AI Structured Summary
Not yet generated for this judgment
Judgment
PER MANISH AGARWAL, A.M.:
The present appeal is filed by assessee against the order dated 30.08.2024 passed by Ld. Commissioner of Income Tax (A), New Delhi [“Ld. CIT(A)”] in Appeal No. CIT(A), Delhi-29/10424/2013-14 u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 17.06.2021 passed u/s 153C r.w.s. 143(3) of the Act pertaining to Assessment Year 2014-15.
Brief facts of the case are that the assessee is a company and filed its return of income on 31.03.2015, declaring total income of INR 3,30,27,060/-which was processed u/s 143(1) of the Act. A search and seizure action u/s 132 of the Act was carried out on 16.05.2017 in the case of Shri Amot Katyal at his residence i.e. C-654, New Friends Colony, Delhi. During the course of search, certain documents were found and seized which relates to the assessee company and accordingly, satisfaction note was recorded by the AO of the person searched and thereafter, satisfaction was recorded by the AO of the assessee and notice u/s 153C was issued on 16.10.2020. In response, the assessee has filed its return of income on 20.01.2021 declaring same income as was declared in the return of income filed u/s 139(1) of the Act. The AO observed that during the search, certain documents were found and seized with respect to the purchase of property from the assessee wherein INR 85.00 Lakhs cash was paid to the assessee company by the buyer which was not disclosed accordingly, the AO has made the addition of the same as unexplained money u/s 69A of the Act and total income of the assessee was assessed at INR 4,15,27,060/-.
Aggrieved by the said order, the assessee preferred an appeal before the ld. CIT(A) who vide impugned order dated 30.08.2024, dismissed the appeal of the assessee.
Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal by taking various Grounds of appeal as stated in the appeal memo.
Ground of appeal Nos. 1 & 2 of the assessee has challenged the initiation of proceedings u/s 153C of the Act on following two counts:-
[i] the satisfaction recorded does not contain the satisfaction that the documents belonged to the assessee and;
[ii] the satisfaction was recorded for 06 years i.e. AYs 2012-13 to 2018-19 though when the seized material was handed over to the AO of the assessee on 16.10.2020 and the same should be treated as the date of search. Thus the AY 2021-22 would be the search year and the period of preceding Six assessment years has to be counted from AY 15-16 to AY 2020-21 and therefore, impugned year is outside the purview of the block period of six years.
In support of the Grounds of appeal taken, ld. AR for the assessee submits that from the perusal of the satisfaction recorded by the AO of the assessee in para 9, it is apparent that the AO had recorded the satisfaction that the seized documents are incriminating material and had a bearing on the determination of the total income of the assessee. However, nowhere in the satisfaction note, it was recorded with these papers ‘belonged to’ the appellant which is mandatory jurisdictional pre-condition u/s 153C of the Act. For this, reliance is placed on the judgement of Hon’ble Delhi High Court in the case of Saksham Commodities Ltd reported in (2024) 161 Taxmann.com 485 (Delhi), in the case of CIT vs RRJ Securities Ltd. reported in [2016] 380 ITR 0612 (Delhi) and Pepsi Foods Pvt.Ltd. vs ACIT reported in 367 ITR 112 and PCIT vs Param Dairy Ltd. reported in 439 ITR 89. Ld. AR submits when the satisfaction was not recorded and belonged to make the entire proceedings as invalid. Further, ld.AR submits that in the instant case though the satisfaction was recorded by the AO of the assessee on 16.10.2020, it appears that date mentioned in the satisfaction note was 16.03.2020 is incorrect and the seized material was handed over to the AO on 16.10.2020 when the notice u/s 153C was issued. Ld.AR submits that in terms of the order of Hon’ble Supreme Court in the case of CIT vs Jasjit Singh reported in 155 taxamnn.com 155, it is held that in the case of the other persons, the date of search should be reckoned from the date when the seized material was handed over to the AO of the other person which in the instant case, was on 16.10.2020 falling in the FY 2020-21 relevant to AY 2021-22 and therefore, block period of 06 years would be from AYs 2015-16 to 2020-21 and thus, the impugned year i.e. 2014-15 falls outside the block period and therefore, the order passed is barred by limitation. Ld.AR further placed reliance on the judgement of PCIT vs Ojjus Medicare Pvt.Ltd. reported in 465 ITR 101 (Del.HC) in support of his claim.
On the other hand, ld. Sr. DR for the Revenue vehemently supported the orders of the lower authorities and submits that the satisfaction note was recorded by the AO of the assessee on 16.03.2020 and therefore, the assessment is still within the period of 06 years and therefore, requested to reject this plea of the assessee.
Heard the contentions of both the parties at length and perused the material available on record. in the instant case, the assessee in terms of letter dated 26.02.2024 has requested the AO to supply the copy of satisfaction note recorded by the AO of the assessee as well as AO of the person searched. Before us, copy of the satisfaction note recorded by the AO of the assessee is placed where the date of satisfaction recorded is mentioned as 16.03.2020 however, it is observed that notice u/s 153C of the Act for the impugned year was issued on 16.10.2020 and no reason was given for the delay of seven months between the satisfaction recorded for initiation of proceedings and the issue of notice used u/s 153C of the Act. It is surprising that when the satisfaction was recorded on 16.03.2020, as to why the AO has not issued the notice u/s 153C on the same date and was issued after the expiry of almost 07 months without any reasons. The Hon'ble Supreme Court of India in the case of CIT vs. Calcutta Knitwears in Civil Appeal No. 3958 of 2014 vide order dated 12.03.2014 has settled the law with regard to timeline for initiation of assessment u/s 153C of the Act and in Para 44 has observed as under:
"The satisfaction note could be prepared at either of the following stages: (a) at the time of or along with the initiation of proceedings against the searched person under Section 158BC of the Act; (b) along with the assessment proceedings under Section 158BC of the Act; and (c) immediately after the assessment proceedings are completed under Section 158BC of the Act of the searched person."
That Hon'ble Delhi High Court in the case of CIT v. Bharat Bhushan Jain reported in [2015] 61 taxmann.com 89 (Delhi), by following the aforesaid judgement of Hon'ble Supreme Court in the case of Calcutta Knitwears (supra), vide order dated 08.01.2015 held as under:
"6.Having regard to the intent of the Supreme Court in paragraph 44 of the Calcutta Knitwears (supra), where it was indicated that the Revenue has to be vigilant in issuing notice to the third party under section 158BD, immediately after the completion of assessment of the searched person, this court is of the opinion that a delay ranging between 10 months of one-and-half years cannot be considered contemporaneous to assessment proceedings. We are of the opinion that notices were not issued in conformity with the requirements of section 158BD, and were unduly delayed. The appeals of the Revenue, accordingly, fail and are dismissed.
The Hon'ble Delhi High Court has specified the time limit beyond which, the issuance of notice u/s 158BD of the Act will be considered as time barred, the said timeline of delay has been specified as ranging between 10 months to one & a half year, meaning thereby that if any notice u/s 158BD of the Act is issued beyond 10 months' time from the date of assessment order framed in the case of person searched, the same will be considered as delayed and accordingly, the said notice will be time barred. The CBDT also issued Circular No. 24/2015 dated 31.12.2015 wherein it is clarified that several High Courts have held that the provisions of section 153C of the Act are substantially similar/pari-materia to the provisions of section 158BD of the Act and therefore, the above guidelines of the Hon'ble Apex Court in case of Calcutta Knitwears (supra), are applied to the proceedings u/s 153C of the Act, for the purposes of assessment of income of other than the searched person. Accordingly any delay in issuance of notice u/s 158BD squarely applies to issuance of notice u/s 153C of the Act as well. In the instant case, as observed above the notice u/s 153C was issued after the inordinate delay of Seven months from the date of recording the satisfaction and though such delay is less than 10 months however, still no reason was stated by the AO for such delay thus the notice issued u/s 153C cannot be sustained on account of delay.
Further, in the satisfaction note, AO has not recorded the satisfaction that the seized material relates to the assessee, as has been provided in section 153C(1)(b) of the Act. In the satisfaction note, the AO has recorded the satisfaction that the documents found during the course of search in the case of Amit Katyal, were related to the assessee. The Hon’ble Jurisdictional High Court in the case of Saksham Commodities Ltd reported in (2024) 161 Taxmann.com 485 (Delhi) wherein the hon’ble court by following the judgement of RRJ Securities Ltd. (supra) has held as under-
G. CONCLUSIONS
63.“On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be triggered only upon the discovery of material which is likely to "have a bearing on the determination of the total income" and would have to be examined bearing in mind the AYs' which are likely to be impacted. It would thus be incorrect to either interpret or construe Section 153C as envisaging incriminating material pertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment or reassessment for the entire block of the "relevant assessment year".
64.In our considered view, abatement of the six AYs' or the "relevant assessment year" under Section 153Cwould follow the formation of opinion and satisfaction being reached that the material received is likely to impact the computation of income for a particular AY or AYs' that may form part of the block of ten AYs'. Abatement would be triggered by the formation of that opinion rather than the other way around. This, in light of the discernibly distinguishable statutory regime underlying Sections 153A and 153C as explained above. While in the case of the former, a notice would inevitably be issued the moment a search is undertaken or documents requisitioned, whereas in the case of the latter, the proceedings would be liable to be commenced only upon the AO having formed the opinion that the material gathered is likely to inculpate the assessee. While in the case of a Section 153A assessment, the issue of whether additions are liable to be made based upon the material recovered is an aspect which would merit consideration in the course of the assessment proceedings, under Section 153C, the AO would have to be prima facie satisfied that the documents, data or asset recovered is likely to "have a bearing on the determination of the total income". It is only once an opinion in that regard is formed that the AO would be legally justified in issuing a notice under that provision and which in turn would culminate in the abatement of pending assessments or reassessments as the case maybe.
65.We would thus recognize the flow of events contemplated under Section 153C being firstly the receipt of books, accounts, documents or assets by the jurisdictional AO, an evaluation and examination of their contents and an assessment of the potential impact that they may have on the total income for the six AYs' immediately preceding the AY pertaining to the year of search and the "relevant assessment year". It is only once the AO of the non-searched entity is satisfied that the material coming into its possession is likely to "have a bearing on the determination of the total income" that a notice under Section 153C would be issued. Abatement would thus be a necessary corollary of that notice. However, both the issuance of notice as well as abatement would have to necessarily be preceded by the satisfaction spoken of above being reached by the jurisdictional AO of the non-searched entity.
66.Therefore, and in our opinion, abatement of the six AYs' or the "relevant assessment year" would follow the formation of that opinion and satisfaction in that respect being reached.
67.On an overall consideration of the aforesaid, we come to the firm conclusion that the "incriminating material" which is spoken of would have to be identified with respect to the AY to which it relates or may belikely to impact before the initiation of proceedings under Section 153C of the Act. A material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income. The mere existence of a power to assess or reassess the six AYs' immediately preceding the AY corresponding to the year of search or the "relevant assessment year" would not justify a sweeping or indiscriminate invocation of Section 153C.
68.The jurisdictional AO would have to firstly be satisfied that the material received is likely to have a bearing on or impact the total income of years or years which may form part of the block of six or ten AYs' and thereafter proceed to place the assessee on notice under Section 153C. The power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence. Absent any material that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only beconsequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments.
H. OPERATIVE DIRECTIONS
69.When tested in light of the aforesaid principles, we find that except for a few exceptions which were noticed in the introductory parts of this judgment, the writ petitions forming part of this batch, impugn the invocation of Section 153C in respect of AYs' for which no incriminating material had been gathered or obtained. The Satisfaction Notes also fail to record any reasons as to how the material discovered and pertaining to a particular AY is likely to "have a bearing on the determination of the total income" for the year which is sought to be abated or reopened in terms of the impugned notices. The respondents have erroneously proceeded on the assumption that the moment any material is recovered in the course of a search or on the basis of a requisition made, they become empowered in law to assess or reassess all the six AYs' years immediately preceding the assessment correlatable to the search year or the "relevant assessment year" as defined in terms of Explanation 1 of Section 153A. The said approach is clearly unsustainable and contrary to the consistent line struck by the precedents noticed above.
The Hon’ble Jurisdictional Delhi High Court in the case of Saksham Commodities (supra) in clear terms held that for initiation of proceedings u/s 153C of the Act, the AO should satisfy that books of accounts or documents or assets seized or requisition must be ‘pertained to’ the assessee and the entries contained therein must “have bearing on the determination of the total income of such other person”. Considering the above, we are of the opinion that the AO of the assessee has recorded the incorrect and mechanical satisfaction that the documents found during the course of search relate to the assessee and therefore, such satisfaction is defective satisfaction based on which the proceedings cannot be initiated u/s 153C in the case of assessee. Accordingly, we hold the proceedings initiated u/s 153C of the Act as invalid and consequent order passed is hereby, quashed. The, Grounds of appeal Nos. 1 & 2 raised by the assessee are thus allowed.
Since we have allowed the legal grounds of appeal taken by the assessee, the other grounds of appeal become academic and not adjudicated.
In the result, appeal of the assessee is allowed.