials.
Key Evidence and Findings: The approval letter lacked any detailed examination or mention of the assessment records, indicating a lack of independent application of mind.
Application of Law to Facts: The court applied the principles from relevant precedents to determine that the approval process was flawed, rendering the assessment order invalid.
Treatment of Competing Arguments: The Assessee argued that the approval was mechanical, while the Department contended it was an internal matter not subject to tribunal interference. The court sided with the Assessee, emphasizing the need for a non-mechanical approval process.
Conclusions: The court concluded that the mechanical nature of the approval invalidated the assessment order.

Issue 2: Validity of Assessment Order under Section 153A

Relevant Legal Framework and Precedents: Section 153A requires assessments to be based on incriminating material found during a search. The absence of such material challenges the validity of the assessment.
Court's Interpretation and Reasoning: The court did not delve deeply into this issue, as the primary ground of mechanical approval under Section 153D was sufficient to quash the assessment order.
Key Evidence and Findings: Not specifically addressed due to the decision on the primary issue.
Application of Law to Facts: The court relied on the invalidity of the approval process to address the overall validity of the assessment order.
Treatment of Competing Arguments: Not specifically addressed.
Conclusions: The assessment order was quashed based on the flawed approval process, making further analysis unnecessary.

Issue 3: Violation of Natural Justice

Relevant Legal Framework and Precedents: The principle of natural justice requires that parties be given an opportunity to be heard before a decision is made.
Court's Interpretation and Reasoning: This issue was not specifically resolved, as the court focused on the approval process under Section 153D.
Key Evidence and Findings: Not specifically addressed.
Application of Law to Facts: The court did not find it necessary to address this issue due to the quashing of the assessment order on other grounds.
Treatment of Competing Arguments: Not specifically addressed.
Conclusions: The court did not provide a conclusion on this issue due to the resolution of the primary issue.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "The approval is in the nature of Performa approval; the approval granted is nothing but mechanical one and the approving authority has exercised symbolic powers vested under s. 153D of the Act."
Core Principles Established: The necessity for independent application of mind by the approving authority under Section 153D, and the invalidity of mechanical approvals.
Final Determinations on Each Issue: The assessment order was quashed due to the mechanical nature of the approval under Section 153D, rendering other issues moot.

The judgment emphasizes the importance of a thorough and thoughtful approval process under Section 153D, establishing that mechanical approvals undermine the validity of assessment orders. The court's focus on the approval process as a decisive factor highlights the judiciary's insistence on procedural compliance in tax assessments.

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