The Delhi High Court has upheld the quashing of search assessments after finding that a consolidated approval covering several assessment years did not satisfy the requirements of Section 153D of the Income-tax Act, 1961.
The bench of Justice Subramonium Prasad and Justice Renu Bhatnagar emphasised that the approving authority must independently consider the material relating to each assessment year before granting approval.
The Bench held that an omnibus approval clubbing seven assessment years, without application of mind to each year, could not be permitted. It concluded that the controversy was covered by earlier decisions and that no substantial question of law arose for consideration.
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According to the department’s account recorded in the judgment, a search at the assessee’s business premises resulted in the seizure of several bill books. Examination of the documents allegedly revealed bills issued to entities belonging to the BSBK Group, whose premises had also been searched.
The department claimed that Bansal, in a statement recorded on oath, admitted to issuing bogus transportation bills to group entities. Further investigation allegedly indicated that he provided accommodation entries through concerns under his control.
The Assessing Officer made additions relating to credits in bank accounts and commission allegedly earned from these transactions. The judgment records an addition of approximately ₹124.76 crore towards unexplained credits in bank accounts belonging to entities controlled by the assessee.
These allegations formed the background to the assessments. The High Court’s decision, however, concerned the validity of the statutory approval preceding the assessment orders rather than the merits of the underlying transactions.
The assessee challenged the assessment orders before the Commissioner of Income-tax (Appeals), who partly allowed the appeals.
On commission income, the CIT(A) noted that the assessee had not produced documentary evidence supporting his claimed commission rate of 0.15%. At the same time, the appellate authority considered the Assessing Officer’s rate of 2.5% excessive.
Taking into account the prevailing rates discussed in the proceedings, the CIT(A) adopted a net commission rate of 0.75%.
Both the assessee and the Revenue subsequently filed appeals before the ITAT.
The ITAT examined the approval granted by the Additional Commissioner of Income-tax, Central Range-4, New Delhi, covering Assessment Years 2007-08 to 2013-14.
It found that the approval was consolidated across the assessment years and did not conform to Section 153D. The Tribunal interpreted the provision as requiring approval for each assessment year in respect of each assessee.
On that basis, it quashed the assessments framed under Section 153A read with Section 143(3). The Revenue challenged the Tribunal’s common order dated September 10, 2025, before the High Court under Section 260A.
The principal issue was whether the ITAT was correct in invalidating the assessments because the consolidated approval did not meet the statutory requirements.
The High Court examined the search assessment framework applicable to the relevant years, including Sections 153A, 153B and 153D.
Section 153D requires prior approval of the Joint Commissioner before an Assessing Officer below that rank passes specified assessment or reassessment orders arising from search or requisition proceedings.
The Bench stressed the significance of the statutory reference to each assessment year. It explained that supervisory approval requires consideration of the material relevant to the individual year for which approval is sought.
The Court observed that allowing consolidated approval without such consideration would render the distinct facts of the respective assessment years redundant.
Its reasoning treats prior approval as a substantive supervisory safeguard: the superior authority must undertake an independent examination instead of merely endorsing the proposed assessments.
The Bench relied on the Delhi High Court’s decision in Principal Commissioner of Income Tax-15 v. Shiv Kumar Nayyar, which examined the requirement of independent application of mind under Section 153D.
That decision drew support from the Allahabad High Court’s ruling in PCIT v. Sapna Gupta and the Orissa High Court’s ruling in Assistant Commissioner of Income Tax v. Serajuddin and Co.
The authorities discussed in the judgment establish that approval cannot be a mechanical exercise. Although elaborate reasons may not be necessary, the approval must indicate that the authority examined the draft assessment orders and considered whether they met the requirements of law.
The Court also referred to PCIT v. Anuj Bansal, reiterating the principle that the power under Section 153D cannot be exercised as a ritualistic formality.
The Bench referred to CBDT Circular No. 3 of 2008, dated March 12, 2008, explaining the introduction of Section 153D.
Reading the circular alongside the statutory provisions, the Court held that the legislative intention was to subject search assessments and reassessments to prior scrutiny by superior authorities.
That scrutiny, the Bench explained, necessarily involves applying the mind to the material for each separate assessment year.
The Court also invoked the settled principle that when a statute prescribes a particular manner for exercising a power, the authority must follow that manner.
The department drew attention to an order dated March 20, 2026, in another matter, where a coordinate Bench had framed questions concerning the legality of common approval for different assessment years and whether any resulting defect was procedural or substantial.
The High Court declined to treat the pendency of those questions as a reason to depart from existing decisions.
It noted that the order framing the questions did not indicate that the earlier interpretation of Section 153D had been doubted. Nor did the order reflect that the earlier decisions had been brought to the attention of that Bench.
The Court therefore followed the existing precedent, which it found consistent with the views of the Allahabad and Orissa High Courts.
The High Court dismissed the department’s appeals, leaving the ITAT’s order quashing the assessments undisturbed.
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