Section 153D IT Act | Mechanical Approval Without DIN & Application of Mind Vitiates Search Assessment : ITAT Delhi

The ITAT Delhi has held that mechanical approval under Section 153D of the Income Tax Act, without independent application of mind, vitiates the entire search assessment proceedings. This ruling reinforces that statutory approvals are not mere formalities but substantive safeguards against arbitrary assessments, particularly where digital evidence forms the basis of additions.

Background & Facts

The Dispute

The dispute arises from the assessment proceedings for Assessment Year 2013-14, initiated under Section 153A following a search and seizure operation conducted at the premises of the assessee, Manoj Kumar Singh, on 14.10.2020. The Assessing Officer (AO) proposed substantial additions totaling Rs. 260.62 crore across multiple heads including unexplained income, professional receipts, undisclosed investments, and unaccounted expenditures. The draft assessment order was submitted for approval under Section 153D by the Joint Commissioner of Income Tax (JCIT), Range 8, Delhi, on 28.03.2022, and approved on 30.03.2022. The final assessment order was passed on 31.03.2022.

Key Facts

• The search operation on 14.10.2020 yielded multiple digital devices: laptops, pen drives, and mobile phones belonging to the assessee and his associates.
• Forensically imaged data from these devices included Excel files (e.g., 'MyData xIsx', 'Sunnyxisx') allegedly documenting unaccounted cash transactions, personal expenses, and commission payments spanning 2009 - 2020.
• The AO relied exclusively on these digital records, along with retracted statements under Section 132(4), to make additions without independent verification or corroboration.
• The assessment order did not mention the Digital Identification Number (DIN) on its face; instead, the DIN was communicated via a separate intimation letter.
• The approval letter dated 30.03.2022 under Section 153D for AY 2013-14 stated approval was granted for the draft assessment order "as amended" - a phrase unsupported by any record of prior amendments or communication.
• The same approval format was used for 10 assessment years (2011-12 to 2021-22), all issued on the same day (30.03.2022), with identical wording.
• The AO failed to annex the Digital Forensic Report, Chain of Custody forms, or hash value certifications to the assessment order, as mandated by the CBDT Digital Evidence Investigation Manual, 2014.
• The CIT(A) confirmed the additions despite the AO’s failure to respond to a remand request for clarification on the computation of Rs. 2.69 crore under Section 69C.

Procedural History

• 14.10.2020: Search and seizure conducted under Section 132 at assessee’s premises.
• 22.11.2021: Assessee filed return under Section 153A for AY 2013-14.
• 31.03.2022: Assessment order passed by AO.
• 18.08.2025: Order of Ld. CIT(A)-30, New Delhi, partially upholding additions.
• 21.01.2026: Hearing before ITAT Delhi.
• 18.03.2026: ITAT Delhi pronounces order.

The Parties' Positions

For the Assessee

• The approval under Section 153D was mechanical, granted without application of mind, as evidenced by identical approval letters for 10 assessment years issued on the same day.
• The phrase "as amended" in the approval letter was unexplained and unsupported by any record, indicating no substantive review.
• The AO failed to comply with the CBDT Digital Evidence Investigation Manual, 2014, particularly regarding chain of custody, forensic reporting, and authentication of electronic records under Sections 65A and 65B of the Indian Evidence Act.
• The additions were based on retracted statements and unverified Excel sheets never furnished to the assessee, violating principles of natural justice.
• The absence of DIN on the assessment order rendered it non-est under CBDT Circular No. 19/2019.

For the Revenue

• Section 153D requires only prior approval; no statutory mandate exists for detailed reasoning or recorded application of mind.
• The approval was granted in good faith, and the JCIT is presumed to have been aware of the incriminating material.
• The use of the phrase "as amended" was merely procedural and did not invalidate the approval.
• The Digital Evidence Manual is only a guideline under Section 119 and not mandatory.
• The DIN omission was cured by separate intimation.

Relief Sought

The assessee sought quashing of the assessment order for AY 2013-14, deletion of all additions totaling Rs. 260.62 crore, and restoration of the original return. The Revenue sought dismissal of the assessee’s appeal and confirmation of the additions.

The Legal Issue

The central question was whether Section 153D of the Income Tax Act requires the approving authority to demonstrate independent application of mind before granting approval for a search assessment, and whether mechanical approval - particularly when digital evidence is involved and statutory protocols are ignored - vitiates the entire assessment proceeding.

