2020 (5) TMI 441 - HC - Income Tax

Assessee Allowed to Raise New Grounds Under Rule 27 Against Revenue's Appeal on Section 153C Reassessment Validity

Sanjay Sawhney Versus Principal Commissioner Of Income Tax

Sanjay Sawhney Versus Principal Commissioner Of Income Tax - [2020] 116 taxmann. com 701 (Delhi) Issues Involved:1. Validity of reassessment proceedings under Section 153C of the Income Tax Act, 1961.2. Requirement of recording a satisfaction note by the Assessing Officer (AO).3. Existence of a nexus between the assessment proceedings and the incriminating material seized during the search.4. Scope of Rule 27 of the Income Tax Appellate Tribunal (ITAT) Rules, 1963 in the context of Section 253(4) of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Validity of Reassessment Proceedings under Section 153C:The appeal challenges the validity of reassessment proceedings initiated by the revenue under Section 153C of the Act. The appellant contended that the AO failed to record a satisfaction note and there was no nexus between the issues in the assessment proceedings and the incriminating material seized during the search. The CIT(A) had rejected these pleas, holding that there was no need for recording satisfaction and no requirement for a nexus between the assessment and the incriminating material. The ITAT did not consider these jurisdictional issues, leading to the appellant's challenge before the High Court.2. Requirement of Recording a Satisfaction Note by the AO:The appellant argued that the AO did not record a satisfaction note for initiating proceedings under Section 153C of the Act. The CIT(A) had held that recording a satisfaction note was not necessary. The ITAT did not admit this ground for consideration, which was a point of contention in the appeal before the High Court.3. Existence of a Nexus Between the Assessment Proceedings and the Incriminating Material:The appellant contended that there was no nexus between the assessment proceedings and the incriminating material seized during the search. The CIT(A) had held that the law did not require a nexus as a precondition for reassessment proceedings. The ITAT did not consider this ground, leading to the appellant's challenge.4. Scope of Rule 27 of the ITAT Rules in the Context of Section 253(4):The High Court examined whether the ITAT correctly interpreted Rule 27 of the ITAT Rules, which allows a respondent to support the order appealed against on any grounds decided against them. The appellant argued that Rule 27 does not require a written application, contrary to the ITAT's interpretation. The High Court agreed, stating that Rule 27 does not mandate a written application and the ITAT erred in its interpretation.Analysis:Validity of Reassessment Proceedings:The High Court noted that the ITAT had taken a narrow view by requiring a written application under Rule 27, which was not mandated by the rules. The court emphasized that Rule 27 allows a respondent to support the order on any grounds decided against them, even without a written application. The High Court held that the ITAT's refusal to consider the appellant's jurisdictional challenges was incorrect and remanded the matter back to the ITAT for fresh consideration of these issues.Recording of Satisfaction Note:The High Court found that the ITAT erred by not considering the appellant's argument regarding the AO's failure to record a satisfaction note. The court emphasized that the appellant should be allowed to raise this issue under Rule 27 to support the order of the CIT(A).Nexus Between Assessment Proceedings and Incriminating Material:The High Court held that the appellant should be allowed to argue the lack of nexus between the assessment proceedings and the incriminating material under Rule 27. The court noted that this issue goes to the root of the matter and should be considered by the ITAT.Scope of Rule 27:The High Court clarified that Rule 27 allows a respondent to support the order appealed against on any grounds decided against them, without requiring a written application. The court noted that Rule 27 is an enabling provision that ensures a respondent can defend an order on all grounds, including those decided against them by the lower authority. The High Court emphasized that the ITAT's interpretation was incorrect and remanded the matter for fresh consideration.Conclusion:The High Court allowed the appeal, setting aside the ITAT's order and remanding the matter back to the ITAT for fresh consideration of the appellant's jurisdictional challenges under Rule 27. The court emphasized that the appellant should be allowed to argue the validity of the reassessment proceedings, the requirement of recording a satisfaction note, and the nexus between the assessment proceedings and the incriminating material. The ITAT was directed to hear the matter afresh, allowing the appellant to raise additional grounds under Rule 27.