ITAT Agra Quashes Section 153A Assessments Due to Lack of Incriminating Material and Mechanical 153D Approvals

The Income Tax Appellate Tribunal (ITAT), Agra Bench, has delivered a significant ruling that reinforces the necessity of procedural rigor in search and seizure assessment proceedings. In a case involving Sanskar Greens, Jhansi , the Tribunal quashed assessment orders under Section 153A, citing the absence of incriminating material recovered from the assessee’s own premises and the mechanical nature of approvals granted under Section 153D.

The Background: Where and How Search Matters

The dispute originated following search proceedings conducted under Section 132 of the Income Tax Act on February 7, 2018. The Assessing Officer (AO) initiated assessments under Section 153A for Assessment Years (AY) 2015-16 to 2018-19, relying heavily on notebooks and loose papers—specifically marked Annexure BK-14, BK-16, and BK-17—which detailed plot-wise sales and cash receipts.

However, the core of the legal challenge rested on a critical factual finding: these documents were not seized from the assessee’s premises, but from the residential premises of a third party, Shri Ramakant Verma.

Contentions of the Parties

The appellant ( Sanskar Greens, Jhansi ) argued that the AO’s assumption of jurisdiction under Section 153A was fundamentally flawed. Their counsel submitted that because the alleged incriminating material was sourced from a third party, the department was legally obligated to invoke Section 153C, which requires a mandatory satisfaction note—a procedural step that was absent. Furthermore, the appellant challenged the validity of the approval granted by the Additional Commissioner of Income Tax (CIT) under Section 153D, alleging it was a "mechanical exercise" because a single communication granted approval for 13 different cases simultaneously.

The Revenue, represented by the CIT-DR, countered by defending the quantum additions and arguing that the documents clearly pertained to the real estate business of the partners and were used in an office space they occupied within the third party's premises.

Legal Analysis: The Mandate of Section 153A and 153D

The Tribunal noted that the legal position regarding the necessity of finding incriminating material during a search is well-settled. Citing the Supreme Court’s decision in Pr. CIT vs. Abhisar Buildwell (P.) Ltd. , the ITAT emphasized that in the case of unabated assessments, no addition can be made under Section 153A unless incriminating material specific to the assessee is found during the search.

Regarding the approval process under Section 153D, the Tribunal relied on the Allahabad High Court’s ruling in Pr. CIT vs. Sapna Gupta , which established that the approval process is an "in-built protection" for the taxpayer against arbitrary power. The Tribunal observed that the approving authority must apply an independent mind to each assessment year and each assessee, making a combined bulk approval legally defective.

Key Observations

The judgment emphasizes the weight of procedural compliance over administrative convenience:

• On the necessity of incriminating evidence: "The incriminating material on which the additions have been made, has not been found from the assessee’s premises but the same has been found from a third-party premises. This being the case, this being unabated year, the assessment is liable to be quashed in terms of the decision of Hon’ble Apex Court in the case of Pr. CIT vs. Abhisar Buildwell (P.) Ltd. "
• On the duty of the approving authority: "The approval of draft assessment order being an in-built protection against any arbitrary or unjust exercise of power by the Assessing Officer... cannot be a mechanical exercise of power. The Approving Authority shall have to apply independent mind to the material on record for 'each assessment year' in respect of 'each assessee' separately."
• On the failure of administrative process: "In the instant case, the draft assessment order in 85 cases... was approved on same day... It is humanly impossible to go through the records of 85 cases in one day to apply independent mind."

Final Decision and Implications

The ITAT Agra Bench has effectively annulled the assessment orders for the years in question, ruling that the assessments should not have been framed under Section 153A in the first place, or if validly processed, did not satisfy the strict requirements for prior approval under Section 153D.

This ruling serves as a vital reminder to tax authorities that procedural safeguards, such as the mandate for independent scrutiny, are not mere administrative rituals but cornerstones of due process. For taxpayers, the judgment reaffirms the protection against assessments driven by assumptions rather than evidence recovered through proper, authorized channels.