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

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) quashed the assessment, holding that the approval under Section 153D of Income Tax Act,1961 was granted mechanically without due application of mind.

Rajesh Kumar Gupta, appellant-assessee, appealed against the assessment order passed on December 13, 2019, under Section 143(3). The Assessing Officer (AO) added Rs. 1,02,00,000 as undisclosed income and Rs. 5,67,68,556 as undisclosed jewelry. The Commissioner of Income Tax(Appeals) [CIT(A)] partly allowed the appeal, leading to the present appeal.

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During the hearing, the assessee's counsel argued that the approval under Section 153D was given mechanically without reviewing the draft assessment orders. It was noted that the AO sought approval for 69 cases on December 29, 2019, and the Additional COmmissioner of Income Tax(Addl. CIT) granted approval the same day through a single order.

The counsel cited court rulings that held such approvals invalid. The departmental representative supported the lower authorities' decisions.

The two member bench comprising Vimal Kumar(Judicial Member) and Shamim Yahya (Accountant Member) reviewed the submissions and records, noting that the Additional Commissioner mechanically approved 69 cases without applying his mind. This rendered the assessment invalid, and the cited case laws supported the matter.

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The Delhi Bench of the ITAT addressed a similar issue in M/s Infolance Software Solutions Pvt. Ltd. vs. ACIT .It noted that the JCIT had granted approval for 39 cases on a single day (29.12.2017), raising concerns about the lack of due application of mind.

In Mysore Finlease Pvt. Ltd. & Ors., the Delhi ITAT held that granting approval for 40 cases on the same day suggested a mechanical process. The bench emphasized that approval under Section 153D of the Act required an independent and judicious review of assessment orders, not just a formality. It relied on the Orissa High Court ruling in ACIT vs. M/s Serajuddin & Co., where approval granted without proper examination was deemed invalid.

Read More: Superior Authority’s Mechanical Approval for Income Tax Search Defeats Purpose of S. 153D: ITAT Quashes Order

The ITAT reaffirmed that mere acknowledgment or rubber-stamping of draft assessment orders did not satisfy the legal requirement under Section 153D. The approval process had to be meaningful, ensuring proper scrutiny of assessment findings.

The Allahabad High Court, in PCIT vs. Subodh Aggarwal, ruled that approval under Section 153D must involve proper application of mind and cannot be a mere formality.

In this case, the draft assessment order was placed before the Additional CIT on December 31, 2017, who granted approval on the same day. The final assessment order was also passed that day, which was the last date for completing the search assessment. A total of 38 cases were approved on the same day.

The High Court agreed with the ITAT’s view that approving so many cases in a single day made it impossible to properly examine each one. It held that such mechanical approval invalidated the assessment orders. As no substantial question of law arose, the appeal was dismissed.

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The tribunal noted that the Delhi High Court, in PCIT vs. Anju Bansal , held that an approval under Section 153D granted without proper application of mind invalidates the entire search assessment. It found that the Additional Commissioner of Income Tax (ACIT) had approved the assessment without reviewing the records or search material, making the process flawed. The court upheld the tribunal’s decision, stating that such approval could not be validated under Section 292B of the Act.

Applying this precedent, the tribunal held that the approval in the present case was also mechanical, making the search assessment invalid. It allowed the additional grounds and quashed the assessment.

The tribunal also referred to Pr. CIT vs. Shiv Kumar Nayyar (ITA No. 285/2014), where the Delhi High Court found that approvals for multiple assessment years were granted without proper review. In the present case, the tribunal noted that 69 assessments were approved in a single day without scrutiny.

Based on these findings, the tribunal ruled that the approval under Section 153D lacked due application of mind, quashed the assessments, and allowed the appeal.

To Read the full text of the Order CLICK HERE

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