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Judgment
The appeal in ITA Nos. 3680 to 3682/Del/2025 filed by the assessee for AYs 2019-20 to 2021-22 and ITA No. 5660/Del/2025 for AY 2020-21, arises out of the order of the ld Commissioner of Income Tax (Appeals)-28, Delhi [hereinafter referred to as ‘ld. CIT(A)’, in short] dated 05.05.2025, 09.05.2025 and 30.04.2025 against the order of assessment passed u/s 153C r.w.s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 30.01.2024 by the Assessing Officer, DCIT, Central Circle-13, New Delhi (hereinafter referred to as ‘ld. AO’). Identical issues are involved in all these appeals and hence they are taken up together and disposed of by this common order for the sake of convenience.
ITA No. 3680/Del/2025 – Asst Year 2019-20 – Assessee Appeal
The assessee has raised the following grounds of appeal before us:-
“1.That, the Ld. CIT(A) has erred in law and on facts in not quashing the assessment order dated 30.01.2024, passed under section 153C r.w.s. 143(3) of the Income Tax Act, 1961 ("the Act") which is illegal, bad in law, inter alia, on the ground that no incriminating material was found during the search.
2.That the Id. CIT(A) erred in law in not holding that the initiation of assessment proceedings u/s. 153C of the Act in the case of the Assessee was illegal since the satisfaction recorded by the ld. AO was mechanical in nature and without any independent application of mind to the seized material contrary to settled judicial precedents.
2.1That the Id. CIT(A) erred in law in holding that the statement of Mr. Vimal Jain recorded under section 131(1A) of the Act during the post search investigation constitutes incriminating material forming the basis for the AO recorded his satisfaction.
2.2That the Id. CIT(A) erred in law in not holding that the satisfaction note is invalid since the satisfaction recorded by the ld. AO of searched person as well as the AO of the assessee did not bear any Document Identification Number ("DIN") in violation of the CBDT Circular No. 19/2019 dated 14.08.2019 and the same was not uploaded on the e-filing portal of the assessee.
3.That the Id. CIT(A) has erred in not quashing the impugned assessment order for want of valid approval of Addl. Commissioner of Income Tax, Central Range-04, Delhi u/s 153D of the Act and holding that approval was mechanically obtained and there is application of mind.
Without prejudice to the above:
4.That the Id. CIT(A) erred in law and on facts, in not deleting the addition of Rs. 9,80,584/- made by the AO by applying the GP rate of 2.11% on account of alleged cash sales with Balar Marketing Private Limited.
4.1That the Id. CIT(A) erred on facts and in law, in confirming the addition on the basis of what's app chats which constitute dumb document and have no evidentiary value in absence of any corroborative evidence.
4.2That the Id. CIT(A), has failed to appreciate that the AO relied upon the statement of third party (Mr. Vimal Jain) without providing an opportunity of cross examination to the assessee which is a gross violation of natural justice.
5.That the Id. CIT(A) also failed to appreciate that the impugned addition was made by the AO relying upon digital evidence, what's app chats and other electronic data allegedly seized from the premises of the third parties, without comply with the adhering compliance with the conditions stipulated under Section 65B(2) and 65B(4) of the Indian Evidence Act, 1872.
6.That the appellant reserves the right to add, alter, vary, omit, substitute, or amend any ground of appeal at any time before or at, the time of hearing, of the appeal, so as to enable the Hon'ble ITAT to decide the course of appeal according to the law.”
We find that the preliminary legal issue that goes to the root of the matter is that whether the Learned AO was justified in framing an assessment under section 153C of the Act in respect of satisfaction recorded post 1-4-2021 in respect of search on third person prior to 1-4-2021, in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. The return of income for the assessment year 2019-20 was filed by the assessee company under section 139(1) of the Act on 16-09-2019 declaring total income of Rs. 3,96,77,700. A search and seizure action was carried out under section 132 of the Act on 23-03-2021 in the case of Shri Parasmal Jain and Balar Marketing group of cases. During the course of search at the residential premises of Shri Vimal Jain, various electronic devices such as hard disk, mobile phone, pendrive etc. were found and seized. It was found that there was unaccounted cash transactions being exchanged between Shri Manoj Matod, who is the key person and other employees of M/s Matod Industries Pvt Ltd with Shri Vimal Jain, who is the administrative head and who is the key cash handler of M/s Balar Marketing Pvt Ltd.
