The approval U/s 153D must reflect material, findings and reasoning to show that the higher authority has applied his mind before granting approval: Mumbai ITAT.
ITAT Mumbai in case of Utility Supply Pvt. Ltd. dated 03.04.2025 has held that the approval U/s 153D must reflect material, findings and reasoning to show that the higher authority has applied his mind before granting approval. It has further held that CIT(A) is duty bound to follow his predecessors order on similar issue decided in another case. It has also held that stock in trade cannot be subject matter of addition u/s 56(2)(viia) as it is outside the meaning of the word ‘property’ as provided in clause.
Let us have a Short Overview of the case:
Following are the 3 key takeaways from the decision:
1. Approval taken u/s 153D of the Act before passing order u/s 153A of the Act cannot be given by higher authority in a mechanical manner. The approval must reflect material, findings and reasoning to show that the higher authority has applied his mind before granting approval. Assessing Officer is duty bound to submit draft assessment order well in advance for taking approval. Various judicial pronouncements on the subject are examined by the Court while holding that the approval taken u/s 153D is without application of mind and hence invalid.
2. Principles of ‘stare decisis’ (to stand by decided cases) explained in detail by Court while observing that the CIT(A) is duty bound to follow his predecessors order on similar issue decided in another case. It is held that it is best to adhere to decisions and not to disturb questions, which have been put at rest. When a point of law has been settled, it forms a precedent which is not to be ordinarily departed afterwards. When the same point comes for consideration again in litigation, the scales of justice must be kept even and steady.
3. On merits, the Court held that shares held as ‘stock in trade’ by a company cannot be subject matter of addition u/s 56(2)(viia) of the Act as they are outside the meaning of the word ‘property’ as provided in clause (vii).
While holding the aforesaid view, the court has reiterated principles of interpretation of statute that in absence of specific meaning provided in a particular provision, the words used in similar/analogous provisions or provision having genesis over the other provision has to be considered.
In the present case, the Memorandum explaining the Finance Bill, 2010 reflects that Clause (viia) is merely extension of clause (vii).
Where the meaning of the word, ‘property’ is neither provided in clause (viia) nor specifically imported from clause (vii) (unlike the meaning of FMV), still the meaning as provided in clause (vii) has to be taken for clause (viia) as clause (viia) is mere an extension of clause (vii) and is having genesis from clause (vii).
The court also observed that the provisions of clause (viia) and clause (vii) are anti abuse provisions and cannot be invoked to tax genuine business transactions.
The copy of the order is as under:
