Bombay High Court Upholds Quashing of Tax Assessments, Slams 'Mechanical' Approval Process as a 'Mockery'

Mumbai: The Bombay High Court, in a significant ruling, has dismissed a large batch of appeals filed by the Income Tax Department, affirming that the mandatory "prior approval" required from a senior officer for certain assessment orders cannot be a "mere ritual" or a "meaningless formality." A division bench of Justices M.S. Sonak and Advait M. Sethna held that approvals granted mechanically and without any application of mind vitiate the entire assessment proceedings.

The court upheld a common order from the Income Tax Appellate Tribunal (ITAT) which had quashed numerous assessment orders passed under Section 153A of the Income Tax Act, 1961 . The ITAT had found that the prior approvals, mandated under Section 153D, were granted in a hasty and casual manner, demonstrating a "total non-application of mind."

Background of the Case

The case involved a series of appeals by the Principal Commissioner of Income Tax against a common order of the ITAT dated April 30, 2024. The ITAT had allowed 34 appeals filed by various assessees and dismissed 31 appeals from the Revenue. The central issue was the validity of the approval granted by the Additional Commissioner of Income Tax to the draft assessment orders prepared by the Assessing Officer (AO). The ITAT concluded that this crucial safeguard was reduced to a rubber-stamping exercise, rendering the subsequent assessment orders legally incompetent.

Arguments Presented

The counsel for the Income Tax Department, Mr. Suresh Kumar, argued that the ITAT was not justified in faulting the approvals. He contended that:

* The ITAT had generalized its findings based on alleged discrepancies in only four or five cases.

* The approvals were granted expeditiously (within 24 hours) due to ongoing discussions between the concerned officials, which should not be seen as a sign of non-application of mind.

* Elaborate reasons are not required in approval orders, and the ITAT had wrongly interfered on a technicality without examining the merits of the assessments.

Court's Scathing Analysis: A 'Mockery' of a Legal Safeguard

The High Court comprehensively rejected the Revenue's arguments, finding the ITAT's reasoning to be well-founded and supported by glaring evidence. The bench noted that the requirement for prior approval under Section 153D is an essential check and balance.

> "The entire approval process and the requirement for approval under section 153D were reduced to mere ritual, meaningless formality, or even a mockery in these matters," the Court observed.

The judgment highlighted several "glaring discrepancies" that pointed to a complete abdication of the approving authority's duty:

• Approval as a 'Foregone Conclusion': In a damning finding, the court noted that the draft assessment orders submitted for approval already contained the date and number of the approval orders that were yet to be issued. This, the court stated, "shows that the approval was a foregone conclusion... or that the authorities considered the mandatory approval a trivial formality."

• Impossible Timelines: The ITAT had found that proposals were submitted to the approving authority at 5:02 PM, and over 30 approvals for cases with diverse facts were granted within minutes or a few hours on the same day. The court found it impossible to believe that the officer could have genuinely applied his mind to the voluminous records in such a short time.

• Gross Factual Errors: The approved draft orders contained severe errors that would have been obvious upon a basic perusal. The court cited several "glaring examples" from the ITAT's order:

• Applying a tax provision (Section 115BBE) to assessment years before it was enacted.
• Approving an assessment for a company that was not even incorporated during the relevant assessment year.
• Carrying out assessment proceedings against an entity that was "not at all in existence."

Purpose of Approval and Legal Precedents

The bench emphasized that the legislative intent behind Section 153D is to provide a safeguard against arbitrary or unjust actions by the Assessing Officer. Citing the Supreme Court's decision in Union of India vs. Ashish Agarwal , the court reiterated that such safeguards are in the joint interest of the Revenue and the assessee and cannot be frustrated by granting "en masse approvals without any application of mind."

The court also relied on a series of judgments from the Orissa, Madhya Pradesh, and Delhi High Courts, including * ACIT Vs. Serajuddin and Co. * and * Principal Commissioner of Income-tax Vs. Shiv Kumar Nayyar *, which have consistently held that a mechanical or rubber-stamped approval under Section 153D is invalid and vitiates the assessment order.

Final Verdict

Concluding that the ITAT's findings were based on undisputed facts and reasonable inferences, the High Court held that no substantial question of law arose for its consideration.

> "The inferences drawn are quite reasonable, given the facts of record relating to the rush to approve and the several discrepancies highlighted by the ITAT," the bench stated.

The court dismissed all appeals filed by the Revenue, thereby confirming the quashing of the assessment orders. The decision serves as a strong reminder to tax authorities that statutory safeguards must be adhered to in substance and not just in form.