The assessing officer of the searched person recorded his satisfaction dated 8-7-2022 and handed over the relevant seized material to the AO of the other person. Subsequently, satisfaction was recorded by the AO of the assessee on 11-10-2022 that the referred document seized during the search as mentioned above pertains to the assessee which have a bearing on determination of total income of the assessee. Accordingly, notice under Section 153 C of the Act stood issued to the assessee on 17-10-2022. In response, the assessee filed return of income on 29-10-2022 declaring the same total income of Rs. 3,96,77,700. The Learned AO framed the assessment under Section 153 C read with Section 143(3) of the Act for assessment year 2019-20 determining total income of the assessee at Rs. 4,18,50,832 after making few additions. This framing of assessment under Section 153 C of the Act is sought to be challenged by the Learned AR before us stating that there could not have been any valid satisfaction recorded under Section 153 C of the Act post 1-4-2021 ; there could not be any issuance of valid notice under Section 153C of the Act post 1-4-2021 and consequentially there could not be any valid framing of assessment under Section 153 C of the Act post 1-4-2021. The Learned AR submitted that the law has been amended with effect from 01-04-2021 wherein proceedings against persons other than the searched persons were required to be initiated only under Section 147 of the Act in view of the amendment to Section 153C(3) of the Act. Further it was submitted that the provisions of Section 153 A and 153 C of the Act were not in existence post 1-4-2021. The Learned AR argued that since the provisions of Section 147 of the Act ought to have been initiated in view of the amendment from 1-4-2021, the entire search assessment framed for the year under consideration is to be declared bad in law and void abinitio.
The Learned AR also submitted that in the case of person other than the searched person, the date of recording satisfaction / receipt of seized material by the assessing officer of the other person constitutes the deemed date of initiation of search for such person. Reliance in this regard was placed on the decision of Hon’ble Supreme Court in the case of Jasjit Singh reported in 458 ITR 437 (SC). At the cost of repetition, in the instant case before us, the date of handing over of seized documents by the assessing officer of Balar Marketing Pvt Ltd to the AO of the assessee herein was 8-7-2022. The satisfaction note in the case of the assessee herein was recorded by the AO of the assessee on 11-10-2022. Hence the date of search qua the assessee herein would be 8-7-2022 falling in Assessment Year 2023-24. Since the said date falls after 1-4-2021, the provisions of Section 153 C of the Act were no longer applicable by virtue of Section 153C(3) of the Act. Consequently, it was argued that the Learned AO lacked jurisdiction to invoke Section 153C of the Act and if at all any proceedings were required to be initiated, the same could have been done only under the reassessment provisions contained in Section 147 to 151 of the Act. Accordingly, the Learned AR argued that the notice issued under Section 153C of the Act dated 17-10-2022 and consequential assessment order ought to be declared as void abinitio and liable to be quashed for want of jurisdiction. The Learned AR placed reliance on the decision of Hon’ble Madras High Court in the case of Harigovind vs ACIT reported in 485 ITR 509 (Mad) in support of his contentions. Per Contra, the Learned DR relied on para 8 of the assessment order wherein it was noted that the same objection raised by the assessee during the course of assessment proceedings had been disposed of by a separate speaking order dated 21-11-2023. The said order dated 21-11-2023 is enclosed in Pages 98 to 105 of the Paper Book. On perusal of the said order dated 21-11-2023, we find that the Learned AO had not addressed the amendment with effect from 1-4-2021 in section 153C and section 147 of the Act at all. We find that the Learned AO had only relied on the seized documents that were handed over by the AO of the searched person as pertaining or relating to the assessee herein. Hence in our considered opinion, the said order dated 21-11-2023 does not come to the rescue of the revenue at all.
