No Incriminating Material: ITAT Quashes Search Assessments over Mechanical 153D Approval, Deletes Additions u/s 153A [Read Order]

In a significant ruling reinforcing procedural safeguards in search assessments, the Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed the assessments framed against the assessee under Section 153A of the Income Tax Act, 1961.

The Tribunal held that in the absence of incriminating material discovered during the search, no addition could be made for concluded years, and that the Additional Commissioner’s approval under Section 153D was mechanical and invalid.

The assessee, Divjot Singh Mainee, contended that the assessments for the impugned years stood concluded under Sections 143(1) or 143(3) before the search, and therefore, any reassessment under Section 153A could only be based on material actually found during the search of the assessee’s premises.

However, the additions made by the AO were found on third-party statements and data collected during post-search inquiries, not on any material seized from the assessee. The AO made additions of ₹10.13 lakh for AY 2013–14 and ₹3.63 lakh for AY 2014–15 under Section 69A, treating certain intra-group transactions as unexplained money.

The CIT(A) upheld these additions, holding that the AO had acted within his jurisdiction. The CIT(A) also rejected the objection regarding the approval under Section 153D, observing that the approval was a procedural formality and an internal administrative matter.

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On further appeal, the Tribunal found considerable merit in the assessee’s legal and factual contentions. The Tribunal noted that no incriminating material was shown to have been discovered during the search.

The so-called evidence relied upon consisted merely of statements of third parties recorded under Section 131 and post-search inquiries, which could not substitute for incriminating material found in the search of the assessee.

Referring to the Supreme Court’s ruling in Pr. CIT v. Abhisar Buildwell (P.) Ltd. [2023] and Delhi High Court decisions in CIT v. Anand Kumar Jain (HUF) [2021] and Pr. CIT v. Vikram Dhirani (2024), the Tribunal reaffirmed that additions in unabated assessments under Section 153A are permissible only when supported by material unearthed during the search itself.

Equally decisive was the Tribunal’s finding on the mechanical approval granted under Section 153D. The approval memo extracted in the order revealed that the Additional CIT had accorded a combined and consolidated sanction for multiple years within three days of receiving the draft assessment orders.

The ITAT observed that the approving authority had merely relied on the AO’s assurances that due process had been followed and seized material verified, without conducting any independent examination.

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Such a “technical approval,” the Tribunal said, was in complete departure from the legislative intent of Section 153D, which envisages meaningful supervisory oversight by a senior officer to prevent arbitrary assessments.

Citing a series of judicial precedents, including ACIT v. Serajuddin & Co. [2023], PCIT v. Anuj Bansal [2024], and PCIT v. MDLR Hotels (P) Ltd. [2024], the Tribunal reiterated that a perfunctory or ritualistic approval under Section 153D invalidates the assessment itself. It found that the CIT(A)’s summary dismissal of this objection on the ground of internal procedure was untenable in law.

Holding that the assessments were vitiated both on jurisdictional and procedural grounds, the ITAT quashed the search assessments and deleted all additions made under Section 153A. The two-member bench comprising Pradip Kumar Kedia (Accountant Member) and Vimal Kumar (Judicial Member) concluded that “the integrity and propriety of the impugned assessments based on such combined approval under Section 153D cannot be countenanced in law.”

Accordingly, the appeals of the assessee for AYs 2013-14 and 2014-15 were allowed in full, reinforcing that search assessments cannot be sustained on conjecture, third-party material, or mechanical administrative sanction.

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