Consolidated Approval Without Proper Scrutiny u/s 153D Invalidates Search Assessments: ITAT [Read Order]

Patna Bench of the Income Tax AppellateTribunal [ ITAT ] held that a consolidated and routine approval granted under Section 153D of the Income Tax Act, 1961, without proper scrutiny, vitiates the entire assessment proceedings. The Tribunal reiterated that approval under Section 153D is a mandatory statutory safeguard and not a mere procedural formality.

The dispute arises out of a search and seizure operation that was conducted on the premises connected with the assessee, Smt. Saroj Bala on the 6th of March 2019. The AO thereafter issued Section 153A assessments for various assessment years and made assessments based on the search and seizure operations conducted upon receipt of approval from the Joint Commissioner of Income Tax under Section 153D.

The approval given by JCIT was a single, consolidated sanction for multiple assessment years. In one such year, AO also assessed the agricultural income of ₹7.15 lakh as unexplained under Section 69A and taxed it under Section 115BBE. Aggrieved, the assessee assailed both the validity of Section 153D approval and the resultant additions.

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The assessee challenged the validity of the assessments by contending that the approval under Section 153D was granted in a routine and consolidated manner, without any meaningful scrutiny. Assessee referred to the record and stated that the order of the approving authority was only in the form of sanctioning and not in compliance with Section 153D, which requires the authorities to apply their minds at the time of sanctioning.

Assessee relied on the provision of Section 153D, which, according to their argument, “cannot be reduced to an empty ritual.”

The assessee argued that the approval under Section 153D was mechanical and perfunctory in nature without independent consideration of every draft assessment order. It was also argued that the above-mentioned consolidation of approval nullifies the legislative intent under Section 153D, which provides a check against arbitrary assessment in search cases.

In the matter related to agricultural income, the assessee argued that the income was well reflected in the records of land ownership as well as records showing the cultivation of the land through tenancy, and that the AO added the amount to the return without producing any evidence to the contrary.

However, the Revenue argued in defence of the assessments that there was proper approval under section 153D. It was also submitted that the AO needed to verify the bona fides of the agricultural income. The addition was also made after due consideration. The Revenue further argued that the approval accorded by the Joint Commissioner was sufficient compliance of the statutory requirement. The revenue also stated that “mere consolidation of approval does not render it invalid”.

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ITAT held that Section 153D approval is a mandatory judicial safeguard and held, “it cannot be granted in a routine and perfunctory manner.”

The two-member bench comprising Pradip Kumar Choubey[ Judicial Member] and Rajesh Kumar[Accountant Member]held in the present case that the approval was granted in the following manner in respect of multiple assessment years in one consolidated order, to lack any appreciable independent scrutiny.

Relying on various judicial pronouncements, such as PCIT vs. Smt. Shreelekha Damani and PCIT vs. Meeta Gutgutia, the Tribunal held, “absence of application of mind by the approving authority vitiates the entire assessment.”

In the case of the addition of agricultural income, the bench held that since the assessee had produced evidence of the land records along with evidence of agriculture carried out through tenants, the Assessing Officer had no justification to treat the income as unexplained based on mere suspicion.

In the case of addition under section 69A, the Bench stated that Section 69A can only be applied in situations where the source of funds is unexplained, and since there was no rebuttal evidence provided by the Revenue Authorities, the addition could not stand.

The ITAT struck down the search assessments for all the assessment years and wiped off the addition relating to agricultural income. The Tribunal held that search assessment proceedings are incomplete without procedural discipline and meaningful supervisory approval.

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