Order set aside and appeals remanded, allowing assessee to raise non-compliance with jurisdictional parameters of section 153C

Bombay HC set aside the ITAT order and remanded the appeals to the ITAT, directing that the assessee be permitted to raise non-compliance with the jurisdictional parameters of section 153C despite the Revenue appeals. The HC held the ITAT erred in precluding the issue without requiring cross-objections and misapplied delay-condonation principles; it found sufficient cause for a 248-day delay in filing cross-objections and ruled the jurisdictional objection could be entertained even if not earlier raised before CIT(A). The matters are remitted for fresh consideration consistent with this direction.

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Issues Involved:
1. Applicability of Section 2(22)(e) of the IT Act for deemed dividend.
2. Consideration of transactions recorded in company and firm books as incriminating material.
3. Interpretation of running current account between the company and the firm.
4. Rejection of cross objections due to delay.
5. Jurisdictional parameters under Section 153C of the IT Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 2(22)(e) of the IT Act for Deemed Dividend:
The court examined whether the amounts reflected in the books of the firm as payable to the company should be treated as 'deemed dividend' under Section 2(22)(e) of the IT Act. The Assessing Officer held that these amounts were 'loans and advances' and thus should be treated as 'deemed dividend'. However, the CIT (Appeals) set aside this view, which was later challenged by the Revenue before the ITAT.

2. Consideration of Transactions Recorded in Company and Firm Books as Incriminating Material:
The court reviewed whether transactions recorded in the books of the company and the firm could be regarded as incriminating material against the appellants, who were not parties to these transactions. The ITAT had previously held these transactions as incriminating, which was contested by the appellants.

3. Interpretation of Running Current Account Between the Company and the Firm:
The appellants argued that the account between the company and the firm was a running current account, which should not attract the provisions of Section 2(22)(e). The ITAT's interpretation of this aspect was under scrutiny.

4. Rejection of Cross Objections Due to Delay:
The ITAT dismissed the cross-objections filed by the assessees due to a delay of 248 days. The court analyzed whether sufficient cause was shown for the delay and whether the ITAT was justified in refusing to condone it. The court emphasized a liberal approach in condonation of delay, citing precedents that prioritize substantial justice over procedural technicalities.

5. Jurisdictional Parameters Under Section 153C of the IT Act:
The court framed an additional substantial question of law regarding whether the jurisdictional parameters under Section 153C were fulfilled. The appellants contended that no books of accounts belonging to them were found during the search, a precondition for invoking Section 153C. The court discussed the amendments to Section 153C and concluded that the provisions applicable were those amended up to 2013, which required the seized documents to belong to the person against whom proceedings were initiated.

Conclusion and Remand:
The court held that the ITAT should have allowed the assessees to raise the jurisdictional issue without the necessity of filing cross-objections, as per Rule 27 of the Appellate Tribunal Rules, 1963. The court also found that sufficient cause was shown for the delay in filing cross-objections. Consequently, the court set aside the ITAT's order and remanded the matter for fresh consideration, directing the ITAT to permit the assessees to raise the issue of compliance with jurisdictional parameters under Section 153C. All other contentions were kept open for consideration by the ITAT.

Disposition:
The appeals were disposed of with no order as to costs, and the ITAT was requested to expedite the disposal of the appeals by granting full opportunity to both parties.

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