Mechanical grant of Section 153D approval without application of mind invalidates search assessment orders

Issue

• Whether the grant of prior approval under Section 153D of the Income-tax Act, 1961 in a mechanical manner—without perusal of draft orders or serious application of mind—renders the approval invalid and vitiates the consequent assessment orders passed under Section 153A.

Facts

• Pursuant to search and seizure operations, assessment proceedings were initiated against the assessee under Section 153A.
• The Assessing Officer (AO) submitted proposals along with draft assessment orders to the Additional Commissioner seeking mandatory prior approval under Section 153D.
• All approvals granted by the Additional Commissioner were identically worded and contained no reference to the perusal or examination of the draft assessment orders.
• Approvals for multiple cases were granted en masse within less than 24 hours.
• In several instances, the draft assessment orders already mentioned the date and approval order number before the approval was actually issued by the superior authority.
• The ITAT held that the prior approvals suffered from total non-application of mind, quashed the approvals, and set aside the assessment orders.
• The High Court affirmed the Tribunal’s order, holding that Section 153D provides an inbuilt statutory protection against arbitrary exercise of power which cannot be reduced to a mechanical exercise.
• The Revenue filed a Special Leave Petition (SLP) before the Supreme Court challenging the High Court’s ruling.

Decision

• The Supreme Court held that the High Court rightly upheld the quashing of Section 153D approvals due to total non-application of mind. [Para 2]
• The Supreme Court held that no case for interference was made out with the impugned order of the High Court and accordingly dismissed the Revenue’s Special Leave Petition (SLP). [Paras 2 & 3]

Key Takeaways

• Statutory Safeguard under Section 153D: Prior approval from a superior authority is an essential, non-negotiable statutory requirement meant to prevent arbitrary or high-handed assessment orders in search cases.
• Active Application of Mind Required: Approval under Section 153D cannot be a rubber-stamp exercise or granted en masse; superior officers must actively examine and evaluate the case records and draft orders.
• Fatal Procedural Infirmity: Pre-dated approval mentions in draft orders or en masse approvals granted without perusal demonstrate non-application of mind, rendering the approvals null and void, which consequently invalidates the entire Section 153A assessment.