2025 (2) TMI 1028 - AT - Income Tax

Validity of Approval granted u/s 153D - As argued approval was granted in a mechanical manner without the necessary application of mind - HELD THAT - In the instant case from the perusal of the approval it is seen that the approval was granted conditionally with certain directions. The approval so given has been reproduced herein above. Another aspect which needs to be considered is that the AO in the instant case is at Dehradun and the Addl. CIT who has granted approval is form Central Range Meerut thus for obtaining the approval entire records needs to be carried to Meerut from Dehradun and the Addl. CIT has to examine all the material including the assessment folders appraisal report and seized material before granting the approval which cannot be humanly possible in such a short period of time of few days. As mentioned earlier by the ld. AR that there are 35 cases in this group. It is surprising that Addl. CIT has been able to go through the assessment orders appraisal reports and other related materials for a minimum of 35 cases within such a short period of time more particularly looking to the fact that the entire records must have been shifted from Dehradun to Meerut for the perusal of the Addl. CIT. We use the word minimum of 35 cases because this group alone contains 35 cases and the Addl. CIT could avail his other files also before him. The assessment orders in the instant case is of 6 pages appraisal reports was also to be quite a few pages and the submissions of the assessee would be innumerable. We are not aware about the nature and issues involved in the other cases and other assessment years. This is physically impossible task which has been admitted to by the ld. Addl. CIT. Consequently the approval granted in this case is without application of mind. Thus approval u/s. 153D of the Act granted in the impugned appeal by the Addl. CIT is held to be invalid - Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is whether the approval granted under Section 153D of the Income Tax Act, 1961, was valid. Specifically, the question was whether the approval was granted in a mechanical manner without the necessary application of mind, thereby rendering it invalid. This issue was raised as an additional ground by the assessee, challenging the legality of the assessment order based on the alleged improper approval process.

ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

Section 153D of the Income Tax Act mandates that no order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner without prior approval from the Joint Commissioner. This approval must be specific to each assessment year and each assessee. The legal framework emphasizes that the approving authority must apply an independent mind to the material on record for each assessment year separately.

Precedents from various high courts, including the jurisdictional High Court in PCIT v. Shiv Kumar Nayyar and PCIT v. Sapna Gupta, have established that approval under Section 153D cannot be a mere formality or mechanical exercise. The courts have held that the approving authority must reflect an appropriate application of mind, ensuring that the required procedures have been followed by the Assessing Officer.

Court's Interpretation and Reasoning

The Tribunal interpreted the requirement under Section 153D as necessitating a detailed and thoughtful approval process for each assessment year and each assessee. The Tribunal noted that the approval granted in this case was done in a consolidated manner for multiple assessment years and for multiple assessees, raising doubts about the application of mind by the approving authority.

Key Evidence and Findings

The Tribunal examined the approval letter dated 24.03.2014, which granted approval for passing assessment orders for multiple assessment years (2006-07 to 2012-13) across five different assessees. The Tribunal found that the approval was granted by a single order, suggesting a mechanical approach without individualized consideration for each case.

Application of Law to Facts

The Tribunal applied the principles established in prior judicial decisions to the facts of this case. It concluded that the approval process lacked the necessary application of mind, as evidenced by the mechanical manner in which the approval was granted for multiple assessment years and assessees simultaneously. The Tribunal emphasized that such an approach violated the legislative intent of Section 153D.

Treatment of Competing Arguments

The Department argued that the approval was valid and that the Additional Commissioner had applied his mind before granting approval. However, the Tribunal found this argument unconvincing, noting the logistical improbability of thoroughly reviewing the records for numerous cases within the short time frame between the submission of draft assessment orders and the granting of approval.

Conclusions

The Tribunal concluded that the approval granted under Section 153D was invalid due to the lack of application of mind. Consequently, the assessment order based on this approval was annulled. The Tribunal did not address other grounds of appeal on merits, as the legal ground was sufficient to allow the appeal.

SIGNIFICANT HOLDINGS

The Tribunal held that the approval process under Section 153D requires a detailed and individualized consideration for each assessment year and each assessee. The approval cannot be a mere formality or mechanical exercise, as this would defeat the legislative intent of ensuring proper oversight by the approving authority.

Preserve verbatim quotes of crucial legal reasoning

"The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power."

"The salient aspect which emerges from the abovementioned decisions is that grant of 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 core principle established is that the approval under Section 153D must be granted with an independent application of mind, reflecting a thorough review of the material for each assessment year and each assessee separately. Mechanical or consolidated approvals are insufficient and invalidate the assessment orders based on such approvals.

Final determinations on each issue

The Tribunal determined that the approval granted was invalid, leading to the annulment of the assessment order. As a result, the appeal was allowed in favor of the assessee based on the legal ground of improper approval under Section 153D.