Facts of the Case

A search under Section 132 was conducted in a group of connected assessees, including the present assessees. Pursuant to the search, assessments were framed under Section 143(3) read with Section 153A.

Additions were made by the Assessing Officer (AO), including valuation-based additions relating to allotment of shares. The AO also invoked provisions of Section 56(2)(vii)(c) treating differential value of shares as income from other sources.

Before finalizing the assessment, approval under Section 153D was obtained from the Additional Commissioner of Income Tax (Addl. CIT). The assessee challenged the validity of such approval, alleging it to be mechanical and without application of mind.

Issues Involved

  1. Whether approval granted under Section 153D was valid in law.
  2. Whether mechanical or perfunctory approval vitiates the assessment order.
  3. Whether additions made under Section 56(2)(vii)(c) were sustainable

Petitioner’s Arguments (Assessee)

  • The approval granted under Section 153D was mechanical, stereotyped, and without application of mind.
  • Identical approval was granted across multiple cases and assessment years without examining individual facts.
  • The approval note merely stated that the draft order was approved, without any reasoning or discussion.
  • The assessment records and order sheet did not reflect any meaningful interaction or consideration by the Addl. CIT.
  • Such approval defeats the very purpose of Section 153D, which acts as a safeguard against arbitrary assessments.
  • Reliance was placed on several judicial precedents, including:
    • ACIT vs Serajuddin & Co.
    • PCIT vs Anuj Bansal
    • PCIT vs Shiv Kumar Nayyar
    • PCIT vs Subhash Dabas

Respondent’s Arguments (Revenue)

  • The approval granted under Section 153D implies due application of mind.
  • The approving authority is not required to give elaborate reasons while granting approval.
  • Once approval is granted, it validates the assessment proceedings.

Court Order / Findings

  • The ITAT observed that the approval granted by the Addl. CIT was purely mechanical and perfunctory.
  • The approval note did not contain any discussion, reasoning, or indication of examination of the draft assessment order.
  • The Tribunal held that mere rubber-stamping or ritualistic approval does not satisfy the requirement of Section 153D.
  • Relying on judicial precedents, especially ACIT vs Serajuddin & Co., the Tribunal held that:
    • Approval must reflect application of mind.
    • Mechanical approval vitiates the assessment order.
  • Since the approval was invalid, the entire assessment order was held to be unsustainable in law and quashed.
  • The appeals of all assessees were allowed on this preliminary legal ground.

Important Clarification

  • Approval under Section 153D is not a mere procedural formality.
  • It is a substantive safeguard requiring active application of mind.
  • Even brief approval is acceptable, but it must indicate conscious consideration of the draft assessment.
  • Mechanical approval renders the assessment void ab initio.

 Link to download the order -  https://itat.gov.in/public/files/upload/1735625001-ktBWxu-1-TO.pdf

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