ITAT Chandigarh Quashes Search Assessments in Rosha Alloys Case: Mechanical Approvals, Flawed Estimation Methods and Unsupported Additions Set Aside

Background and Overview

A significant ruling has emerged from ITAT Chandigarh in the case of Rosha Alloys P Limited Vs DCIT (ITAT Chandigarh), arising from a search and seizure operation conducted on 08.09.2021. The Tribunal addressed a cluster of appeals and cross-objections spanning Assessment Years 2018-19 to 2020-21, ultimately allowing the assessee's appeals and dismissing the Revenue's grounds across all three years.

The assessee, engaged in the Rolling Mill business — purchasing iron scrap of varying grades and converting it into steel ingots — faced reassessment proceedings initiated under Section 148 following the search. The Assessing Officer framed additions on multiple counts, including excess production inferred from electricity consumption, allegedly bogus purchases from M/s Neelkanth Steel & Allied Industries, and rejection of books of accounts under Section 145(3). The CIT(A) partially sustained some of these additions while granting partial relief on others. Both sides carried the matter before the Tribunal, which examined each controversy independently and rendered findings that significantly favour the assessee.

Procedural History and Additional Grounds

The assessee filed multiple rounds of grounds of appeal, eventually consolidating them through a letter dated 12.05.2025. Relying upon National Thermal Power Co. Ltd. vs. CIT, 229 ITR 383 (SC), the Tribunal admitted the revised grounds on the basis that they raised purely legal issues not requiring fresh factual inquiry. The Revenue raised no objection, and accordingly the appeals were adjudicated on the basis of the grounds filed on 12.05.2025, with AY 2018-19 treated as the lead case.

Issue I: Validity of Approval Under Section 148B — Mechanical Grant Challenged

The Timeline That Raised Concerns

The assessee's first ground challenged the approval granted by the Additional Commissioner of Income Tax under Section 148B as being mechanical and legally unsustainable. A single approval order bearing letter number 2384 and dated 30.03.2023 covered all three assessment years — AY 2018-19 to 2020-21 — simultaneously.

The sequence of events that attracted the Tribunal's attention was as follows:

  • The Assessing Officer issued a show-cause notice dated 28.03.2023, requiring compliance by 7:00 PM on 29.03.2023.
  • Draft orders for all three assessment years were forwarded by the AO to the Additional CIT, Central Range, Ludhiana on 29.03.2023 itself — the same day compliance to the second show-cause notice was due.
  • The forwarding letter bore number 895 and was received in the office of the Additional CIT on 29.03.2023.
  • On 30.03.2023, a single approval order was issued by the Additional CIT covering all three years under examination.

Additionally, the assessee demonstrated that in the cases of M/s Trimurti Homes Pvt. Ltd., Smt. Pushpa Devi, and Sh. Ashish Aggarwal, the same Assessing Officer had sent letters bearing numbers 896 and 2385 on 29.03.2023, which were also received by the Additional CIT on the same day, with approval granted on 30.03.2023 in those cases as well.

The Tribunal examined the statutory role of the approving authority under Section 148B, which corresponds in character to the supervisory safeguard under Section 153D. The legislative design requires the Additional CIT to function as a quasi-judicial authority — independently reviewing the draft assessment order, evaluating the material compiled by the Assessing Officer, and considering the assessee's responses — before forming a satisfaction that the proposed additions are sustainable. This is not a ministerial act of endorsement but a substantive gatekeeping function.

The Tribunal found that the simultaneous approval of multiple search assessment orders — including voluminous search case records — on the very next day after the draft orders were received left no meaningful window for the Additional CIT to have independently examined the material and applied his mind. The approval, in those circumstances, was necessarily perfunctory.

Relying upon the following decisions, the Tribunal held the Section 148B approval to be mechanical and the consequential assessments unsustainable:

  • ACIT vs. Serajuddin and Co., [2024] 163 taxmann.com 118 (SC) — Revenue's SLP against the Orissa High Court ruling was dismissed.
  • ACIT vs. Serajuddin & Co., [2023] 150 taxmann.com 146 (Orissa) — concerned the requirement of genuine, non-mechanical statutory approval.
  • SP Singla Construction Company vs. CIT, ITA Nos. 140 to 145/Chd/2024 — ITAT Chandigarh's own coordinate bench ruling on mechanical approval.
  • Ganesh Builders vs. DCIT, ITA No. 422/CHD/2022 & 452/CHD/2022 — detailed discussion from paragraphs 16 to 16.19 on timing and manner of supervisory approval.
  • Apple Commodities Limited Vs DCIT, 2025 (4) TMI 1132 (ITAT Delhi) — on the requirement of independent and non-mechanical approval.

The Tribunal also noted the CBDT Manual of Office Procedure (February 2003), issued in exercise of power under Section 109, which in Chapter-III, Volume-II (Technical) prescribes that the approving authority must grant a hearing to the assessee and the AO must place the draft order at least one month before the final order date. These guidelines were flagrantly disregarded in the present proceedings.

The Tribunal held that since the approval under Section 148B was mechanical and devoid of genuine application of mind, the assessment orders for all three years could not survive.

Issue II: Validity of Section 151 Sanction — Material Variance in Reasons and Approval

The Discrepancy Identified

The second jurisdictional challenge concerned the approval granted by the Principal Commissioner of Income Tax under Section 151. The assessee demonstrated a material variance between the reasons recorded by the Assessing Officer for reopening and the content of the annexure appended to the approval order dated 22.03.2022.

The AO's recorded reasons cited:

  1. Discrepancy in production on account of excessive electricity consumption.
  2. Alleged unaccounted sales outside the books.
  3. Shortage of raw material relative to stock recorded in books as on the date of search.
  4. GST evasion.