Income Tax Act | Mechanical 'Rubber-Stamp' Approval U/S 153D Vitiates Entire Search Assessment: Bombay High Court

A Division Bench of Justice M.S. Sonak and Justice Advait M. Sethna, while deciding a batch of over 60 Income Tax Appeals filed by the Revenue led by Pr. Commissioner of Income Tax Central 4, dismissed the appeals at the admission stage, affirming the ITAT's ruling which had set aside assessments framed against the assesses, Citron Infra projects Limited, Helios Mercantile Limited, SVP Global Textiles Limited, Shri Vallabh Pittie South West Industries, and other connected entities.

In the case in hand, the assesses including Citron Infraprojects and several connected group companies were subjected to search proceedings, following which the Assessing Officer (AO) prepared draft assessment orders under Section 153A(Assessment) and sent them to the Additional Commissioner for mandatory approval under Section 153D.

Section 153D of the Act, mandates that an Assessing Officer (AO) must obtain the prior approval of a superior authority, specifically the Joint Commissioner before passing any assessment or reassessment order in cases related to a search or requisition.

The assesses challenged these assessments before the ITAT quoting the issue whether approval under Section 153D can be considered valid when it is granted mechanically and without demonstrable application of mind and if not, whether the resulting 153A assessments automatically collapse.

The assesses argued that the 153D approvals were granted mechanically and without any application of mind, as more than 30 approvals were issued within minutes on the same day and

Also, argued that the draft orders themselves contained glaring factual errors including assessments against non-existent companies and citations of legal provisions not applicable for the relevant years which were nevertheless approved without scrutiny.

The ITAT recorded that the 'prior approval' contemplated under Section 153D of the Act was vitiated by total non-compliance of mind and held the proceedings under Section 153A were non competent and accordingly quashed.

The Revenue preferred an appeal against the order of the ITAT before the high Court.

The Revenue argued before the High Court that the only substantial question of law was whether the ITAT was justified in faulting the 153D approval on non-application of mind as the ITAT cited discrepancies only in “4–5 cases” but quashed 34 appeals of assessees and 31 appeals of Revenue.

Also, the Revenue argued that the expeditious approvals within 24 hours do not mean non-application of mind, especially when officers were interacting routinely and elaborate reasoning is not mandatory in 153D approvals.

Rejecting the Revenue's contentions, the Bench affirmed the order of ITAT and noted that proposals and approvals were granted “en masse” in a manner that reduces statutory protection to “a ritual or mockery”.

The Bench remarked that Section 153D is intended to protect both the Revenue and the taxpayer, and cannot be converted into a rubber-stamp exercise relying on the judgments in Principal Commissioner of Income-Tax Vs. Shiv Kumar Nayyar (2024) 163 taxmann.com 9(Delhi) whereby the Delhi High Court held that the grant of approval under Section 153D cannot be merely a ritualistic formality or rubber stamping by the authority rather it must reflect an appropriate application of mind.

The Bench, reiterated that the approval under Section 153D, if granted mechanically or without demonstrable application of mind, vitiates the assessment order itself.

In view of the above, the Bench dismissed the Appeals filed by the Revenue, in favour of the assesses, upholding the findings of the ITAT.

Case Title: Pr Commissioner of Income Tax Central 4 Vs. Citron Infraprojects Limited AADCC3733C

Case No: Income Tax Appeal(L) No. 34357 of 2024 and connected matters

Appearance for the Appellants/Revenue: Mr. Suresh Kumar

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