APPROVAL UNDER SECTION 153D OF INCOME TAX ACT, 1961 FOR ASSESSMENT IN CASES OF SEARCH OR REQUISITION

[Mr. M. GOVINDARAJAN]

Section 154 of the Income Tax Act, (‘Act’ for short) provides that no  order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in of section 153A (1)(b) or the assessment year referred to in clause (b) of sub-section (1) of section 153B, except with the prior approval of the Joint Commissioner.   This section shall not apply where the assessment or reassessment order, as the case may be, is required to be passed by the Assessing Officer with the prior approval of the Principal Commissioner or] Commissioner under sub-section (12) of section 144BA.

Section 153A (1)(b) provides that where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 but on or before the 31st day of March, 2021, the Assessing Officer shall assess or reassess the total income of six assessment years   immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made and of the relevant assessment year or years.

Section 153B(1)(b) provides that the Assessing Officer shall make an order of assessment or reassessment, in respect of the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A, within a period of 21 months from the end of the financial year in which the last of the authorizations for search under section 132 or for requisition under section 132A was executed.

Approval required

In THE PR. COMMISSIONER OF INCOME TAX AND ANOTHER VERSUS SAPNA GUPTA - 2022 (12) TMI 887 - ALLAHABAD HIGH COURT, the High Court held that Section 153D requires that the Assessing Officer shall obtain prior approval of the Joint Commissioner in respect of "each assessment year" referred to in Clause (b) of sub-section (1) of Section 153A which provides for assessment in case of search under Section 132. Section 153A(1)(a) requires that the assessee on a notice issued to him by the Assessing Officer would be required to furnish the return of income in respect of "each assessment year" falling within six assessment years (and for the relevant assessment year or years), referred to in Clause (b) of sub-section (1) of Section 153A. The proviso to Section 153A further provides for assessment of the total income in respect of each assessment year falling within such six assessment years (and for the relevant assessment year or years).  The High Court held that the careful and conjoint reading of Section 153A(1) and Section 153D leave no room for doubt that approval with respect to "each assessment year" is to be obtained by the Assessing Officer on the draft assessment order before passing the assessment order under Section 153A.           

Approval in a mechanical way

In MDLR HOTELS PVT. LTD, ASHUTOSH VILLAS PVT. LTD., GOBIND KUMAR GOYAL, M.M. BUILDCON PVT. LTD., SARASWATI DEVI GOYAL, NAGESHWAR REALTORS PVT., SARITA DEVI GOYAL, SHIVGORI BUILDERS PVT LTD. AND OTHER VERSUS ACIT, DCIT, NEW DELHI AND (VICE-VERSA) - 2023 (2) TMI 1145 - ITAT DELHI , it is alleged that undisclosed income to emanate from sale of land and immovable properties as such, and as is apparent from electronic data and other seized documents dedicated and focused efforts were made in this area. The Additional CIT has given approval in batches of 69, 62, 37, 54 and 24 assessment orders.  The ITAT observed that it is humanly impossible to go through the records of more than 50 cases in one day to apply independent mind to appraise the material before the Assessing Officer. Therefore, we have no hesitation to hold that the approval was mechanical.  The investment of the share applicants/subscribers have been accepted in their respective assessment orders by same AO who has sent proposal to the Additional CIT for making addition in the hands of the assessee. The ITAT held that it clearly shows that the Additional CIT did not even care to ask the officer when he has accepted the investment in the hands of the subscribers, then why he is proposing addition in the hands of the assessees. Since, as mentioned elsewhere, approval was completely devoid of any application of mind, these facts got completely ignored by the approving authority.

In ACIT, CIRCLE-1 (2) , BHUBANESWAR VERSUS M/S. SERAJUDDIN & CO. KOLKATA - 2023 (3) TMI 785 - ORISSA HIGH COURT, the High Court observed that the assessment orders are totally silent about the AO having written to the Additional CIT seeking his approval or of the Additional CIT having granted such approval. Interestingly, the assessment orders were passed on 30th December 2010 without mentioning the above fact. These two orders were therefore not in compliance with the requirement spelt out in para 9 of the Manual of Official Procedure.

The High Court found that the ITAT has correctly set out the legal position while holding that the requirement of prior approval of the superior officer before an order of assessment or reassessment is passed pursuant to a search operation is a mandatory requirement of Section 153D of the Act and that such approval is not meant to be given mechanically. The Court also concurs with the finding of the ITAT that in the present cases such approval was granted mechanically without application of mind by the Additional CIT resulting in vitiating the assessment orders themselves.

In DCIT, CENTRAL CIRCLE 8 NEW DELHI VERSUS AMOLAK SINGH BHATIA AND AMOLAK SINGH BHATIA VERSUS DCIT, CENTRAL CIRCLE 8 NEW DELHI - 2023 (5) TMI 1094 - ITAT DELHI, the ITAT observed that it is not mentioned in the approval that what is the amount of determination of income in each assessment year of each assessee. Approval was granted within 24 hours of proposal. Approval have been granted on the same day on 22.12.2017 despite the fact that A.O. was having his office at Jabalpur and JCIT was holding his Office at Bhopal in which there is a significant distance. It is not humanly possible to look into assessment records as well as draft assessment orders thereon and apply its own mind objectively by a senior designated authority involving such complex matters and grant approval as contemplated under section 153D.  It is also not mentioned as to how the draft order and assessment record, if any, have been received by JCIT, if he has gone through the assessment record or that assessment record, about the mode, through which, assessment record was transmitted by AO at Bilaspur to JCIT, Raipur and vice-versa. It is also noted that the AO had time till September 2019 for passing the assessment order, why the approvals were granted within 24 hours and order also was passed. The approval given was a conditional approval and on the basis of presumption only.

The ITAT held that the action of the JCIT granting approval in this case was a mere mechanical exercise, accepting the draft order as it is, without any independent application of mind on his part. His action of granting the approval was thus, a mere mechanical exercise accepting the draft order as it is without any independent application of mind on his part.

The ITAT cancelled the assessment orders passed under section  153A read with section 143 (3) stand cancelled.

Revision of order

In PRAKHAR DEVELOPERS PRIVATE LIMITED VERSUS PRINCIPAL COMMISSIONER OF INCOME TAX (CENTRAL) , BHOPAL - 2023 (1) TMI 1367 - ITAT INDORE, Principal Commissioner of Income Tax (‘PCIT’ for short)  is of the opinion that since the Assessing Officer  did not disallow cash payments made by the assessee, neither disallowed the exemption of agricultural income considering the fact that the assessee was engaged in Real Estate business was not involved in the agricultural activities, thus making assessment order is erroneous so far it is prejudicial to the interest of the Revenue.  The ITAT found that the order impugned passed by the PCIT whereby and whereunder the order passed by the Assessing Officer under Section 143(3) read with section 153A of the Act has been sought to be revised is not sustainable due to lack of jurisdiction in invoking Section 263 of the Act by the  PCIT for this particular reason that the order sought to be revised has already been passed by the Assistant Commissioner of Income Tax (‘AICT’ for short)  upon prior approval from the ACIT, Indore under Section 153D of the Act and therefore, the same cannot be revised without having any revised decision and/or directions of the ACIT under Section 153D of the Act.