WRITTEN SUBMISSIONS-60

(Approval granted U/S 153 D is mechanical, without application of mind, and thus invalid) BEFORE

WRITTEN SUBMISSIONS

(Approval granted U/S 153 D is mechanical, without application of mind, and thus invalid)

BEFORE THE HON’BLE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI BENCH ‘B’
IN THE MATTER OF:
Shri Raghav Verma, Appellant–Assessee
v.
Assistant Commissioner of Income-tax, Central Circle-12, Mumbai, Respondent–Revenue

Subject

Written Submissions on behalf of the Appellant–Assessee: Challenging the legality of assessment orders passed under Section 153A r.w.s. 143(3) of the Income-tax Act, 1961, for Assessment Years 2012-13 to 2017-18, on the ground that the approval purportedly granted by the Additional Commissioner of Income-tax under Section 153D is mechanical, without application of mind, and thus invalid, rendering the assessments void-ab-initio.

i Name of the assesses ------------ and address---------------.

ii PAN----------------.

iii Ayr-----------------.

iv DIN of the order appealed------------------.

v Appeal No. --------------.

Reference

Show Cause notice dated ………. DIN--------------------.

These written submissions are filed pursuant to the appeals instituted by the Appellant against the consolidated orders of the Commissioner of Income-tax (Appeals)-23, Mumbai, dated 30 June 2021, arising out of the assessment orders passed by the Assistant Commissioner of Income-tax, Central Circle-12, Mumbai, dated 28 December 2018, for Assessment Years 2012-13 to 2017-18.

1. Issue Raised in this Appeal:

Whether the assessments framed under Section 153A r.w.s. 143(3) are liable to be quashed in law and on facts, as the “prior approval” under Section 153D was granted by the Additional Commissioner mechanically, without examination of the assessment records, seized material, or the draft assessment orders, and without recording any reasoning, thereby violating the mandatory statutory safeguard envisaged under Section 153D.

2. Facts of the Case:

1. A search and seizure operation under Section 132 was conducted on 15 September 2017 on the premises of the Verma Group of Companies, engaged in real-estate and construction business. During the course of search, certain loose papers and digital data allegedly belonging to the present Appellant, Shri Raghav Verma (an individual deriving income from consultancy and investments), were claimed to have been found and seized.

2. Consequent to such search, the case of the Appellant was centralized with the office of the Assistant Commissioner of Income-tax, Central Circle-12, Mumbai, vide order under Section 127 dated 18 January 2018 passed by the Principal CIT(Central)-3, Mumbai.

3. In pursuance of Section 153A, notices dated 25 February 2018 were issued requiring the Appellant to furnish returns for six assessment years, viz., AYs 2012-13 to 2017-18. The Appellant filed a letter stating that the returns earlier filed under Section 139(1) be treated as returns in compliance.

4. The Assessing Officer (“AO”) proceeded to complete assessments under Section 153A r.w.s. 143(3), making various additions aggregating to ₹ 4.86 crore, largely on estimated basis, purportedly relying upon seized material of the main group.

5. Prior to passing these assessments, the AO, being below the rank of Joint/Additional Commissioner, was required under Section 153D to obtain “previous approval” from the Additional Commissioner of Income-tax (“Addl. CIT”), Central Range-6, Mumbai.

6. The AO forwarded draft assessment orders for all six years together under a common covering letter dated 27 December 2018, to the Addl. CIT, Central Range-6, Mumbai, seeking approval under Section 153D.

7. On the same date, 27 December 2018, the Addl. CIT granted approval by endorsing a brief note stating: “Approval u/s 153D is hereby accorded in the cases of Shri Raghav Verma for AYs 2012-13 to 2017-18.” No reasons, analysis, or perusal remarks were recorded.

8. The AO thereupon passed assessment orders dated 28 December 2018 for all six years on identical pattern.

9. The Appellant preferred appeals before the CIT(A), challenging both merits and validity. The CIT(A), by consolidated orders dated 30 June 2021, dismissed the appeals and upheld the assessments. Hence, the present appeals before this Hon’ble Tribunal.

