The Income Tax Appellate Tribunal (ITAT), Delhi Bench recently delivered an important decision that highlights the importance of mandatory statutory approvals in assessment proceedings. The case involved assessee Paramasivam Mahalingam for Assessment Year (AY) 2014–15, where the Tribunal quashed an income tax assessment due to the absence of valid approval under Section 153D of the Income Tax Act, 1961.

This ruling reinforces the principle that approvals under Section 153D are not mere formalities but critical safeguards designed to prevent arbitrary or mechanical assessments in cases arising from search and seizure operations.

Background of the Case

A search and seizure operation was conducted on the Santosh/KM/VMI Group and its promoters on 27 June 2013. The assessee, Paramasivam Mahalingam, came within the ambit of these proceedings.

  • The assessee filed his return declaring ₹68.54 lakh as total income.

  • However, on 22 March 2016, the Assessing Officer (AO) framed the assessment under Section 153A read with Section 143(3), making additions of ₹3.39 crore as unexplained cash credits under Section 68.

  • The assessee challenged the additions before the Commissioner of Income Tax (Appeals), who upheld the AO’s order. Dissatisfied, the assessee moved the ITAT.

Assessee’s Arguments

The assessee questioned the validity of the assessment itself, independent of the merits of the additions. His primary argument was that the mandatory approval under Section 153D had not been validly granted.

  1. Mechanical Approval Allegation

    • Section 153D requires prior approval from the Joint Commissioner of Income Tax before passing assessments in search-related cases.

    • The assessee argued that the approval in his case was mechanical and without proper application of mind.

  2. RTI Revelations

    • In response to RTI applications filed by the assessee, the Department admitted on 14 November 2024 that records relating to approval were “being traced” as the matter was over eight years old.

    • This, according to the assessee, indicated that either the approval did not exist or was not granted in the prescribed manner.

  3. Judicial Precedents

    • The assessee relied on earlier rulings, including:

      • Rajsheela Growth Fund (P) Ltd. v. ITO (Delhi High Court, 2020) – where the Court held that approval under Section 153D must be substantive and not mechanical.

      • Emaar MGF Land Ltd. v. ACIT (ITAT Delhi, 2024) – reiterating that valid application of mind by the approving authority is essential.

The assessee maintained that in the absence of valid approval, the assessment order itself stood vitiated.

Department’s Response

The Revenue contended that approval had indeed been granted. However:

  • The actual approval document was not produced before the Tribunal, despite repeated opportunities.

  • The Department argued that the lapse was due to the records being old, and insisted that the assessment order should not be invalidated merely because the physical copy of approval could not be traced at that moment.

Tribunal’s Observations

The ITAT bench, comprising Shri Pradip Kumar Kedia (Accountant Member) and Shri Vimal Kumar (Judicial Member), carefully reviewed the matter.

  1. Failure to Produce Approval

    • On 10 October 2024, the Tribunal had specifically directed the Department to furnish the approval under Section 153D.

    • Despite several opportunities, the Revenue failed to produce the approval document.

  2. Mandatory Nature of Section 153D

    • The Tribunal emphasized that Section 153D is a mandatory safeguard to ensure assessments are not passed mechanically.

    • It provides a supervisory check by requiring higher authority approval before finalization.

  3. Presumption Against the Revenue

    • The Tribunal noted that since no approval document was produced despite sufficient opportunities, the only logical presumption was that no valid approval existed.

  4. Consequences of Invalid Approval

    • If approval under Section 153D is missing or mechanical, the entire assessment order becomes invalid, regardless of the merits of the additions.

Ruling of the Tribunal

Based on the above findings, the ITAT ruled as follows:

  • The assessment order dated 22 March 2016 was quashed for lack of valid approval under Section 153D.

  • The assessee’s appeal was allowed, and the additions of ₹3.39 crore stood deleted.

  • However, the Tribunal clarified that if the Department is able to trace and produce a valid approval document in the future, it may seek recall of the order for adjudication on merits.

Significance of the Judgment

  1. Strengthening Taxpayer Safeguards

    • The ruling underscores that statutory approvals are not procedural formalities but vital checks against arbitrary tax assessments.

  2. Accountability of Revenue Authorities

    • The case exposes systemic lapses in maintaining records of approvals, which are central to the legality of assessments.

    • It compels revenue authorities to ensure proper documentation and compliance with statutory safeguards.

  3. Guidance for Future Cases

    • This judgment will serve as a precedent for taxpayers challenging assessments where approvals under Section 153D are missing or improperly granted.

    • It also clarifies that the onus is on the Department to prove the existence and validity of approval.

Lessons for Taxpayers and Practitioners

  • For Taxpayers: Always verify whether assessments arising out of search proceedings have proper Section 153D approval. Lack of approval can be a strong ground to challenge such assessments.

  • For Tax Professionals: Use RTI or other disclosure mechanisms to ascertain the existence of approvals and raise procedural lapses as additional grounds in appeals.

  • For the Revenue: Maintain proper records of all approvals and ensure that supervisory authorities apply their mind before granting approval.

Conclusion

The ITAT Delhi Bench’s ruling in the case of Paramasivam Mahalingam is a landmark decision reinforcing the mandatory nature of approvals under Section 153D of the Income Tax Act. By quashing the assessment for lack of valid approval, the Tribunal has sent a clear message: procedural safeguards are integral to fair tax administration and cannot be overlooked.

This judgment not only provides relief to the assessee but also sets a precedent that strengthens the legal rights of taxpayers. It highlights that when authorities fail to follow due process, their orders cannot stand the test of law.

For the Revenue, the ruling is a reminder of the importance of record-keeping, accountability, and strict compliance with statutory requirements. For taxpayers, it is an affirmation that the judicial system continues to uphold fairness, transparency, and the rule of law in tax proceedings.