Search material from third party requires assessment under section 153C not section 143(3) assessment quashed

ITAT Delhi held that when search material from a third party is used against an assessee, assessment must be framed under section 153C, not section 143(3). The court quashed the assessment for AY 2021-22 as it was incorrectly framed under section 143(3) when search material from another party's premises was used. Following SC precedent in Jasjit Singh case, the tribunal ruled that different search dates for assessee and third party mandates section 153C procedure. Additional grounds raised by assessee were allowed.

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Issues Involved:

1. Validity of assessment under Section 143(3) instead of Section 153C of the Income-tax Act, 1961.
2. Requirement of notice under Section 153C for the assessment of income related to search material from a third party.
3. Determination of the relevant assessment year for proceedings under Section 153C.

Detailed Analysis:

1. Validity of Assessment under Section 143(3) instead of Section 153C:

The core issue in this case revolves around the validity of the assessment framed under Section 143(3) of the Income-tax Act, 1961, for the Assessment Year (AY) 2021-22. The assessee contended that the assessment should have been conducted under Section 153C, as the search material from a third party was used against her. The Tribunal observed that the Assessing Officer (AO) erred in framing the assessment under Section 143(3), as the search material belonged to a third party, which necessitates proceedings under Section 153C. The Tribunal relied on the Supreme Court's decision in CIT vs Jasjit Singh, which clarified that the date of receiving the seized documents determines the relevant assessment year for Section 153C proceedings. Consequently, the Tribunal quashed the assessment under Section 143(3) as it was not in accordance with the legal requirements.

2. Requirement of Notice under Section 153C:

The Tribunal emphasized that when search material of a third party is used, the correct procedure involves issuing a notice under Section 153C. The assessee argued that no such notice was issued, rendering the assessment invalid. The Tribunal supported this argument, noting that the AO should have issued a notice under Section 153C and framed the assessment accordingly. The Tribunal referred to the Hon'ble Jurisdictional High Court's decision in PCIT vs Ojjus Medicare Pvt Ltd, which reinforced the requirement of a notice under Section 153C when dealing with third-party search materials. The Tribunal's decision to quash the assessment was based on this procedural lapse.

3. Determination of Relevant Assessment Year for Section 153C Proceedings:

The Tribunal addressed the issue of determining the relevant assessment year for Section 153C proceedings. It highlighted that the date of recording the satisfaction note, which was 3.10.2022 in this case, should be considered the date of search for the assessee. This date dictates the assessment years that can be reopened under Section 153C. The Tribunal cited the decision in the case of Vaibhav Jain vs DCIT, which established that the six-year period for reassessment should be reckoned from the date of receiving the seized documents. Accordingly, for the assessee, the relevant assessment years would be AY 2018-19 to 2022-23, making the assessment under Section 143(3) for AY 2021-22 invalid.

Conclusion:

The Tribunal concluded that the assessment framed under Section 143(3) was invalid and quashed it, allowing the additional grounds raised by the assessee. The Tribunal's decision was based on the procedural requirements outlined in Section 153C, supported by judicial precedents. Since the entire assessment was quashed, the original grounds raised by the assessee were deemed academic and left open without adjudication. The appeal of the assessee was allowed, and the order was pronounced in open court on 04/11/2024.

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