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2025 (2) TMI 703 - AT - Income TaxAssessment u/s 153A - propriety of approval u/s 153D to the respective draft assessment orders placed before him by the AO - HELD THAT - As discernible from the combined approval memo the sanctioning authority (Addl. CIT) has in fact relegated his statutory duty to the subordinate AO whose action the Addl. CIT was supposed to supervise as per the scheme of the Act. Manifestly the Addl. CIT without any consideration of factual and legal position in proposed additions and without the availability of incriminating material collected in search etc. has buckled under statutory compulsion and proceeded to grant a symbolic approval to meet the statutory requirement. This approach of the Addl. CIT has ipso facto rendered the impugned approval to be a mere ritual or an empty formality to meet the statutory requirement and is thus incapable of being sustainable in law. Assessee has also demonstrated glaring lapses in the respective assessment orders which could easily be detected on a bare reading of such orders. Impliedly the Addl. CIT has not even cared to read the assessment orders while entrusted with the task of approval of such orders. A common approval for all assessment years in complex matters of search without identifying or discussing any issue in relation to any assessment year further shows no semblance of any application of mind to any aspect of any assessment years. CIT(A) has brushed aside the legal objection summarily merely on an inept indifferent premise that the assessment order makes mention of the approval from Addl. CIT under 153D of the Act and such powers are in the nature of administrative powers and a purely internal matter. The cryptic conclusion drawn by the CIT(A) is bereft of any plausible reasons whatsoever and thus cannot be reckoned to be a judicial finding on the point. The observations so made are not tenable in law. We are unhesitatingly disposed to hold that the integrity and propriety of impugned assessments under captioned appeals based on such combined approval memo u/s 153D in question cannot be countenanced in law. Decided in favour of assessee.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment are: (a) Whether the additions made by the Assessing Officer (AO) under section 153A of the Income Tax Act, 1961, in the absence of incriminating material found during the search, are valid for assessments that were concluded and not pending at the time of the search. (b) Whether the approval granted by the Additional Commissioner of Income Tax (Addl. CIT) under section 153D of the Act was mechanical and without application of mind, thus rendering the assessment orders invalid. 2. ISSUE-WISE DETAILED ANALYSIS (a) Additions under Section 153A without Incriminating Material - Relevant Legal Framework and Precedents: The legal framework under section 153A of the Income Tax Act requires that assessments can be reopened following a search only if incriminating material is found. Precedents such as Pr. CIT v. Abhisar Buildwell (P.) Ltd. and PCIT vs. King Buildcon (P) Ltd. support the view that additions in unabated assessments must be based on incriminating material found during the search. - Court's Interpretation and Reasoning: The Tribunal found that the additions made by the AO were based on third-party statements and materials not directly linked to the search on the assessee, which is contrary to the established legal framework. The Tribunal emphasized that assessments under section 153A should be based on incriminating material found during the search. - Key Evidence and Findings: The Tribunal noted that the AO relied on statements and documents from third parties, which were not part of the search materials related to the assessee. - Application of Law to Facts: The Tribunal applied the legal principles from relevant precedents, concluding that the additions made in the absence of incriminating material found during the search were unsustainable. - Treatment of Competing Arguments: The Tribunal addressed the Revenue's arguments, which supported the AO's actions, but ultimately found them unpersuasive given the lack of incriminating material. - Conclusions: The Tribunal concluded that the additions under section 153A were invalid due to the absence of incriminating material. (b) Approval under Section 153D - Relevant Legal Framework and Precedents: Section 153D requires prior approval from a superior authority for assessments in search cases, intended to ensure due diligence and prevent arbitrary assessments. Judicial precedents emphasize the need for genuine application of mind by the approving authority. - Court's Interpretation and Reasoning: The Tribunal found that the approval granted by the Addl. CIT was mechanical, based on assurances from the AO without independent verification or application of mind. The Tribunal highlighted the lack of detailed consideration by the Addl. CIT, which undermined the integrity of the approval process. - Key Evidence and Findings: The Tribunal examined the approval memo and found it lacking in substantive evaluation, noting that the Addl. CIT relied solely on the AO's submissions without independent scrutiny. - Application of Law to Facts: The Tribunal applied the principles from judicial precedents, which require a substantive and independent review by the approving authority, to determine that the approval was invalid. - Treatment of Competing Arguments: The Tribunal considered the Revenue's defense of the approval process but found it insufficient to justify the lack of independent evaluation by the Addl. CIT. - Conclusions: The Tribunal held that the approval under section 153D was invalid due to the lack of application of mind, rendering the assessment orders unsustainable. 3. SIGNIFICANT HOLDINGS - The Tribunal established that for additions under section 153A in unabated assessments, incriminating material must be found during the search. Additions based on third-party statements or materials unrelated to the search are invalid. - The Tribunal emphasized the necessity for genuine application of mind by the approving authority under section 153D, beyond mere procedural compliance, to uphold the integrity of the approval process. - The Tribunal invalidated the assessment orders due to the mechanical and perfunctory nature of the approval granted under section 153D, highlighting the requirement for substantive review by the approving authority. - Final Determination: The Tribunal allowed the appeals of the assessee, invalidating the assessment orders for the assessment years 2014-15 to 2018-19 due to the improper application of section 153A and the flawed approval process under section 153D.
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