2024 (5) TMI 1553 - HC - Income Tax

Supreme Court Strikes Down Tax Reassessment Notices Lacking Specific Evidence for Multiple Assessment Years Under Section 153C

POOJA GUPTA Versus ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 25 DELHI & ORS.

The SC examined the validity of notices under Section 153C of the Income Tax Act for multiple Assessment Years. Finding no specific incriminating material ... Validity of Notices u/s 153C - absence of incriminating material specific to those AYs - HELD THAT:- Undisputedly, the issue now stands answered and covered in favour of the writ petitioner bearing in mind the principles that we had enunciated in Saksham Commodities Limited [2024 (4) TMI 461 - DELHI HIGH COURT] 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. 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 be consequent 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. Thus we allow the instant writ petitions and quash the impugned notices dated 16 March 2023 issued under Section 153C of the Act and all consequential proceedings arising therefrom. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issue considered in this judgment is whether the issuance of notices under Section 153C of the Income Tax Act, 1961, for various Assessment Years (AYs) was justified in the absence of incriminating material specific to those AYs. The Court examined whether the Assessing Officer (AO) had appropriately formed an opinion based on incriminating material that would impact the computation of income for the relevant AYs.2. ISSUE-WISE DETAILED ANALYSISRelevant legal framework and precedents: The legal framework revolves around Sections 153A and 153C of the Income Tax Act, which deal with the assessment of income in cases where a search or requisition has been made. Section 153C specifically pertains to the assessment of income for persons other than the one searched, based on materials recovered during the search.Court's interpretation and reasoning: The Court referred to its previous decision in Saksham Commodities Limited, where it was established that the reopening or abatement of assessments under Section 153C is contingent upon the discovery of material likely to impact the determination of total income. The Court emphasized that such material must be specific to the AY in question and cannot be used to justify a blanket assessment or reassessment across multiple AYs without clear relevance.Key evidence and findings: The Court noted that the Satisfaction Note dated 23 June 2022 did not indicate any incriminating material for the AYs in question (2016-17, 2017-18, 2018-19, 2019-20, 2020-21). The absence of such material meant that the issuance of notices under Section 153C was not justified.Application of law to facts: Applying the principles from Saksham Commodities Limited, the Court found that the AO had not formed a valid opinion or satisfaction that the materials recovered were likely to affect the income computation for the relevant AYs. Therefore, the issuance of notices was deemed improper.Treatment of competing arguments: The Court considered the argument that Section 153C allows for assessment or reassessment of six AYs preceding the search year. However, it concluded that this power is not absolute and must be exercised with due regard to the specific relevance of incriminating material to each AY.Conclusions: The Court concluded that the notices issued under Section 153C were invalid due to the lack of incriminating material specific to the AYs in question. Consequently, the proceedings based on those notices were quashed.3. SIGNIFICANT HOLDINGSThe Court reiterated core principles from its prior judgment in Saksham Commodities Limited, emphasizing 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.''Abatement of the six AYs' or the 'relevant assessment year' under Section 153C would 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.''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.'Final determinations on each issue: The Court allowed the writ petitions, quashing the impugned notices dated 16 March 2023, and all consequential proceedings arising from them, due to the lack of incriminating material specific to the AYs concerned.