2024 (7) TMI 716 - AT - Income Tax

Section 153C assessment invalid without mandatory conditions and beyond six-year limitation period

The ITAT Delhi ruled against the revenue on two grounds. First, the assessment under Section 153C was invalid as the three mandatory conditions were not ... Assessment u/s 153C - Unexplained investment being share capital and share premium - incriminating material seized in the course of search or not? - HELD THAT:- It is the finding of the CIT(A) that there is no seized materials impounded in the course of search belong to the assessee. After analyzing the satisfaction note of the DCIT (Central Circle) the CIT(A) held that the three conditions enumerated in Section 153C of the Act are not satisfied cumulatively and simultaneously. It is the finding of the CIT(A) that in the case of the assessee admittedly additions are not based on any incriminating document found as a result of search and AO has not recorded the satisfaction for the relevant assessment years as envisaged u/s 153C. It is also the observation of the Ld.CIT(A) that in fact no assessment year is mentioned in the satisfaction note recorded by the AO and, therefore, conditions stipulated in Section 153C have not been satisfied cumulatively and simultaneously. Non-satisfaction of any of the pre-conditions mentioned in the provision of Section 153C of the Act would result in notice under 153C legally unsustainable or invalid. The ratio of the decision of Sinhagad Technical Education Society (2017 (8) TMI 1298 - SUPREME COURT) and the decision of Index Security Pvt. Ltd. (82017 (9) TMI 585 - DELHI HIGH COURT] was rightly applied to the facts of the assessee’s case. Thus, we see no infirmity in the orders passed by the Ld.CIT(A). The same is sustained. Decided against revenue. Validity of notice u/s. 153C as barred by limitation - Validity of notice issued beyond block of 6 years - HELD THAT:- We find that in this case date of search was 11.11.2014 and the Date of recording of satisfaction u/s. 153C was 02.12.2016. We are of the considered view that in a case of searched person, the block of 6 years for assessments are 6 years immediately proceedings the year of search. As the search u/s. 132 was conducted in the Apple Group on 11.11.2014, hence, the date of search falls in AY 2015-16 in the case of Apple Group. Accordingly, the AO in the case of searched person was empowered to initiate the proceedings u/s. 153A for immediately preceding six years from AY 2009-10 to AY 2014-15. We further observed that in a case of “person other than the searched person”, provisions of section 153C are applicable and in such case, the block of 6 years will be immediately preceding the year in which satisfaction u/s. 153C of was recorded. In the instant case the AO has recorded satisfaction on 02.12.2016, hence, at the earliest, it is the date of 2.12.2016, when the AO can be presumed to have got the documents in his capacity as AO of the assessee, on the basis of which proceedings u/s. 153C have been initiated. Hence, this date of 02.12.2016 falls in the previous year 2016-17 relevant to AY 2017-18. The immediately preceding six years are AY 2011-12 to AY 2016-17. Thus, the AY 2009-10 and AY 2010-11 are clearly out of block of 6 years and therefore, the assessment order deserve to be quashed being invalid. See JASJIT SINGH [2023 (10) TMI 572 - SUPREME COURT] - Decided in favour of assessee. Issues Involved:1. Validity of notice issued under Section 153C of the Income Tax Act.2. Requirement of incriminating material for issuing notice under Section 153C.3. Jurisdiction and limitation period for issuing notice under Section 153C.4. Applicability of Supreme Court and High Court judgments on the case.Issue-wise Detailed Analysis:1. Validity of Notice Issued Under Section 153C:The primary issue was whether the Assessing Officer (AO) correctly issued the notice under Section 153C of the Income Tax Act. The assessee argued that the notice was invalid as no incriminating material was found during the search that belonged to the assessee. The Ld. CIT(A) analyzed the satisfaction note and concluded that the AO failed to demonstrate that the seized documents belonged to the assessee company. The Ld. CIT(A) observed that the AO did not mention the specific seized documents that belonged to the appellant company and did not record the finding that the seized documents had a bearing on the determination of total income. Consequently, the notice issued under Section 153C was deemed legally unsustainable and invalid.2. Requirement of Incriminating Material for Issuing Notice Under Section 153C:The Revenue's appeals centered on whether the additions made by the AO as unexplained investments were sustainable without incriminating material seized during the search. The Ld. Counsel for the assessee contended that the additions were based on regular books of accounts and no incriminating material was seized. The Ld. CIT(A) and the Tribunal upheld this view, referencing the Supreme Court's decision in PCIT Vs. Sinhagad Technical Education Society, which requires incriminating material for the relevant assessment year to issue a notice under Section 153C. The Tribunal found no infirmity in the Ld. CIT(A)'s order, which quashed the additions made by the AO due to the absence of incriminating material.3. Jurisdiction and Limitation Period for Issuing Notice Under Section 153C:The assessee's cross-objections argued that the notices for AY 2009-10 and 2010-11 were barred by limitation and without jurisdiction. The Tribunal noted that the date of search was 11.11.2014, and the satisfaction note was recorded on 02.12.2016. According to the Tribunal, in cases of 'persons other than the searched person,' the block of six years for assessments should be immediately preceding the year in which the satisfaction under Section 153C was recorded. Therefore, the relevant assessment years were AY 2011-12 to AY 2016-17, making the notices for AY 2009-10 and 2010-11 invalid. The Tribunal referenced several judgments, including CIT vs. Jasjit Singh and CIT vs. RRJ Securities Ltd., to support this interpretation.4. Applicability of Supreme Court and High Court Judgments:The Tribunal extensively referred to the Supreme Court's decision in PCIT Vs. Sinhagad Technical Education Society and various High Court judgments, including CIT vs. RRJ Securities Ltd. and ARN Infrastructure India Ltd. These judgments established that the existence of incriminating material is a prerequisite for issuing a notice under Section 153C and that the block of six years should be counted from the date of recording satisfaction by the AO. The Tribunal found that the AO did not meet these requirements, making the notices and subsequent assessments invalid.Conclusion:The appeals by the Revenue were dismissed, and the cross-objections by the assessee were partly allowed. The Tribunal upheld the Ld. CIT(A)'s decision that the notices issued under Section 153C were invalid due to the absence of incriminating material and the incorrect application of the limitation period. The Tribunal's decision was consistent with the Supreme Court and High Court judgments, reinforcing the legal standards for issuing notices under Section 153C.