Lack of Valid Approval under Section 153D: ITAT quashes Income Tax Assessment [Read Order]

A search and seizure operation was conducted on the Santosh/KM/VMI Group and its promoters on 27 June 2013.

The assessee, Paramasivam Mahalingam, had filed his return of income declaring ₹68.54 lakh. The Assessing Officer (AO), however, made an addition of ₹3.39 crore as unexplained cash credits under Section 68 of the Income Tax Act vide order dated 22 March 2016.

During the proceedings, the assessee challenged the validity of the assessment on the ground that the approval under Section 153D, which is mandatory for such assessments, was granted mechanically and without proper application of mind. The assessee relied on RTI replies dated 14 November 2024, where the Department admitted that the records of approval were being “traced” as they were around eight years old.

The assessee also referred to judicial precedents, including the Delhi High Court ruling in Rajsheela Growth Fund (P) Ltd. v. ITO (2020) and the ITAT Delhi decision in Emaar MGF Land Ltd. v. ACIT (2024), both of which held that approval under Section 153D must be substantive and not mechanical.

The Department, on its part, contended that the approval had indeed been granted but acknowledged that the document could not be produced at the time of hearing.

The Bench comprising Shri Pradip Kumar Kedia (Accountant Member) and Shri Vimal Kumar (Judicial Member) noted that despite specific directions issued on 10 October 2024, the Revenue failed to furnish the approval papers under Section 153D of the Income Tax Act.

Citing the legal principle that prior approval under Section 153D is a mandatory safeguard to ensure non-mechanical application of mind, the Tribunal observed that, “In spite of giving reasonable and sufficient opportunities to the Department, the AO has failed to produce any copy or other evidence of existence of the approval. That only gives rise to a presumption that there was no approval at all.”

Accordingly, the Tribunal allowed the assessee’s additional ground, holding that the assessment was concluded without a valid approval under Section 153D of the Income Tax Act.

The ITAT thus set aside the assessment and allowed the appeal in favour of the assessee. However, it clarified that if the Department is able to trace and produce valid evidence of approval in future, it may seek recall of the order for adjudication on merits.

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