2025 (3) TMI 994 - AT - Income Tax

Validity of approval granted u/s 153D - as alleged same was done in a mechanical manner - HELD THAT - Only one approval u/s 153D was granted by letter and by marking check mark ( ) for each year the approvals are shown to have been issued for each year but as a matter of fact there is no change in the No. of letter being F.No.Addl.CIT/CR-7/2021- 22/634 under which the approval u/s 153D of the Act was issued by the competent authority. Thus there is no dispute that a composite approval was sought and granted in the case of the assessee for assessment years 2014-15 to 2020-21. Approval seems to be some sort of mechanical exercise only because in the corresponding letter from the ld. AO dated 27.09.2021 (supra) only draft orders were submitted for examination. There is no reference that appraisal report or seized documents were also forwarded. In fact it is pertinent to observe that vide letter dated 27.09.2021 (supra) the AO had made a request that online approval u/s 153D may kindly be accorded. This shows that certainly the assessment records were not forwarded what to talk of appraisal report and relevant seized documents. As no data was seized in electronic format from hard drive/CDs/pen drives/mobile data so as to necessitate making these observations by the ld. competent authority. The aforesaid observations and directions only indicate that in a perfunctory manner without application of mind post completion of assessment on the draft orders the approval has been granted. It is now settled proposition of law that the approval so granted without taking into consideration the assessment record incriminating evidences and the approval not exhibiting the reasons for granting the approval independently on the draft assessment order cannot be sustained.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment is the validity of the approval granted under Section 153D of the Income Tax Act, 1961. The Tribunal examined whether the approval was granted in a mechanical manner without proper application of mind, as argued by the appellant, and whether such approval could sustain the assessment orders passed under Section 153A read with Section 144 of the Act.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Approval under Section 153D of the Income Tax Act, 1961

Relevant legal framework and precedents: Section 153D of the Income Tax Act mandates that any assessment order under Section 153A must be approved by the designated authority. The approval should not be a mere formality but must reflect an application of mind. The Tribunal referenced decisions from the Hon'ble Delhi High Court and other jurisdictions, emphasizing that mechanical approval without considering the assessment record and incriminating evidence is unsustainable.

Court's interpretation and reasoning: The Tribunal scrutinized the approval process and found that the approval was granted on the same day the request was made, with no evidence that the appraisal report or seized documents were forwarded to the approving authority. The Tribunal noted that the approval letter used the same reference number for all assessment years, indicating a composite approval rather than individual consideration for each year.

Key evidence and findings: The Tribunal examined the letter dated 27.09.2021 from the Assessing Officer requesting approval and the subsequent approval letter. It found that the approval was granted without forwarding the necessary assessment records, appraisal reports, or seized documents, which are critical for informed decision-making.

Application of law to facts: The Tribunal applied the legal principle that approval under Section 153D must involve an independent application of mind, as established in the case of PCIT vs. Anuj Bansal and reiterated in PCIT vs. Shiv Kumar Nayyar. The Tribunal concluded that the approval process in this case was mechanical and lacked the necessary scrutiny.

Treatment of competing arguments: The appellant argued that the approval was mechanical, relying on various judicial precedents. The Revenue defended the approval, claiming it was based on relevant materials. However, the Tribunal found the appellant's arguments more convincing, given the lack of evidence that the necessary documents were considered during the approval process.

Conclusions: The Tribunal concluded that the approval under Section 153D was granted mechanically, without proper application of mind, rendering the assessment orders unsustainable.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: The Tribunal highlighted the principle 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 judgment reinforces the principle that approvals under Section 153D must involve a thorough examination of the assessment records and relevant evidence. Mechanical approvals without such examination are invalid.

Final determinations on each issue: The Tribunal allowed the appeals of the assessee, quashing the assessment orders for the relevant years due to the invalidity of the approval process under Section 153D.