Now let us see the applicability of the decision of Hon’ble Madras High Court referred supra relied upon by the Learned AR to the facts of the instant case. We have gone through the said judgement of Hon’ble Madras High Court supra and we find that the facts of the assessee and the facts before the Hon’ble Madras High Court are exactly identical. The relevant portion of the said judgement of Hon’ble Madras High Court are reproduced here under:-
“3.The common issue involved in all these writ petitions is as to whether the issuance of impugned notice, under Section 153C of the Act, is sustainable and in accordance with the provision of said Section of the Act.
4.The learned counsel appearing for the petitioner would submit that in this case, initially, on 29.01.2019, the Income Tax Authorities had conducted a search at 3 party premises. According to the Authorities, they have received/obtained incriminating materials, pertaining to the petitioner, at the said 3 party premises. Pursuant to the same, the notice under Section 148A of the Act was issued by the Authorities on 15.03.2022 for the AY 2018-19. Subsequently, the notice under Section 148 of the Act was issued, on 31.03.2022, without granting sufficient opportunity to the petitioner to file objections to the aforesaid notice dated 15.03.2022. Therefore, the petitioner challenged the notice dated 31.03.2022 by way of filing a writ petition in Harigovind v. G.Ravindran [W.P. No. 9958 of 2022], wherein this Court, vide order dated 22.04.2022, set aside the notice and directed the concerned officer to issue a fresh hearing. …………………………………………………….
40.Thus, as far as the searched person is concerned, the date of initiation of search is the date, on which the search was conducted in his premises. The said date would be the date of initiation of search for searched person for all purposes. As far as the other person is concerned, the date of initiation of search would be the date, on which the materials, books of accounts, etc., are handed over to the JAO of the other person and this date would be considered as the date of initiation of search for other person for all purposes. Thus, there cannot be two different date of initiation of search, either for the searched person or for the other person.
41.The provisions of Sub-Section (3) of Section 153C states that "153C(3).nothing contained in this Section shall apply in relation to a search initiated under Section 132 or books of account, other documents or any assets requisition under Section 132A on or after the 1 day of April, 2021" which means, if the search is initiated subsequent to 01.04.2021, the provision of Section 153C will not apply and accordingly, no proceedings can be initiated against the other person.
42.According to the petitioner, the date of handing over of the seized materials, i.e., 25.11.2022, is the date of initiation of search. If the said contention of the petitioner is accepted, obviously, the issuance of impugned notices dated 07.02.2023 by the 2 respondent is without any authority and contrary to Sub-Section (3) of Section 153C of the Act and thus, the same is liable to be quashed.
43.In terms of Sub-Section (1) of Section 153C of the Act, for the purpose of calculating the six years period, the date of handing over of the materials to the petitioner's JAO has to be construed as the date of initiation of search for other person. Further, in terms of first proviso to Sub-Section (1) of Section 153C, for the purpose of abatement also, the date of handing over of the materials to the petitioner's JAO has to be construed as the date of initiation of search for the other person. In such view of the matter, this Court is unable to comprehend the submissions made by the learned counsel for respondents that yet another date is available for the purpose of initiation of search in respect of the other person.
44.Certainly, there cannot be two different dates for initiation of search for the other person. Hence, for all practical purpose, the initiation of search would be the same date and it is apparent upon reading the provisions of Section 153C of the Act. In the provision of Section 153C(1) of the Act, the date of initiation of search is mentioned as the date of handing over of materials and as per the first proviso, the same date would apply for the purpose of abatement also. When such being the case, no other date will come into picture for the purpose of determination of initiation of search for other person. At this juncture, it would be apposite to refer the judgement rendered by the Hon'ble Apex Court in Jasjit Singh (supra), wherein, it was held on the aspect as to whether the first proviso to Section 153C would apply only for the purpose of abatement of pending proceedings or otherwise.
45.When a similar contention was raised before the Hon'ble Supreme Court in the aforesaid case of Jasjit Singh (supra), the same was recorded in the said judgement as
"..The revenue argued that the proviso to Section 153C(1), is confined in its application to the question of abatement". However, while deciding the said issue, the Hon'ble Apex Court had arrived at a conclusion and rendered its judgement by stating that ".the revenue's argument is insubstantial and without merit".. When such being the case, it is clear that the Hon'ble Apex Court had rejected the contention of the revenue that "the first proviso to Section 153C(1), is confined in its application to the question of abatement", which means, as per the law laid down by the Hon'ble Apex Court, the said provision is not only for the purpose of abatement but also for all the other practical purposes.
