Assessment under section 153C time-barred when limitation period calculated from satisfaction recording date not search date

The ITAT Delhi held that assessment proceedings under section 153C were time-barred and improperly initiated. The tribunal determined that the deemed date of possession of seized documents was the date of recording satisfaction (03-10-2022), from which the six-year limitation period should be calculated. The relevant assessment years under section 153C were AY 2018-19 to 2022-23, with AY 2023-24 being the assessment year for the previous year when search was conducted. The assessment for AY 2021-22 should have been conducted under section 153C, not section 143(2). The assessment order under section 143(3) was quashed as bad in law. The assessee's appeal was allowed.

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Issues Involved:

1. Jurisdiction of the Assessing Officer under Section 143(3) versus Section 153C of the Income Tax Act.
2. Validity of the assessment order due to non-compliance with CBDT Circular No. 19/2019 regarding mandatory DIN.
3. Legality of the search and seizure operation and subsequent assessment proceedings.
4. Validity of the satisfaction recorded by the assessing officer for initiating proceedings under Section 153C.
5. Confirmation of addition of undisclosed commission income based on evidence from WhatsApp chats.
6. Admission of additional grounds of appeal regarding jurisdiction under Section 153C.

Detailed Analysis:

1. Jurisdiction under Section 143(3) vs. Section 153C:

The primary issue in the appeal was whether the assessment for the Assessment Year (AY) 2021-22 should have been conducted under Section 143(3) or Section 153C of the Income Tax Act. The appellant argued that the assessment was wrongly framed under Section 143(3), ignoring the mandatory provision of Section 153C. The tribunal referred to the ITAT judgment in Akanksha Gupta vs. ACIT, which clarified that the assessment should be initiated under Section 153C when documents are seized during a search. The tribunal concluded that the assessment for AY 2021-22 should have been carried out by issuing a notice under Section 153C, thus rendering the assessment under Section 143(3) invalid.

2. Validity of Assessment Order and CBDT Circular Compliance:

The appellant contended that the assessment order was null and void due to non-compliance with CBDT Circular No. 19/2019, which mandates the inclusion of a Document Identification Number (DIN) in the assessment order. The tribunal found merit in the appellant's argument, emphasizing the importance of adhering to procedural requirements, and thus deemed the assessment order invalid.

3. Legality of Search and Seizure Operation:

The appellant challenged the legality of the search and seizure operation, arguing that it was unlawful and invalid. The tribunal considered the satisfaction note recorded by the Assessing Officer (AO) and found procedural lapses in the initiation of the search under Section 153C. The tribunal noted that the satisfaction note should have been recorded in the file of the person searched and then transferred to the file of the other person, which was not properly executed in this case.

4. Validity of Satisfaction Recorded for Section 153C Proceedings:

The tribunal examined the satisfaction recorded by the AO and found that it was not in compliance with the legal requirements. The satisfaction note was recorded on 10-10-2022, and the tribunal held that the date of recording the satisfaction would be the deemed date for possession of the seized documents. The tribunal cited previous judgments, including those in the cases of DSL Properties and Jasjit Singh, to support its conclusion that the assessment should have been initiated under Section 153C.

5. Confirmation of Addition of Undisclosed Commission Income:

The appellant disputed the addition of Rs. 2,35,000 as undisclosed commission income, which was based on WhatsApp chat images between third parties. The tribunal found that the evidence relied upon by the AO did not directly pertain to the assessee and lacked credibility. Consequently, the tribunal rejected the addition, emphasizing the need for concrete and direct evidence in such cases.

6. Admission of Additional Grounds of Appeal:

The tribunal allowed the admission of additional grounds of appeal concerning the jurisdiction under Section 153C. It recognized that these grounds were purely legal and all facts were on record, citing the Supreme Court decision in National Thermal Power Corporation to justify the admission of new grounds at the appellate stage.

Conclusion:

The tribunal quashed the assessment order dated 27-12-2022 under Section 143(3) as it was deemed invalid and bad in law. The appeal was allowed in favor of the assessee, emphasizing the necessity for proper jurisdictional procedures and adherence to statutory requirements. The tribunal's decision underscored the importance of following the correct legal framework for assessments post-search operations.

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