Facts of the Case

The assessee filed a return declaring income of ₹87,20,580. The Assessing Officer (AO), however, made additions including:

  • ₹15,04,35,000 towards cash deposits in bank
  • ₹1,54,07,100 towards alleged accommodation entries through an entry operator

Despite these substantial additions, discrepancies arose in the computation of assessed income. The AO incorrectly recorded the returned income and finalized the assessed income at a significantly lower figure without proper reconciliation.

Approval under Section 153D was granted by the Additional Commissioner of Income Tax (ACIT) before passing the assessment order under Section 153A read with Section 143(3).

The assessee challenged the additions before the Tribunal, which set aside the assessment on the ground of non-application of mind by the ACIT while granting approval under Section 153D.

Issues Involved

  1. Whether approval granted under Section 153D without examining assessment records and search material is valid in law?
  2. Whether mechanical approval by ACIT vitiates the entire assessment order?
  3. Whether such defect can be cured under Section 292B of the Income Tax Act?

Petitioner’s Arguments (Revenue)

  • The Revenue contended that the Tribunal erred in setting aside the assessment.
  • It was argued that approval under Section 153D was granted and minor discrepancies should not invalidate the assessment.
  • The Revenue sought to raise a substantial question of law before the High Court.

Respondent’s Arguments (Assessee)

  • The assessee argued that the approval under Section 153D was granted in a mechanical and perfunctory manner.
  • It was emphasized that the ACIT failed to:
    • Examine assessment records
    • Verify computation inconsistencies
    • Consider search material
  • Therefore, the entire assessment was void ab initio.

Court Findings / Order

The Delhi High Court upheld the Tribunal’s findings and held:

  • There was a complete lack of application of mind by the ACIT while granting approval under Section 153D.
  • Approval was granted merely on the basis of the draft assessment order without examining records or evidence.
  • The discrepancies in income figures clearly indicated non-application of mind.
  • Such approval is invalid in law and renders the assessment order void.
  • The defect is not curable under Section 292B, as it is not a procedural irregularity but a substantive illegality.

Accordingly, the Court held that no substantial question of law arises, and the Revenue’s appeal was dismissed.

Important Clarification

  • Approval under Section 153D is not a mere formality; it requires due diligence and independent application of mind.
  • Mechanical approval without reviewing material evidence invalidates the assessment.
  • Errors in computation and inconsistency in figures are strong indicators of non-application of mind.

 Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/60813072023ITA3682023_145523.pdf

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