HC Strikes Down GST Cancellation Backdated to 2017 for Violation of Natural Justice

The appeals before the Tribunal arose from assessments framed under Section 153A for the years 2009-10 to 2014-15 pursuant to search and seizure operations. In the original returns, modest incomes were declared, such as Rs. 1,37,940/- in AY 2009-10, but after the search, the assessed income was substantially enhanced, being taken to Rs. 13,40,304/- in that year alone, and similar additions followed in the subsequent years.

CIT (A) Held: The matter was carried in appeal, but the first appellate authority confirmed the additions.

Aggrieved, the assessee appealed before the Tribunal on the ground that the approval granted under Section 153D by the Additional Commissioner on 27/12/2016 was mechanical and invalid. It was shown that on the same date, the Assessing Officer had forwarded draft orders for several assessment years,  and the approval was granted in a consolidated manner covering all years. The approval order contained no separate reasoning for each assessment year, no reference to seized material, and no indication of application of mind to the records.

Issue Raised: Whether the assessments for AYs 2009-10 to 2014-15 were vitiated because the approval granted under Section 153D on 27/12/2016 was mechanical and without application of mind.

ITAT Held: The Tribunal held that the requirement of prior approval under Section 153D is a statutory safeguard and cannot be treated as a mere ritual. The very object of this provision is to ensure that an assessment officer should carefully scrutinizes the proposed assessments in search cases and applies an independent mind before granting sanction. The Tribunal observed that the AO submitted draft orders for six assessment years on 27/12/2016 and approval was granted the same day. The approval was common and for all the years and did not include any reasons or mention of seized material. The ITAT observed that the absence of individual consideration, lack of reasons, and simultaneous approval of more than one draft order pointed unequivocally to a mechanical exercise of authority.

It was thus held that the sanction under Section 153D dated 27/12/2016 was not valid. As the assessments were founded entirely on this approval, they were declared void ab initio and quashed for AYs 2009-10 to 2014-15. The Tribunal also recorded that once the assessments were annulled on this fundamental ground, there was no requirement to adjudicate on other grounds raised in the appeals, which became academic. While one of the Members recorded a dissenting opinion observing that official acts are presumed to be regular, the majority opined that such presumption was rebutted in the instant case on the basis of evidence on record. The majority decision thus prevailed and the appeals were granted leading to the quashing of all impugned assessment orders.

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