ITAT rules Section 144 assessments void ab initio when Section 153C procedures should have been followed instead

ITAT Delhi held that assessments made under Section 144 r.w.s. 142(1) were void ab initio as they should have been conducted under Section 153C. The court established that satisfaction note recording is the first step for Section 153C proceedings, and the date of satisfaction determines the relevant assessment period. Following RRJ Securities Ltd. precedent, assessments for AY 2003-04 and 2004-05 were deemed outside Section 153C scope, while AY 2012-13 assessment was invalid for failing to invoke proper Section 153C procedures despite satisfaction note being recorded.

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Issues Involved:
1. Residence status of the assessee company u/s 6(3)(ii) of the I.T. Act.
2. Ignoring underlying assets and sources of revenue of overseas companies.
3. Ignoring substantial evidence indicating control and management by Indian individuals.
4. Ignoring provisions of section 9(1) of the I.T. Act.
5. Deletion of addition made by the Assessing Officer.

Summary:

1. Residence Status of the Assessee Company u/s 6(3)(ii) of the I.T. Act:
The Revenue contended that the assessee company is a resident in India based on seized documents, emails, and statements indicating that the control and management of the company is situated wholly in India. The Commissioner of Income Tax (Appeals) [CIT(A)] held that the assessee company is not a resident as per the provisions u/s 6(3)(ii) of the I.T. Act.

2. Ignoring Underlying Assets and Sources of Revenue of Overseas Companies:
The Revenue argued that the CIT(A) ignored the fact that the underlying assets and sources of revenue of all the overseas companies are Indian Companies. The CIT(A) did not consider this aspect in their decision.

3. Ignoring Substantial Evidence Indicating Control and Management by Indian Individuals:
The Revenue claimed that substantial evidence, including seized material, emails, and shareholding patterns, showed that the ultimate control and management of Indian and overseas companies lie with specific Indian individuals who created corporate veils to avoid taxability in India. The CIT(A) did not address this evidence adequately.

4. Ignoring Provisions of Section 9(1) of the I.T. Act:
The Revenue contended that the CIT(A) ignored the provisions of section 9(1) of the I.T. Act, as the revenue was earned because of underlying assets wholly situated in India. The CIT(A) did not consider this provision in their decision.

5. Deletion of Addition Made by the Assessing Officer:
The CIT(A) deleted the addition of Rs. 29,69,64,391/- made by the Assessing Officer against nil income. The Revenue challenged this deletion.

Cross Objection by the Assessee:
The assessee argued that the DCIT erred in assuming jurisdiction to assess the income of the appellant, making the assumption of jurisdiction illegal.

Judgment:
The Tribunal referred to various judgments, including those of the Hon'ble Jurisdictional High Court of Delhi and the Hon'ble Supreme Court, to conclude that the assessments made for A.Y. 2012-13 u/s 144 r.w.s. 142(1), consequent to the satisfaction note recorded on 18.11.2013 (A.Y. 2014-15), ought to have been made u/s 153C of the Income Tax Act, 1961. Since the provisions of Section 153C were not invoked, the assessment made u/s 144 r.w.s. 142(1) was treated as void ab initio.

Conclusion:
The Cross Objection of the assessee was allowed, and consequently, the appeal of the Revenue was dismissed. The order was pronounced in the Open Court on 02/01/2024.

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