ITAT quashes Assessment over Lack of Independent Verification in S.153D Approval [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal(ITAT) quashed the assessment against the assessee, holding that the approval granted under Section 153D of Income Tax Act,1961, was mechanical and lacked independent verification.

Mainee Steel Works Pvt. Ltd.,appellant-assessee,was engaged in renting construction scaffolding equipment and earning rental income from properties in Noida, Uttar Pradesh. A search and seizure operation was conducted on November 19, 2018, at its premises, leading to notices under Section 153A for multiple assessment years. The assessee filed returns, and assessments for unabated years 2013-14 to 2017-18 were completed under Section 143(3) read with Section 153A of the Act.

The Assessing Officer(AO) made additions under Section 68, treating certain credits as accommodation entries due to lack of sufficient explanation. Additional additions were made for commission on these entries and bogus purchases. The assessee challenged the additions before the Commissioner of Income Tax(Appeals) [CIT(A)], arguing that no incriminating material was found and that the approval under Section 153D was granted mechanically. It also contested the additions on merits, submitting supporting evidence.

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The CIT(A) rejected all contentions, upholding the legality of the additions and dismissing the objections regarding approval. The additions on merits were also sustained.

The tribunal examined the assessee’s challenge to the approval granted under Section 153D. It was argued that the Additional CIT approved the draft assessment orders mechanically without independent verification.

The assessee pointed out that the AO submitted the draft orders for multiple years on May 24, 2021, and approval was granted the next day without proper review. The approval relied entirely on the AO’s assurances rather than an independent examination.

Read More: Mechanical Approval u/s 153D: ITAT quashes Assessment for Lack of Application of Mind

Several errors in the assessment orders, such as missing statements, incorrect dates, and incomplete reproductions of replies, were highlighted. These lapses suggested that the approval was given without due diligence, making it invalid.

The assessee argued that the order sheet did not record any file movement or correspondence with the Additional CIT, indicating that the Additional CIT was unaware of the assessment proceedings.

The revenue counsel defended the approval under Section 153D, stating that statutory approval presumed compliance with legal requirements. The counsel referred to a May 18, 2021, correspondence where the AO informed the Additional CIT about a mistake in the draft order, suggesting the Additional CIT was involved.

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The assessee countered that the order sheet did not reflect such correspondence and that the draft assessment order before May 18, 2021, was not produced. This raised doubts about the Additional CIT’s actual involvement. The assessee argued that the approval was based solely on the AO’s assurances and was a mere formality. The fact that a single approval covered multiple years with complex issues further suggested a mechanical approach.

The tribunal observed that under Section 153D, the Additional CIT was required to independently review the draft assessment order. Courts had repeatedly held that approval must be more than a formality. In this case, the approval memo showed no independent examination, and the Additional CIT had effectively delegated responsibility to the Assessing Officer.

The appellate tribunal also noted that the assessment orders contained clear errors, and a single approval for multiple years without addressing specific issues confirmed a lack of due diligence. The CIT(A) had dismissed the legal objection without proper reasoning.

The two member bench comprising Vimal Kumar (Judicial Member) and Pradip Kumar Kedia(Accountant Member) based on the given findings held that the assessments were invalid due to improper approval under Section 153D. Other objections did not require separate adjudication.

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