2024 (1) TMI 204 - AT - Income Tax

Section 153C assessment orders quashed for lacking jurisdiction and failing to establish correlation with incriminating material

The ITAT Delhi quashed assessment orders under section 153C read with section 143(3) for assessment years 2011-12 and 2012-13. For AY 2011-12, the ... Validity of assessment under section 153C - reckoning of block period for a person other than the searched person - prospective application of Finance Act, 2017 amendment to sections 153A and 153C - requirement of document wise correlation of seized material with assessment years under section 153C - principles of natural justice in assessment proceedings (service of notice; opportunity to confront statements) - quashing of assessment where jurisdictional conditions under section 153C are not satisfiedValidity of assessment under section 153C - reckoning of block period for a person other than the searched person - prospective application of Finance Act, 2017 amendment to sections 153A and 153C - quashing of assessment where jurisdictional conditions under section 153C are not satisfied - Impugned assessment for AY 2011-12 under section 153C r.w.s. 143(3) is invalid for want of jurisdiction and is quashed. - HELD THAT: - The Tribunal examined the dates of search (23.07.2015), recording of satisfaction and handing over of seized material (23.03.2018) and the applicable law on computation of the block of assessment years for a person other than the searched person. It followed the coordinate decisions and the Delhi High Court line of authority that for proceedings under section 153C the relevant reckoning date for the other person is the date of recording of satisfaction/handing over of seized material, and that the Finance Act, 2017 amendment to sections 153A and 153C operates prospectively w.e.f. 01.04.2017. Applying these principles to the factual matrix, the Tribunal held that AY 2011-12 falls outside the six immediately preceding assessment years as reckoned for the assessee and therefore the Assessing Officer lacked jurisdiction to issue notice and frame assessment for AY 2011-12 under section 153C. Consequently the assessment and appellate orders for that year were quashed as barred by limitation and invalid for want of jurisdiction. [Paras 8, 9, 10, 11, 12]Assessment order dated 30.12.2018 for AY 2011-12 under section 153C r.w.s. 143(3) is quashed for lack of jurisdiction; grounds 1 and 3 allowed.Requirement of document wise correlation of seized material with assessment years under section 153C - principles of natural justice in assessment proceedings (service of notice; opportunity to confront statements) - validity of assessment under section 153C - quashing of assessment where seized material does not pertain to assessment years - Assessments and consequential orders for AYs 2012-13 to 2017-18 under section 153C r.w.s. 143(3) are quashed where seized material did not establish document wise correlation with the assessment years and procedural infirmities occurred. - HELD THAT: - For AY 2012-13 (lead case) the Tribunal scrutinised the satisfaction note and the seized documents relied upon by the Assessing Officer and found no specific dates, yearwise linkage or transaction wise particulars tying the seized material to the assessment years under consideration. The Tribunal noted further procedural defects: the Assessing Officer had not supplied copies of statements and seized material to the assessee in time, issued a showcause notice belatedly (served after the hearing time), and relied on third party statements without confronting them to the assessee. Relying on the ratio that section 153C requires seized material to pertain to the assessee's assessment years and on Supreme Court and High Court precedents cited, the Tribunal held that where the documentation does not establish document wise correlation and natural justice is breached, the assessment proceedings under section 153C cannot be sustained. Identical factual matrix and grounds in the remaining appeals led the Tribunal to apply the same conclusion mutatis mutandis to AYs 2013-14 to 2017-18. [Paras 21, 22, 23, 24, 25]Notices under section 153C and all consequent proceedings and assessment orders for AY 2012-13 to AY 2017-18 are quashed; grounds 1 to 3 allowed in those appeals.Final Conclusion: The Tribunal allowed the appeals: the assessment for AY 2011-12 under section 153C r.w.s. 143(3) was quashed for lack of jurisdiction (AY 2011-12 fell outside the six year block as reckoned), and assessments for AYs 2012-13 to 2017-18 were quashed because the seized material did not establish document wise nexus with the assessment years and procedural/natural justice defects tainted the proceedings. Issues Involved:1. Jurisdictional validity of assessment orders under Section 153C/143(3).2. Compliance with mandatory conditions for initiating proceedings under Section 153C.3. Non-supply of alleged seized material to the assessee.4. Validity of additions made without incriminating material.5. Procedural lapses and violation of principles of natural justice.Summary:Issue 1: Jurisdictional Validity of Assessment OrdersThe assessee contended that the assessment orders framed under Section 153C/143(3) were without assuming valid jurisdiction as per law, without recording requisite satisfaction, and without complying with mandatory conditions. The Tribunal noted that the search was conducted on 23.07.2015, and satisfaction was recorded on 23.03.2018. The Tribunal held that the year of search would be AY 2018-19, and the block of six preceding assessment years would be AYs 2012-13 to 2017-18. Therefore, the assessment for AY 2011-12 was outside the block of six years, making the assessment order invalid. The Tribunal quashed the assessment order for AY 2011-12 along with all consequent proceedings and orders.Issue 2: Compliance with Mandatory ConditionsThe Tribunal observed that the satisfaction note did not correlate the seized documents year-wise and did not lead to the additions made. The Tribunal emphasized that the jurisdictional conditions for initiating proceedings under Section 153C were not complied with, as the seized material did not pertain to the assessment years under consideration. Consequently, the assessment orders were held to be invalid.Issue 3: Non-Supply of Alleged Seized MaterialThe assessee argued that the alleged seized material, based on which action under Section 153C was initiated, was not supplied despite specific requests. The Tribunal noted that the Assessing Officer did not provide copies of the seized material and that it was the CIT(A) who supplied the material to the assessee. This procedural lapse contributed to the invalidity of the assessment orders.Issue 4: Validity of Additions Made Without Incriminating MaterialThe Tribunal found that the additions made by the Assessing Officer were not based on the seized material mentioned in the satisfaction note. The additions were on account of commission income and disallowance of bogus expenses, which were not supported by the seized material. The Tribunal held that the additions could not be made under Section 153C without incriminating material, rendering the assessment orders invalid.Issue 5: Procedural Lapses and Violation of Principles of Natural JusticeThe Tribunal noted several procedural lapses, including the issuance of a show-cause notice with insufficient time for compliance and reliance on statements without confronting the assessee. These lapses violated the principles of natural justice, further invalidating the assessment orders.Conclusion:The Tribunal quashed the assessment orders for AY 2011-12 to 2016-17, holding that the Assessing Officer did not have valid jurisdiction to issue notices under Section 153C and frame assessments. The Tribunal emphasized the importance of complying with mandatory conditions and procedural fairness in assessment proceedings. The appeals of the assessee were allowed, and all consequent proceedings and orders were quashed.