Bombay High Court Dismisses Appeals on Grounds of Mechanical Approval in Income Tax Cases

Court Finds Lack of Application of Mind in Approvals Under Section 153D of Income Tax Act

In a significant ruling, the Bombay High Court dismissed a series of appeals concerning approvals granted under Section 153D of the Income Tax Act, citing the approvals were issued mechanically without proper application of mind. The judgment, delivered by the division bench comprising Justices M.S. Sonak and Advait M. Sethna, emphasized the importance of a thoughtful and considered approach to the approval process, which is a statutory safeguard against arbitrary taxation practices.

The appeals were filed by the Pr Commissioner of Income Tax Central 4 against Citron Infraprojects Limited and others, challenging the Income Tax Appellate Tribunal's (ITAT) decision to quash the assessments. The ITAT had found that the prior approvals granted under Section 153D were vitiated by non-application of mind, rendering the subsequent proceedings under Section 153A invalid.

The court highlighted that the approvals were given in undue haste, sometimes within 24 hours, and without adequate consideration of the accompanying draft assessment orders. The bench noted the existence of discussions between the officials but deemed them insufficient to replace a thorough approval process. The judgment stressed that the statutory requirement for prior approval is designed to protect taxpayers from arbitrary or unjust assessments, and reducing it to a mere formality undermines this protection.

The ruling also referenced several precedents, including decisions from the Orissa and Delhi High Courts, which underscored the necessity for genuine application of mind in granting approvals. The Bombay High Court found that the approvals in question were issued with glaring discrepancies, including instances where approval details were pre-filled in draft orders, suggesting a foregone conclusion.

In dismissing the appeals, the court concluded that the ITAT's inference of non-application of mind was reasonable and not perverse, and no substantial question of law arose from the case. The decision serves as a reminder of the critical role that procedural safeguards play in ensuring fairness and justice in taxation matters.

Bottom Line:

Income Tax - Approval under Section 153D of Income Tax Act - Prior approval by Additional Commissioner must reflect application of mind and cannot be a mere mechanical formality or rubber-stamping - Approval granted without due consideration to facts and discrepancies in draft orders is invalid.

Statutory provision(s): Section 153D, Section 153A, Section 260A of the Income Tax Act, 1961.

Pr Commissioner of Income Tax Central 4 v. Citron Infraprojects Limited, (Bombay)(DB) : Law Finder Doc Id # 2813317