Analytical Overview of Section 153D of the Income Tax Act, 1961: Ensuring Integrity in Tax Assessments

Analytical Overview of Section 153D of the Income Tax Act, 1961: Ensuring Integrity in Tax Assessments

I. Introduction to Section 153D: A Legislative Safeguard

Section 153D of the Income Tax Act, 1961, establishes a critical procedural safeguard in the assessment and reassessment process under sections 153A(b) and 153B(b). This provision mandates that no order of assessment or reassessment shall be passed by an Assessing Officer (AO) below the rank of Joint Commissioner without the prior approval of the Joint Commissioner or a higher-ranking officer. This article delves into the legislative intent, implications of non-compliance, particularly in cases of perfunctory approvals, and the overarching impact on tax assessments.

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II. Legislative Intent and Accountability

The primary objective of Section 153D is to introduce a higher degree of scrutiny and approval for assessment orders following search or survey operations. This is not merely a procedural step but a substantive legal requirement, as underscored by the Central Board of Direct Taxes (CBDT) in Circular No. 3 of 2008, dated 12.3.2008. The aim is to prevent arbitrary or biased decisions by introducing a layer of accountability and oversight in the assessment process.

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III. Legal Implications of Non-Compliance

Non-compliance with the requirements of Section 153D, or granting approval without proper examination, can lead to the invalidation of assessment orders. This is because such orders would fail to adhere to the mandated legal process. The Supreme Court's affirmation of the High Court of Orissa's decision in "ACIT v. Serajuddin & Co." provides critical insights into the interpretation and implications of this section.

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IV. Case Analysis: ACIT v. Serajuddin & Co.

Supreme court has recently upheld the decision of the High Court of Orissa's decision in "ACIT v. Serajuddin & Co." providing a profound insight into the interpretation and implications of this section.

·????? Facts and Grounds of Dispute

The primary contention involved the alleged mechanical and consolidated approval of assessment orders by the Additional Commissioner for AY 2003-04 to AY 2009-10 without properly examining the draft orders or case records. The assessment orders passed in case of assessee were totally silent about Assessing Officer having written to Additional Commissioner seeking his approval or of Additional Commissioner having granted such approval.

The letter simply grants an approval. In other words, even the bare minimum requirement of the approving authority having to indicate what the thought process involved is missing in the approval order. While elaborate reasons need not be given, there has to be some indication that the approving authority has examined the draft orders and finds that it meets the requirement of the law. As explained, the mere repeating of the words of the statute, or mere 'rubber stamping' of the letter seeking sanction by using similar words like 'see' or 'approved' will not satisfy the requirement of the law.

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·????? The Decision

The Court emphasized that the approval process under Section 153D is integral to the validity of the assessment orders. It held that mere mechanical approvals, without proper examination and understanding of the draft assessment orders or case records the case, vitiate the assessment orders. This decision is also upheld by the Hon’ble Supreme Court recently.

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V. Other Judicial Precedents and Interpretation

Various High Court decisions, including PCIT Vs Anuj Bansal (Delhi) and PCIT vs. Sapna Gupta (Allahabad) have reinforced the principle that mechanical approvals vitiate the assessment orders. These rulings emphasize the need for an actual application of mind by the approving authority.

PCIT Vs Anuj Bansal [ITA 368/2023] – High Court of Delhi

It was held that the Tribunal was right that there was absence of application of mind by the ACIT in granting approval under Section 153D. It is not an exercise dealing with an immaterial matter which could be corrected by taking recourse to Section 292B of the Act.

PCIT vs. Sapna Gupta [2023] 147 taxmann.com 288 (Allahabad) - High Court of Allahabad

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Assessing Officer prepared draft assessment order on 30-12-2017 approval for which was given under section 153D on 30-12-2017 itself and final assessment order was passed on 31-12-2017 by Assessing Officer. Assessee contended that draft assessment order for which approval was granted not only included assessee's cases but 85 other cases also. Tribunal held that it was humanly impossible to go through records of 85 cases in one day to apply independent mind to appraise material before Approving Authority and therefore, concluded that it was a mechanical exercise of power which vitiated entire proceedings.

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VI. Challenges in the Approval Process

The practice of bulk approval of cases and the absence of actual movement of case records between the AO and the Joint Commissioner or Additional Commissioner are contrary to the spirit of Section 153D. These practices suggest a lack of due diligence and thorough examination, which are central to the approval process.?

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VII. Mechanical Approval: A Hollow Exercise

Mechanical approval, just for the sake of compliance, is a hollow exercise. It essentially renders the safeguard provided by Section 153D ineffective, leading to potential misuse of power by AOs and undermining the trust in the tax assessment process.

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VIII. Conclusion: Upholding the Integrity of Tax Administration

The Supreme Court's ruling in "ACIT v. Serajuddin & Co." serves as a critical reminder of the importance of adhering to both procedural and substantive requirements of Section 153D. This judgment underscores that non-compliance not only invalidates assessment orders but also compromises the integrity of the tax administration system. It highlights the necessity for a genuine application of mind in the approval process, ensuring that tax assessments are fair, transparent, and in accordance with the law. For tax professionals, this ruling is a guiding light, emphasizing the need for meticulous adherence to legal provisions to maintain the sanctity of the assessment process.

Authors :-

CA Sunil Maloo - [email protected]

CA Aayushi Shah - [email protected]