Income Tax Act | Mechanical Approval U/S 153D Vitiates Proceedings; Bombay High Court Dismisses Revenue's Appeal

The Bombay High Court has dismissed an income tax appeal filed by the Revenue, holding that an approval granted under Section 153D of the Act, which does not reflect even minimal application of mind, is vitiated in law and renders the consequential proceedings invalid. A Division Bench of Justice M.S. Sonak and Justice Advait M. Sethna, while deciding an appeal, answered the substantial question of law against the Revenue i.e. Whether an approval granted under Section 153D of the Income Tax Act, without recording reasons, can nevertheless be treated as mechanical and invalid for lack of application of mind and upheld the order of the Income Tax Appellate Tribunal (ITAT), which had quashed the proceedings under Section 153C of the Act. In the case in hand, the appeal arose from an order of the ITAT holding that the approval granted by the Additional Commissioner of Income Tax for initiating proceedings under Section 153C was mechanical and showed no application of mind. The ITAT had consequently held that the proceedings initiated on the basis of such approval were incompetent. The Revenue challenged this finding before the High Court, contending that there was no statutory requirement under the Act for the approving authority to record reasons or satisfaction while granting approval under Section 153D. The Revenue argued that the case involved serious allegations, including a State Police raid, a special audit under Section 142(2A) of the Act, and recording of statements. It was argued that most of the additions were based on the special audit report and that the assessee had failed to offer any explanation despite multiple opportunities. On this basis, the Revenue argued that the approval could not be treated as mechanical merely because it did not contain elaborate reasoning, and that an approval order was not required to resemble a reasoned judicial order. The High Court held that although an approval under Section 153D is not required to be a detailed or reasoned order, it must nevertheless reflect at least a minimum application of mind. The Bench observed that an approval which does not disclose even prima facie consideration of the material placed before the approving authority cannot be sustained in law. The Bench further held that such a defect cannot be cured later by filing affidavits claiming that there was material on record which could have justified the approval. The Bench held that the approval suffered from non-application of mind, since a valid approval under Section 153D is a mandatory pre-requisite for initiating proceedings under Section 153C, the absence of such valid approval rendered the entire proceedings incompetent. The Court noted that this issue was no longer res integra and was squarely covered by earlier decisions, including its judgment in PCIT v. Citron Infraprojects Ltd ITA(L) No. 34357 of 2024., wherein several High Court rulings on Section 153D approvals were considered. In view of the above, the Bench dismissed the Revenue's appeal and answered the substantial question of law in favour of the assessee. Case Title: Pr. Commissioner of Income Tax-1, Thane Vs. Vrushali Sanjay Shinde Case No.: ITA(L) No. 12683 of 2024 Appearance for Appellant/Revenue: Mr. Akhileshwar Sharma Appearance for Respondent/Assessee: Ms. Vidhi Punamiya, Ms. Sankalap Mallik & Mr. Sankey S. Bora, i/b, Malik & Co. & SPCM Legal Click Here To Read/Download Order

Income Tax Act | Mechanical Approval U/S 153D Vitiates Proceedings; Bombay High Court Dismisses Revenue's Appeal

Rajnandini Dutta

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