3. Reasons of Decision by the Assessing Officer: The AO, in the impugned orders, justified additions primarily on three counts:

1. Alleged unexplained investments in property aggregating ₹ 2.10 crore, said to be reflected in seized documents from the Verma Group head office;

2. Unexplained cash receipts from alleged on-money transactions of ₹ 1.75 crore, inferred from loose sheets but not correlated with any document seized from the Appellant’s premises; and

3. Disallowance of expenses of ₹ 1.01 crore on the ground that the Appellant failed to substantiate professional consultancy expenses.

The AO mechanically stated that “prior approval of the Addl. CIT has been obtained u/s 153D” without enclosing or referring to any such approval in the assessment records.

4. Reasons of Decision by the CIT(A): The CIT(A) upheld the assessments with the following reasoning:

1. The requirement of prior approval under Section 153D, according to the CIT(A), is “administrative and directory”, not a matter affecting the jurisdiction of the AO.

2. The CIT(A) held that since the AO had in fact written to the Addl. CIT and received approval, “no illegality can be inferred” even if reasons were not recorded.

3. The CIT(A) further observed that “it cannot be presumed that the Addl. CIT did not apply his mind merely because the approval letter is brief.”

4. Consequently, the appellate authority dismissed the legal ground and sustained the additions on merits.

The CIT(A)’s view is, with respect, contrary to settled law laid down by multiple High Courts and the Supreme Court.

5. Grounds of Appeal (Consolidated):

1. That the learned CIT(A) erred in upholding the validity of assessments under Section 153A r.w.s. 143(3) despite the approval under Section 153D being mechanical, perfunctory, and without application of mind, thereby rendering the assessments void ab initio.

2. That the Addl. CIT erred in granting a single consolidated approval for six different assessment years on the same day without perusal of draft orders, seized material, or appraisal reports, violating the express legislative mandate of Section 153D.

3. That the Assessing Officer erred in completing assessments without having valid jurisdiction in absence of a lawful approval.

4. That the orders passed are liable to be quashed as being vitiated by procedural illegality and violation of natural justice.

5. Without prejudice, the additions made are arbitrary, devoid of evidence, and contrary to the settled principles of law.

6. Submissions on Facts:

1. Absence of contemporaneous scrutiny by approving authority: The record reveals that the AO’s proposal and the Addl. CIT’s approval are both dated 27 December 2018, showing that the approval was accorded within a few hours of receipt. It is humanly impossible to examine six draft orders, spanning over 700 pages along with annexures and seized materials, within the same day.

2. Single approval for six years: Section 153D mandates that “no order of assessment or reassessment shall be passed … except with the prior approval of the Joint Commissioner”. The phrase “each assessment year” used in Section 153A implies that approval must be distinct for each year. The Addl. CIT’s single omnibus approval offends the statutory requirement.

3. No record of perusal or file movement: Neither the order sheet nor any internal noting reflects that the Addl. CIT examined the assessment folders, search appraisal report, or replies of the assessee. The approval letter is cryptic and bereft of reasons.

4. Violation of CBDT Manual of Office Procedure (February 2003, Vol. II – Technical, Ch. 3 Para 9): The Manual, issued under Section 119, stipulates that (a) draft orders must be sent well in time; (b) due opportunity of being heard may be given by the supervisory officer; and (c) approval must be in writing with noting in the order-sheet. None of these procedural requirements were followed.

5. Approval granted in undue haste before limitation: The assessments were getting time-barred on 31 December 2018. The AO hurriedly sent the draft on 27 December, and approval was given the same day, indicating that the process was reduced to a ritual.

6. No evidence of independent application of mind: There is no reference to any issue-wise examination, nor to satisfaction about legal sustainability of proposed additions. The approval is thus non-speaking and mechanical.

These facts cumulatively demonstrate that the approval under Section 153D is illusory and without mind application, rendering the assessments invalid.