Arguments Presented

For the Appellant/Petitioner

The assessee relied on ACIT v. Serajuddin & Co. (2023) 454 ITR 312 (Orissa), affirmed by the Supreme Court in SLP(C) Diary No. 44989/2023, to argue that approval under Section 153D must reflect a conscious evaluation of the draft order. The ITAT Delhi in Shiv Kumar Nayyar v. PCIT (2024) 163 taxmann.com 9 held that approval cannot be a rubber stamp, especially when multiple cases are approved on the same day. The assessee further cited the CBDT Digital Evidence Investigation Manual, 2014, to demonstrate that the AO failed to comply with mandatory procedures for handling electronic evidence under Sections 65A and 65B of the Indian Evidence Act. The absence of DIN on the assessment order, per CBDT Circular No. 19/2019, rendered it invalid.

For the Respondent/State

The Revenue contended that Section 153D imposes no obligation to record reasons or demonstrate detailed application of mind. It argued that the JCIT’s approval, even if brief, was sufficient under the statute. The Revenue also claimed that the Digital Evidence Manual was merely advisory under Section 119 and that the DIN omission was cured by separate communication. It relied on Principal Commissioner v. Believe Construction Pvt. Ltd. (MANU/DE/8243/2025) to assert that administrative approvals need not be exhaustive.

The Court's Analysis

The ITAT undertook a comprehensive review of the approval mechanism under Section 153D and the handling of digital evidence. It noted that the approval letter dated 30.03.2022 contained the ambiguous phrase "as amended," with no supporting documentation showing any prior amendments or communication between the AO and JCIT. The Court observed that the same approval format was used for 10 assessment years, all issued on the same day, making it impossible for the JCIT to have applied independent mind to each case.

"The approving authority casually records that veracity of electronic evidences have been accepted as certified by the AO. Same only leads to one conclusion that approval was mechanical."

The Court emphasized that Section 153D requires approval for "each assessment year" and "each assessee" separately, as held in PCIT v. Sapna Gupta (2022 SCC OnLine All 1294). The Court rejected the Revenue’s argument that the Digital Evidence Manual is merely advisory, noting that the Manual was issued under Section 119 and reflects the Board’s authoritative interpretation of statutory obligations under the Income Tax Act, the Information Technology Act, and the Indian Evidence Act. The failure to annex forensic reports, chain of custody records, or hash value certifications rendered the digital evidence inadmissible under Section 65B.

The Court further held that the absence of DIN on the assessment order, as mandated by CBDT Circular No. 19/2019, was not cured by a separate intimation. The DIN is not a mere administrative formality but a statutory requirement for validity. The Court concluded that the approval under Section 153D was a mechanical exercise, and the assessment order, being founded on inadmissible evidence and procedural violations, was vitiated in its entirety.

The Verdict

The assessee succeeded. The ITAT Delhi allowed the appeal, quashed the assessment order for AY 2013-14, and dismissed the Revenue’s appeal. The order directed that the assessment proceedings be reopened in accordance with law, with strict compliance to Section 153D, the Digital Evidence Investigation Manual, 2014, and the DIN requirement under CBDT Circular No. 19/2019. No specific monetary relief was granted as the matter was remanded.

What This Means For Similar Cases

Approval Under Section 153D Must Be Individualized and Documented

• Practitioners must now challenge any approval under Section 153D that uses boilerplate language or is issued for multiple assessment years on the same day.
• The phrase "as amended" without supporting documentation is now a red flag for mechanical approval.
• The burden shifts to the Revenue to prove that the JCIT applied independent mind to each draft order.

Digital Evidence Must Comply with Section 65B and CBDT Manual

• Assessments based on electronic records without forensic reports, chain of custody, or hash value certifications are legally unsustainable.
• AO must annex Digital Forensic Reports and evidence collection forms to the assessment order.
• Reliance on retracted statements or unverified Excel sheets without confrontation under Section 132(4) violates natural justice.

DIN Is Mandatory on the Assessment Order Itself

• Separate DIN intimation letters do not cure non-compliance with CBDT Circular No. 19/2019.
• The DIN must appear on the face of the assessment order; otherwise, the order is non-est.
• Practitioners should raise this as a jurisdictional defect in all search assessment appeals.