Facts of the Case

The respondent/assessee filed a return declaring income of ₹87,20,580. The Assessing Officer (AO), while framing assessment under Sections 153A read with 143(3), made significant additions including:

  • ₹15,04,35,000 on account of cash deposits
  • ₹1,54,07,100 relating to alleged entry operator transactions

However, the AO incorrectly recorded the returned income as ₹11,00,460. Despite substantial additions, the final assessed income reflected inconsistencies and computational errors.

The assessment order was approved by the Additional Commissioner of Income Tax (ACIT) under Section 153D without noticing these discrepancies. The Income Tax Appellate Tribunal (ITAT) set aside the additions, holding that approval was granted mechanically without application of mind.

The Revenue filed an appeal before the High Court challenging the Tribunal’s order.

Issues Involved

  1. Whether approval granted under Section 153D without proper application of mind is valid in law.
  2. Whether such defect can be cured under Section 292B.
  3. Whether the Tribunal was correct in quashing the assessment order on this ground.

Petitioner’s Arguments (Revenue)

  • The Revenue challenged the ITAT’s order setting aside the additions.
  • It was contended that the assessment and approval process were valid.
  • The Revenue implied that procedural lapses, if any, should not invalidate the assessment entirely.

Respondent’s Arguments (Assessee)

  • The assessee argued that the approval under Section 153D was granted mechanically.
  • It was emphasized that the ACIT failed to examine assessment records and material.
  • The approval ignored glaring errors in income computation and additions.
  • Therefore, the entire assessment stood vitiated in law.

Court Findings / Order

The Delhi High Court upheld the Tribunal’s findings and ruled:

  • The approval under Section 153D suffered from complete non-application of mind.
  • The ACIT failed to examine:
    • Assessment records
    • Search material
    • Evident discrepancies in income figures
  • The approval was granted merely on the basis of the draft assessment order.
  • Such approval was mechanical and invalid, thereby vitiating the entire assessment.
  • The defect was not a minor procedural irregularity and could not be cured under Section 292B.

Final Order

  • No substantial question of law arose.
  • The appeal filed by the Revenue was dismissed.

Important Clarification

  • Approval under Section 153D is not a mere formality; it requires independent application of mind.
  • Mechanical approvals without examining records render the assessment invalid and unsustainable.
  • Section 292B cannot cure substantive defects arising from lack of jurisdictional compliance.

Link to download the order -  https://delhihighcourt.nic.in/app/showFileJudgment/60813072023ITA3682023_145523.pdf

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