7. Submissions on Law:

a. Legislative Intent and Nature of Section 153D: Section 153D, inserted by the Finance Act 2007 w.e.f. 1 June 2007, was designed as a statutory safeguard against arbitrary assessments in search cases. The “previous approval” of a superior officer act as a check and balance, ensuring fairness and uniformity.

Judicial pronouncements have consistently held that such approval cannot be a mere formality. The approving authority must:

1. Peruse the draft orders and records;

2. Apply independent judgment; and

3. Record brief reasons signifying satisfaction.

Failure to do so vitiates the entire assessment because the AO lacks jurisdiction to pass orders without valid approval.

b. Approval Must Be Prior, Written, and Reasoned: The term “previous approval” connotes a conscious and informed decision before the act of assessment. The Addl. CIT’s approval must precede the passing of the order and must show that relevant materials were considered.

A mere endorsement such as “approved” or “seen” is insufficient. The Hon’ble Delhi High Court in Pr. CIT v. Anuj Bansal [2024] 165 taxmann.com 2 (Delhi) held that an approval granted mechanically, without noting glaring errors in figures, shows total lack of application of mind and is therefore invalid.

c. Mandatory Nature of Section 153D: The requirement of approval is not procedural but substantive and mandatory. It goes to the root of jurisdiction. This has been affirmed in:

1. ACIT v. Serajuddin & Co. [2023] 150 taxmann.com 146 (Orissa), upheld by SC [2024] 163 taxmann.com 118:

2. Pr. CIT v. Sapna Gupta [2023] 147 taxmann.com 288 (Allahabad):

3. Pr. CIT (Central) v. Anuj Bansal (supra):

4. Rajesh Kumar v. Dy. CIT (2007) 2 SCC 181 (SC); and

5. Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC):

These authorities collectively hold that the approving authority’s failure to apply mind vitiates the assessment as it defeats the legislative intent of safeguarding taxpayers against arbitrary exercise of power.

d. Presumption under Section 114(e) of Evidence Act Does Not Rescue Revenue

The Department often relies on Section 114(e) of the Evidence Act (presumption that official acts are regularly performed). However, this presumption is rebuttable. Where contemporaneous records show non-application of mind, the presumption stands displaced. Courts have refused to sustain perfunctory approvals merely on presumption—see Serajuddin & Co. (supra).

e. Binding Nature of CBDT Instructions

The CBDT Manual of Office Procedure, issued under Section 119, is binding on departmental officers. Non-compliance constitutes procedural illegality. The Hon’ble SC in Commissioner of Customs v. Indian Oil Corporation Ltd. (2004 165 ELT 257) held that executive instructions under statutory authority are binding on the department. Hence, failure to adhere to Para 9 of the Manual vitiates the process.

f. Approval Cannot Be Delegated or Rubber-Stamped

The Addl. CIT must exercise independent quasi-judicial discretion; he cannot simply endorse the AO’s proposal. A “rubber-stamped” approval nullifies the purpose of Section 153D.

g. Jurisdictional Consequence

Since approval is a condition precedent, the absence of valid approval renders the AO’s orders without jurisdiction. An order passed without jurisdiction is a nullity and cannot be cured under Section 292B or 292BB.

h. Distinction from Administrative Sanction

Revenue’s contention that Section 153D approval is administrative has been rejected repeatedly. Proceedings before the AO are judicial in nature under Section 136. Consequently, approval that determines the legality of those proceedings partakes quasi-judicial character, attracting principles of natural justice and reasoned decision-making.

8. Case Laws in Support:

1. ACIT v. Serajuddin & Co. [2023] 150 taxmann.com 146 (Orissa) — approved by SC [2024] 163 taxmann.com 118: Held: Approval under 153D must be reasoned; mechanical approval invalidates assessment.

The Court held that prior approval under section 153D is a mandatory, substantive safeguard, not a ritual. Approval must reflect application of mind to the draft assessment—while elaborate reasons aren’t required, there must be some indication that the approving authority examined the draft orders and satisfied itself on legality. Relying on CBDT Circular No. 3/2008 and the CBDT Manual (para 9, Ch. 3, Vol. II)—which are binding on the Department—the Court emphasized timely submission of drafts, written approval, and recording the fact of approval in the assessment order. In Serajuddin’s case, the Additional CIT’s letter merely “approved” the drafts without noting any consideration, and the assessment orders did not even mention the approval. Such mechanical approval vitiates the assessment itself. Accordingly, the Tribunal was right in annulling the assessments; the High Court answered the question in favour of the assessee, confirming that unreasoned 153D approvals invalidate the resultant assessments.

