Search Assessments under Income Tax Unsustainable where Approval is Mechanical u/s 153D: ITAT [Read Order]

The Patna Bench of the Income Tax Appellant Tribunal ( ITAT ) has held that search assessments under Section 153A of the Income Tax Act, 1961, cannot stand the test of time in those situations where the mandatory approval under Section 153D is granted routinely.

The Tribunal quashed the assessments imposed on the assessee on the grounds that the provision under Section 153D operates as a substantive provision rather than a procedural formality.

The matter arose from a search and seizure operation conducted on 6 March 2019 at premises connected with the assessee, Smt.Saroj Bala. Consequent to the search, the AO issued notices under Section 153A for multiple assessment years and completed the assessments after obtaining approval from the Joint Commissioner of Income Tax [JCIT] under Section 153D.

The amount of remission satisfied by the JCIT was a consolidated one, of more than one assessment year. Apart from being procedurally invalid, there are further disputes arising out of the addition of ₹7.15 lacs, in which the return filed by the assessee containing agricultural income was assessed under Section 115BBE, as unexplained under Section 69A.

The assessee contended that the approval under Section 153D was obtained routinely and mechanically, without any suggestion that the assessing authority had made its own scrutiny of the draft assessment orders for each year. It was further submitted that the object of Section 153D is to hold back arbitrary assessments in search cases, and a blanket approval goes against the legislative mandate.

With regard to the addition regarding agricultural income, on this issue, the assessee argued that agricultural income has been fully disclosed and proved by the record of ownership of land and proof of cultivation by tenants. In this issue also, the Assessee added income purely on suspicion without producing any adverse material against the assessee.

The Revenue submitted that the approval under Section 153D was given in accordance with the statutory provisions and that the consolidated character of the sanction did not make it invalid. It urged that the AO could very well scrutinise the claim and the assessments made against the assessees were in accordance with the law.

The ITAT accepted the claims of the assessee and held that approval under Section 153D “cannot be granted in a mechanical or ritualistic manner”.

The Tribunal held that no reasonable consideration can be deduced from a consolidated approval for multi-year periods and that such approval does not satisfy the mandate of Section 153D. Relying upon decisions such as PCIT vs. Meeta Gutgutia and PCIT vs. Shreelekha Damani, the Tribunal decided that a defective approval invalidates the entire process of assessment.

The two-member bench comprising Pradip Kumar Choubey[ Judicial Member] and Rajesh Kumar[Accountant Member], stated that Section 69A applies in cases where there are unexplained income sources.

The assessee had produced proof to back up his income, and there was nothing to contradict it. Hence, the addition was deemed to be unsustainable.

Therefore, in this case, the ITAT struck down the searches in respect of all relevant assessment years and removed the addition of agricultural income, holding that it is essential to have supervisory approval in search assessments.

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