2025 (3) TMI 599 - AT - Income Tax

Legality of approval granted u/s 153D - allegation of perusing the records for each assessment year separately - HELD THAT - We find that only draft assessment orders were sent to JCIT without any assessment or search record. The approvals establishes that approving authority has granted the approvals without reasons or depicting having applied an active mind to the issue involved and the material relied by the AO but by merely mentioning Following draft assessment orders are being approved the impugned approval is granted. Now more particularly in the present set of facts where substantive additions were made in the hands of respondent and protective assessment were made in the hands of its Director respondent had the competent authority been even aware of the fact of the protective and substantive assessments being made then it was more likely to have been granted in one letter. Rather if the sequence number of letters granting approval is considered the approval was first granted in case of protective addition and then of substantive addition in case of the company . This certainly shows that unmindful of nature of material relied and nature of additions the approvals have been mechanically granted by the JCIT. What ever attempt is now being made by the department to fill in the lacuna by filing letters of then JCIT who granted the approval is dong more damage to the case of the department because when we take into consideration the letter of then JCIT with the submission we find that the said JCIT seems to be still under impression that grant of approval is mere formality and for that reasons the JCIT has stated in this letter that It is further noted that Approval letter U/s 153D is only a formal culmination of application of mind which takes place throughout the assessment period. On the contrary law as stands crystallized is that the approval letter should be speaking one and show that approval was granted by application of mind. There is inherent fallacy in the belief of JCIT as mentioned in this letter that there is no requirement in law creating any evidence for discussions before granting the approval u/s 153D. On the contrary this bench is of firm view that not only as quasi-judicial authority but even in administrative capacity if an approval is to be granted under a statute for initiating any quasi judicial proceedings then such approval should be self contained piece of evidence that due process of law was followed in grant of approval. Which certainly is not the case here. Thus approvals granted in case of both the assessee to be vitiated and deserve to be quashed - Decided in favour of assessee.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment revolve around the validity of the approval granted under Section 153D of the Income Tax Act, 1961. The issues include:

• Whether the approval under Section 153D was granted without application of mind, in a mechanical manner, and without perusing the records for each assessment year separately.
• Whether the Tribunal has the jurisdiction to admit additional grounds under Rule 11 and Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, concerning the validity of the approval under Section 153D.
• Whether the procedural compliance for granting approval under Section 153D was followed, ensuring that the approval was not merely a formality.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Approval under Section 153D

• Relevant Legal Framework and Precedents: Section 153D of the Income Tax Act requires that the Joint Commissioner must approve the assessment order before it is passed by the Assessing Officer. The approval must reflect an application of mind and not be a mere formality. Relevant precedents include judgments from the Delhi High Court in cases such as PCIT vs. Sapna Gupta and PCIT vs. Anuj Bansal, which emphasize that approval under Section 153D cannot be mechanical.
• Court's Interpretation and Reasoning: The Tribunal found that the approval was granted on the same day the draft assessment orders were sent, without a detailed examination of the records. The approval was common for multiple assessment years and did not demonstrate an independent application of mind.
• Key Evidence and Findings: The Tribunal noted that only draft assessment orders were sent to the JCIT without any supporting records. The JCIT's approval merely stated, "Following draft assessment orders are being approved," indicating a lack of detailed consideration.
• Application of Law to Facts: The Tribunal applied the legal requirement for an independent and reasoned approval under Section 153D to the facts, finding that the approval process was flawed and did not meet statutory requirements.
• Treatment of Competing Arguments: The Revenue argued that the approval was valid and that the JCIT had engaged in discussions with the Assessing Officer. However, the Tribunal found these arguments unconvincing, as the approval letter itself did not reflect such discussions or an application of mind.
• Conclusions: The Tribunal concluded that the approval under Section 153D was vitiated due to its mechanical nature and lack of independent consideration, leading to the quashing of the assessment orders.

2. Jurisdiction to Admit Additional Grounds under Rule 11 and Rule 27

• Relevant Legal Framework and Precedents: Rule 11 and Rule 27 of the Income-tax (Appellate Tribunal) Rules, 1963, allow the Tribunal to consider additional grounds not set forth in the memorandum of appeal if relevant to the appeal. Precedents include decisions from the Guwahati High Court and Delhi High Court, which support the Tribunal's wide powers to render substantive justice.
• Court's Interpretation and Reasoning: The Tribunal interpreted its powers under Section 254(1) of the Act, complemented by Rule 11, to admit additional grounds that are relevant to deciding the appeal. The Tribunal emphasized the importance of considering jurisdictional issues that go to the root of the matter.
• Key Evidence and Findings: The Tribunal noted that the facts related to the jurisdictional issue were already on record, allowing for the admission of additional grounds.
• Application of Law to Facts: The Tribunal applied its interpretative powers to admit the additional grounds concerning the validity of the approval under Section 153D, finding them crucial to the appeal's outcome.
• Treatment of Competing Arguments: The Revenue argued against admitting the additional grounds, citing procedural delays and lack of documentary evidence. However, the Tribunal prioritized substantive justice over procedural technicalities.
• Conclusions: The Tribunal admitted the additional grounds under Rule 11 and Rule 27, allowing the respondents to challenge the validity of the approval under Section 153D.

SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The exercise of powers under Section 153D cannot be done mechanically. Thus, 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 approval under Section 153D must be a reasoned decision reflecting an independent application of mind, not a mere formality. The Tribunal has the jurisdiction to admit additional grounds if they are relevant to the appeal and go to the root of the matter.
• Final Determinations on Each Issue: The Tribunal determined that the approval under Section 153D was invalid due to its mechanical nature, leading to the quashing of the assessment orders. The Tribunal also upheld its jurisdiction to admit additional grounds under Rule 11 and Rule 27.