Mechanical and Composite Approval u/s 153D amounts to Non-Compliance: ITAT quashes Search Assessments u/s 153A [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal quashed search assessments under Section 153A, as there was non-compliance with the mandatory sanction requirement under Section 153D.

A search and seizure operation was conducted on the assessee Ashish Garg. Pursuant to the search, the AO issued notices under Section 153A for six assessment years. In these assessments, the AO made small additions, ₹6,00,000 as alleged unexplained loans, ₹30,000 as salary income, anD ₹1,03,561 as interest on capital.

The assessee challenged the additions and also raised a legal objection that the approval granted by the Joint Commissioner (JCIT) under Section 153D was invalid and issued mechanically.

It was found that the AO sent the draft orders for seven years, and the JCIT granted approval the next day. The JCIT issued a single, composite approval for multiple assessment years and group cases, without mentioning any examination of seized material, appraisal report, or draft assessment orders. Such same-day approval was considered humanly impossible to be made with due application of mind. The CIT(A) upheld the assessments, holding the approval valid.

The assessee submitted that whenever any statutory obligation is cast upon any authority, such authority is legally required to discharge the obligation by application of mind. He submitted that the approval of JCIT should reflect application of mind and the requirement of approval cannot be treated as mere formality and the mandate of the Act is that the approving authority has to act in a judicious manner by due application of mind in a manner of a quasi-judicial authority.

He further argued that, If the approval has been granted by the approving authority in a mechanical manner, the very purpose of obtaining approval under section 153D of the Act and the mandate of the enactment by the legislature will be defeated.

The Tribunal quoted the jurisdictional Allahabad High Court in the case of PCIT vs. Sapna Gupta 2022 has decided a similar legal issue in favour of the assessee and against the Revenue and held as under :-

“It was held therein that if an approval has been granted by the Approving Authority in a mechanical manner without application of mind then the very purpose of obtaining approval under Section 153D of the Act and mandate of the enactment by the legislature will be defeated. For granting approval under Section 153D of the Act, the Approving Authority shall have to apply independent mind to the material on record for "each assessment year" in respect of "each assessee" separately. The words 'each assessment year' used in Section 153D and 153A have been considered to hold that effective and proper meaning has to be given so that underlying legislative intent as per scheme of assessment of Section 153A to 153D is fulfilled. It was held that the "approval" as contemplated under 153D of the Act, requires the approving authority, i.e. Joint Commissioner to verify the issues raised by the Assessing Officer in the draft assessment order and apply his mind to ascertain as to whether the required procedure has been followed by the Assessing Officer or not in framing the assessment. The approval, thus, cannot be a mere formality and, in any case, cannot be a mechanical exercise of power. We further find that Hon’ble Delhi High Court in the case of PCIT vs. Shiv Kumar Nayyar in ITA No. 285/2024 (Del), dated 15.05.2024 has decided the similar legal issue in favour of the assessee and against the Revenue”.

The Tribunal also quoted Delhi High Court in the case of PCIT vs. Shiv Kumar Nayyar has decided the similar legal issue in favour of the assessee and against the Revenue. The relevant findings of the Hon’ble Delhi High Court are reproduced as under :-

“15. A similar view was taken by this Court in the case of Anuj Bansal (supra), whereby, it was reiterated that the exercise of powers under Section 153D cannot be done mechanically. Thus, the salient aspect which emerges from the abovementioned decisions is that grant of approval under Section 153D of the Act cannot be merely a ritualistic formality or rubber stamping by the authority, rather it must reflect an appropriate application of mind.”

Based on the precedents the two member bench of Anubhav Sharma (Judicial Member) S. Rifaur Rahman (Accountant Member) quashed the entire proceedings initiated under section 153A.

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