Recently in a case, the Income Tax Appellate Tribunal ( ITAT ) quashed a demand order that arose from an assessment approved under Section 153D of the Income Tax Act 1961 (ITA), The assessee/ appellant, M/s Khoday Eshwarsa and Sons (now Khoday Eshwarsa and Sons Pvt. Ltd.), challenged the legitimacy of an income tax assessment conducted under Section 153A of ITA for the assessment year 2020-21. The assessment had been initiated following a search and seizure operation under Section 132 of the tax legislature, with the assessment ultimately being approved by the Additional Commissioner of Income Tax, as per the legal requirement under Section 153D of ITA
The assessee-company contended that the approval process was rushed and lacked proper application of mind. Their legal counsel argued that the draft orders for six different assessment years, including the complex assessment for 2020-21, were sent to the Additional Commissioner on March 30, 2022. By the very next day, March 31, 2022, approval had been granted for all six years, raising questions about whether the Additional Commissioner had the time or capacity to adequately review the lengthy and complex orders. The assessment for 2020-21 alone was 62 pages long and involved intricate issues related to business income and capital gains transactions.
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The assessee argued before the ITAT that the approval granted was mechanical in nature, with no meaningful review by the Additional Commissioner, thereby rendering the entire assessment invalid. They cited various legal precedents where courts had ruled that Section 153D requires more than a superficial sign-off; it requires careful scrutiny by the approving authority. The Tribunal heard both parties, with the revenue department arguing that the Additional Commissioner had indeed applied his mind and reviewed the necessary documents before giving approval. The department insisted that there was no lapse in the process and that the approval was in accordance with legal norms.
However, after reviewing the case, the bench of Mr Waseem Ahmed and Mr Sundararajan observed significant merit in the arguments presented by the assessee. It noted that the short time frame between the submission of the draft orders and the approval suggested a lack of proper scrutiny. The Tribunal observed that the process mandated by Section 153D of ITA, which exists to ensure that assessments, especially those involving high-stake search cases, are conducted with due diligence and oversight, had not been followed appropriately. The ITAT ruled that the approval was given in a “mechanical manner,” without the necessary application of mind.
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In result,, the ITAT quashed the assessment for the year 2020-21, deeming it invalid due to the faulty approval process.
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