2024 (5) TMI 905 - AT - Income Tax

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

DCIT, Central Circle-19, Delhi Versus Bennett Williamson Engineers Ltd. C/o Mr. Sandeep Chilana, Adv. Delhi

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 ... Validity of Assessment u/s 153C - Requirement of satisfaction note for initiating proceedings u/s 153C - date from which the six year period was to be reckoned, in respect of which the returns were to be filed by the third party (whose premises are not searched) - as argued based on the date of recording of satisfaction, the Assessment made u/s 144 r.w.s. 142(1) is outside the scope of said Section u/s 144 r.w.s. 142(1) and the assessment ought to have been made u/s 153C HELD THAT:- As decided in RRJ Securities Ltd. [2015 (11) TMI 19 - DELHI HIGH COURT] the recording of a satisfaction that the assets/documents seized belong to a person other than the person searched is necessarily the first step towards initiation of proceedings under Section 153C of the Act. In the case where the AO of the searched person as well as the other person is one and the same, the date on which such satisfaction is recorded would be the date on which the AO assumes possession of the seized assets/documents in his capacity as an AO of the person other than the one searched. The rationale appears to be that whereas in the case of a searched person the AO of the searched person assumes possession of seized assets/documents on search of the Assessee; the seized assets/documents belonging to a person other than a searched person come into possession of the AO of that person only after the AO of the searched person is satisfied that the assets/documents do not belong to the searched person. Thus, the date on which the AO of the person other than the one searched assumes the possession of the seized assets would be the relevant date for applying the provisions of Section 153A of the Act. We, therefore, accept the contention that in any view of the matter, assessment for AY 2003-04 and AY 2004-05 were outside the scope of Section 153C of the Act and the AO had no jurisdiction to make an assessment of the Assessee's income for that year. Also see Jasjit Singh [2023 (10) TMI 572 - SUPREME COURT] Thus no hesitation to hold 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 have not been invoked and since, the proceedings u/s 153C have not been initiated, the assessment made u/s 144 r.w.s. 142(1) is treated as void ab initio. 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.