46.For ready reference, the relevant portion of the judgement rendered in the case of Jasjit Singh (supra) is extracted hereunder:
"9.It is evident on a plain interpretation of Section 153C(1) that the Parliamentary intent to enact the proviso was to cater not merely to the question of abatement but also with regard to the date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched and in respect of whom the specific provision under Section 153-C was enacted. The revenue argued that the proviso [to Section 153(c)(1)] is confined in its application to the question of abatement.
10.This Court is of the opinion that the revenue's argument is insubstantial and without merit. It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the A.O. seized of the materials - of the search party, under Section 132 - would take his own time to forward the papers and materials belonging to the third party, to the concerned A.O. In that event if the date would virtually "relate back" as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly (and in many cases have no concern with it at all), is dis-proportionate. For instance, if the papers are in fact assigned under Section 153-C after a period of four years, the third party assessee's prejudice is writ large as it would have to virtually preserve the records for at latest 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of Section 153-C supports the interpretation which this Court adopts. [**Emphasis supplied]
47.A reading of the above shows that the Hon'ble Apex Court had rejected the contention of the respondent and hence, it is clear that the first proviso to Sub-Section (1) of Section 153C is not only for the purpose of abatement but also for all other purposes, viz., initiation of search for other person in terms of Section 153C(3) of the Act. In such case, the date of initiation of search for the petitioner is the date, on which the documents were handed over to the JAO of the petitioner, i.e., 25.11.2022 is the date of initiation of search for the petitioner.
48.In terms of Sub-Section (3) of Section 153C, the provision of Section 153C will not apply for any search, which is initiated on or after 01.04.2021.
49.As stated above, in this case, the date of handing over of seized material to the petitioner's JAO is on 25.11.2022 and the said date is the date of initiation of search for the petitioner. Thus, in the present case, it is crystal clear like cloudless sky that the initiation of search was subsequent to 01.04.2021, for which, the provisions of Section 153C will not apply. Therefore, the impugned notices dated 07.02.2023 is unsustainable and the same were issued without authority and against the provisions of Sub-Section (3) of Section 153C of the Act.
50.In such view of the matter, all the impugned notices are liable to be quashed and accordingly, all the impugned notices dated 07.02.2023 issued by the 2 respondent are quashed.”
Respectfully following the aforesaid decision of Hon’ble Madras High Court, we quash the initiation of proceedings under section 153C of the Act in the hands of the assessee and consequentially the assessment framed for the Assessment Year 2019-20 under section 153C of the Act is held illegal and void abinitio and is hereby quashed.
Since the entire assessment is quashed for the Assessment Year 2019-20, the adjudication of other factual and legal grounds of the assessee become academic in nature and they are left open.
In the result, the appeal of the assessee for the Assessment Year 2019-20 is partly allowed.
ITA No. 5660/Del/2025 – Asst Year 2020-21 – Revenue Appeal
ITA No. 3681/Del/2025 – Asst Year 2020-21 – Assessee Appeal
ITA No. 3682/Del/2025 – Asst Year 2021-22 – Assessee Appeal
The facts prevailing in Assessment Years 2020-21 and 2021-22 are exactly identical with facts of Assessment Year 2019-20 and hence the decision rendered by us hereinabove for the Assessment Year 2019-20 shall apply mutatis mutandis for Assessment Years 2020-21 and 2021-22 also. Accordingly, the appeals of the assessee for the Assessment Years 2020-21 and 2021-22 are partly allowed.
Since the entire assessment for the Assessment Year 2020-21 is quashed hereinabove, the revenue appeal for the Assessment Year 2020-21 becomes infructuous and the same is hereby dismissed as infructuous.
To sum up, all the appeals of the assessee are partly allowed and appeal of the revenue for the Assessment Year 2020-21 is dismissed as infructuous.