Section 153D Approval Without Application of Mind Renders Search Assessments Null and Void: ITAT Delhi

Background and Overview

The Income Tax Appellate Tribunal (ITAT), Delhi Bench, recently addressed a critical procedural question in search assessment proceedings: whether a prior approval granted under Section 153D of the Income Tax Act, 1961 can be treated as legally valid when it is accorded mechanically, without any genuine independent examination of the draft assessment orders. In the case of Uttarakhand Uthan Samiti Vs ITO (ITAT Delhi), the Tribunal answered this question decisively in the negative and annulled all six search assessments spanning Assessment Years 2008-09 to 2013-14.

This ruling carries significant implications for search and seizure assessments across the country, reinforcing the settled legal position that statutory approvals are not mere procedural checkboxes — they demand genuine application of mind by the approving authority.

Profile of the Assessee and Nature of the Dispute

Uttarakhand Uthan Samiti is a society registered under Section 12AA of the Income Tax Act, 1961, operating a chain of educational institutions under the Dev Bhoomi Group of Institutes at Dehradun and Saharanpur.

A search and seizure operation under Section 132 of the Act was conducted on 26 April 2012 covering the Dev Bhoomi Institute of Technology, Uttarakhand Uthan Samiti, and other group entities. Following the search, notices were issued under Section 153A, and the assessee filed returns declaring nil income for the relevant assessment years.

Allegations Raised by the Assessing Officer

During the assessment proceedings, the Assessing Officer (AO) alleged that:

• Society funds had been diverted by the founder member and trustee through fictitious entities floated in the names of employees, accountants, and their family members.
• Bank accounts were opened in names of trusted individuals by allegedly forging account-opening documents.
• Deposits in these accounts originated from term loan and overdraft accounts of Uttarakhand Uthan Samiti and Dev Bhoomi Institute of Technology, Dehradun.

The entities alleged to have been used in this scheme included:

• M/s Fortech Computer System — Proprietor Sh. Sunil Dandriyal
• M/s Cad Arena — Proprietor Sh. Sunil Dandriyal
• M/s Nice Home Builders — Proprietor Sh. Sunil Dandriyal
• M/s Drishti Associates — Proprietor Smt. Mamta Dandriyal
• M/s Pawan & Co. — Prop. Pawan Kumar (described as non-existent)
• M/s Rana Steel — Prop. Rahul Kumar Rana (described as non-existent)
• M/s Akashganga Associates — Prop. Sushil Kumar
• M/s Alaknanda Realtors — Prop. Smt. Rama Gautam
• M/s Confinite — Prop. Sushil Kumar
• M/s Negi Builders & Suppliers — Prop. Mukesh Negi

Additionally, the AO identified certain existing concerns whose bank accounts were allegedly used fraudulently, including M/s Edisons Sales Corp, M/s Strategic Marketing Pvt. Ltd., and others.

Assessments Framed by the AO

Rejecting the assessee's explanations, the AO completed assessments under Section 153A read with Section 143(3), determining total income as follows:

The AO disallowed proportionate interest on alleged bogus loans, depreciation on fictitious assets, and denied exemptions claimed under Section 12AA and Section 10(23C).

Orders of the CIT(A) — Confirmation and Enhancement

Before the Commissioner of Income Tax (Appeals), the assessee challenged the additions. However, the CIT(A) not only confirmed the additions made by the AO but also directed enhancement of the assessee's income to the extent of amounts allegedly siphoned off for non-charitable or non-educational purposes that the AO had inadvertently omitted to disallow.

As per Para 10.4 of the CIT(A)'s order, the enhancement directed for AYs 2008-09 to 2012-13 was as follows:

For AY 2013-14, the CIT(A) further enhanced the income by Rs. 40,20,100/- as per Para 7.3 of his order.

Aggrieved by these orders, the assessee filed six appeals before the ITAT, Dehradun Bench (ITA Nos. 48 to 52/DDN/2019 and ITA No. 130/DDN/2019).

The Preliminary Issue: Validity of Approval Under Section 153D