2. Pr. CIT (Central) v. Anuj Bansal [2024] 165 taxmann.com 2 (Delhi): Held: Failure of Addl. CIT to notice glaring factual errors in draft order shows total non-application of mind; assessment quashed.

The Delhi High Court upheld the ITAT’s quashing of a 153A assessment because the Additional CIT’s approval under section 153D was mechanical and showed total non-application of mind. The AO’s draft wrongly recorded the returned income (₹11,00,460 instead of ₹87,20,580) and, despite two large additions (₹15.04 crore cash deposits and ₹1.54 crore entry cash), the final assessed income was misstated at only ₹1.65 crore—omitting the ₹15.04 crore addition altogether. The ACIT granted 153D approval without examining assessment records/search material, relying only on the draft order and missing these glaring errors. The Court held these are findings of fact, raise no substantial question of law, and such defects cannot be cured via section 292B. Result: approval invalid ⇒ assessment vitiated and quashed. The appeal was closed, affirming that reasoned, mindful 153D approval is mandatory.

3. Pr. CIT v. Sapna Gupta [2023] 147 taxmann.com 288 (Allahabad): Held: Mechanical approval defeats statutory safeguard; assessments invalid.

In this case the Allahabad High Court upheld the ITAT’s view that mechanical approval under section 153D vitiates the entire assessment proceedings. The Additional CIT had granted approval to 85 draft assessment orders in one day, including that of the assessee, without reviewing the records or applying an independent mind. The Court held that such approval, meant to be a statutory safeguard against arbitrary assessment, cannot be a mere formality or administrative ritual. It must involve due appraisal of search materials, seized documents, and AO’s reasoning for each assessment year separately. Relying on Sahara India (Firm) v. CIT (SC), the Court observed that approval under section 153D carries a quasi-judicial duty requiring mindful application of mind. Hence, mechanical, bulk approvals defeat legislative intent and render the resultant assessments invalid. The Revenue’s appeal was dismissed, affirming the Tribunal’s decision.

4. Rajesh Kumar v. Dy. CIT (2007) 287 ITR 91 (SC): Held: Approval must be informed and reasoned; mechanical approval violates natural justice.

This case holds that when statutory actions carry civil consequences, natural justice applies even absent an explicit mandate. A direction for special audit under section 142(2A) requires the AO to form an objective opinion considering all three conjunctive factors: nature and complexity of accounts and interest of revenue. Because such a direction burdens the assessee (costs, intrusion, extended process), the assessee must get a prior, though limited, opportunity to respond; reasons, even brief, must exist on record. Crucially, the Court states that an approval by the superior authority cannot be mechanical: the approving officer must apply an independent mind, examine materials and the assessee’s explanation, and may even correct the AO’s approach. Mere rubber-stamp approval violates natural justice and vitiates the action. Thus, approvals must be informed and reasoned, not perfunctory; otherwise the resulting proceedings are liable to be struck down.

5. Sahara India (Firm) v. CIT (2008) 300 ITR 403 (SC): Held: Prior approval under analogous Section 142(2A) not a ritual; non-application of mind vitiates order.

The Supreme Court reaffirmed that the power under Section 142(2A) to direct a special audit carries serious civil consequences, such as investigative intrusion, extended limitation, and reputational stigma. Therefore, even if the statute lacked an explicit hearing clause (prior to the 2007 proviso), principles of natural justice must be read into the provision. The Assessing Officer must form an objective opinion on two conjunctive conditions — the nature and complexity of accounts and the interest of revenue. The Court emphasized that prior approval of the Commissioner/Chief Commissioner is not a mere ritual; it is a substantive safeguard against arbitrary exercise of power. The approving authority must apply independent judgment, ensuring the AO’s opinion is based on material evidence. Mechanical or mindless approval without examining records vitiates the order, as natural justice cannot be reduced to an empty formality.

6. Yum! Restaurants Asia Pte Ltd. v. DDIT [2018] 397 ITR 665 (Delhi): Held: Supervisory approval under Section 151 must show application of mind; rubber-stamp invalid.

In this case the Court quashed a Section 148 notice because the mandatory Section 151 supervisory approvals were rubber-stamped without real scrutiny. The AO wrongly marked that the earlier return had been assessed under Section 143(3) (it was only processed under 143(1)). This error should have been caught by the Additional DIT/Joint Commissioner (whose sanction is required under Section 151(2) when only 143(1) processing exists) and certainly not escalated to the DIT under 151(1). Both superior officers merely concurred with the AO’s reasons without noticing the basic factual premise was wrong, revealing non-application of mind. The Court emphasized Section 151’s purpose: a real supervisory check over reopening, not a perfunctory ritual. Where approval notes do not reflect that the authority verified the foundational facts and the correct statutory route, the sanction is invalid, and the resultant reassessment notice must be set aside.

7. Kelvinator of India Ltd. v. CIT [2002] 256 ITR 1 (Delhi FB): Held: Presumption under Evidence Act s.114(e) rebuttable; mechanical acts not presumed valid.

In this case the Delhi High Court (Full Bench) held that the statutory presumption under Section 114(e) of the Indian Evidence Act—that official and judicial acts are regularly performed—is rebuttable and cannot be applied mechanically to validate quasi-judicial actions of the Assessing Officer. When a regular assessment is completed under Section 143(3), it is presumed to have been made after due application of mind; however, such presumption does not authorize reopening merely because the assessment order is silent on certain issues. To hold otherwise would permit the Assessing Officer to benefit from his own lack of diligence. The Court emphasized that jurisdiction to reopen under Section 147 must be founded on “reason to believe,” not on a mere change of opinion or mechanical inference of error. Administrative convenience cannot override statutory and evidentiary safeguards against arbitrary reassessment.

8. DGIT (Inv.) v. Spacewood Furnishers (P.) Ltd. [2015] 374 ITR 595 (SC): Held: Supervisory approval is a condition precedent; absence thereof invalidates proceedings.

In this case the Supreme Court held that prior administrative approval by a competent supervisory authority under Section 132 is an essential safeguard ensuring accountability in search authorization. The satisfaction to issue a warrant must be of the competent authority itself, founded upon credible information and recorded reasons. Mechanical or delegated approval without independent satisfaction renders the authorization invalid. The Court clarified that while reasons need not be disclosed to the assessee at the authorization stage, they must exist contemporaneously to justify the belief. The Director General’s approval, in this case, was viewed as confirmatory, ensuring oversight rather than substituting the Director (Investigation)’s satisfaction. The Court emphasized that absence or perfunctory exercise of such supervisory approval would vitiate the proceedings, as this requirement is a substantive, not procedural, safeguard ensuring legality and bona fides of search actions

These authorities collectively establish that approval under 153D must be specific, reasoned, and prior, failing which assessments are void.

9. Prayer: In view of the foregoing facts and legal submissions, it is most respectfully prayed that this Hon’ble Tribunal may be pleased to—

1. Hold and declare that the purported approval granted by the Addl. CIT, Central Range-6, Mumbai, under Section 153D in the case of the Appellant for AYs 2012-13 to 2017-18, being mechanical and without application of mind, is invalid and void;

2. Quash and set aside the assessments made under Section 153A r.w.s. 143(3) for all six years as being void-ab-initio for want of valid jurisdictional approval;

3. Consequently, annul the additions made in the said assessment orders; and

4. Pass such further or other orders as this Hon’ble Tribunal may deem fit in the interests of justice.

Place: [City]

Date: [•]

For the Appellant-Assessee

[Name], Advocate

Enrolment No.: [•]

Chambers: [Address]

Email: [•] | Phone: [•]

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