Kerala High Court Sets Aside ITAT Order for Failure to Adjudicate Section 153D Approval Challenge

Case Reference

K.K. Builders Vs DCIT (Kerala High Court)

Background and Context

This matter arose before the Kerala High Court in connection with an appeal challenging the order passed by the Income Tax Appellate Tribunal (ITAT), Cochin Bench, in ITA No.234/Coch/2023. At the heart of the dispute was a search and seizure operation carried out under Section 132 of the Income Tax Act, 1961, conducted at the premises of the assessee. The Revenue authorities alleged that incriminating materials were discovered and seized during the course of this operation.

On the basis of the alleged findings from the search, a notice was issued to the assessee under Section 153A of the Income Tax Act, 1961, pertaining to Assessment Year 2009-10. The assessee responded to this notice by filing returns, which included certain additions. Subsequently, the Deputy Commissioner of Income Tax, Kozhikode, acting as the Assessing Officer (AO), completed the assessment under Section 153A(a) of the Act, incorporating further additions beyond those already declared.

Proceedings Before Lower Authorities

Commissioner of Income Tax (Appeals)

Aggrieved by the additions made in the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). Two core arguments were advanced at this stage:

• First, that the additions made were not supported by any material, let alone incriminating material unearthed during the search and seizure operation.
• Second, that the approval granted by the Joint Commissioner of Income Tax (JCIT) under Section 153D of the Act was accorded in a purely mechanical fashion, devoid of any genuine application of mind as mandated by statute.

The first appeal, however, was dismissed, offering no relief to the assessee on either ground.

Income Tax Appellate Tribunal, Cochin Bench

Following the dismissal of the first appeal, the assessee approached the ITAT, Cochin Bench. The Tribunal recorded three distinct issues raised by counsel for the assessee, as set out in paragraph 12 of its order, which is reproduced below for ease of reference:

"12. The learned counsel for the assessee contended that; (i) the issue of notice u/s.153A is void ab initio for want of incriminating material found in the course of search and seizure proceedings; (ii) granting of approval u/s. 153D by the JCIT is in violation of law as the approval was granted without any application of mind; and (iii) the AO ought not to have made additions in the absence of any incriminating material placing reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Abhisar Buildwell P. Ltd. [2023] 454 ITR 212(SC)."

Despite formally registering all three contentions, the ITAT ultimately dismissed the assessee's case, prompting the assessee to approach the Kerala High Court by way of a further appeal.

Issues Raised Before the Kerala High Court

The Three Issues Already on Record

The three principal issues that had been placed before the ITAT, and which formed the foundation of the High Court proceedings, were as follows: