Approval U/S 153D Income Tax Act Involves Appropriate Application Of Mind, Not Just Rubber Stamping: Delhi HC
The Delhi High Court observed that approval under Section 153D of the Income Tax Act, 1961, must involve the appropriate application of mind and cannot be treated as a mere ritualistic formality or rubber-stamping by the authority.
The Court was hearing an appeal, at the instance of the Revenue, impugning the order of the Income Tax Appellate Tribunal, whereby the assessment order has been held to be illegal for lack of appropriate approval under Section 153D of the Act.
The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav observed, “…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.”
Brief Facts-
The appeal originated from a search and seizure operation at the premises of the assessee Shiv Kumar Nayyar by the Investigation Wing. Following the search, the case was centralized, and a notice under Section 153A was issued, leading the assessee to file an Income Tax Return of ₹18.48 Lakh. However, an assessment order pegged the taxable income at ₹5.19 Cr. The assessee appealed, and the CIT(A) partially allowed the appeal, deleting some additions. The Revenue's subsequent appeal to the ITAT resulted in the search assessment being declared illegal due to flawed and mechanical approval under Section 153D.
The Court perused Section 153D of the Income Tax Act, 1961 and said that the provision evinces an uncontrived position of law that the approval under Section 153D of the Act has to be granted for “each assessment year” referred to in clause (b) of sub-section (1) of Section 153A of the Act.
The Court relied on the decision of Allahabad High Court in PCIT v. Sapna Gupta [2022 SCC OnLineAll 1294] which captures with precision the scope of the provision and more significantly, the import of the phrase- “each assessment year” used in the language of Section 153D of the Act and quoted, “For granting approval under Section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for "each assessment year" in respect of "each assessee" separately. The words 'each assessment year' used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled.”
“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.”, the Court quoted further.
The Court noted that the order failed to make any mention of the fact that the draft assessment orders were perused at all, much less perusal of the same with an independent application of mind.
The Court further noted that the concerned authority has approved 43 cases in a single day which is evident from the findings of the ITAT.
Accordingly, the Court dismissed the appeal.
Cause Title: PR Commissioner Of Income Tax-15 v. Shiv Kumar Nayyar
Appearance:
Appellant: Sr. SC Ruchir Bhatia and Jr. SC Anant Mann
Respondent: Adv. Salil Kapoor, Adv. Sumit Lalchandani, Adv. Ananya Kapoor and Adv. Vibhu Jain