Assessment under section 143(3) void due to incorrect exclusion from section 153C proceedings after search

The ITAT Delhi held that an assessment under section 143(3) was void ab-initio due to jurisdictional error. The AO incorrectly excluded AY 2021-22 from section 153C proceedings based on the search date rather than the date of receiving incriminating documents. Since the search occurred in the previous year relevant to AY 2021-22 but documents were handed over in the previous year for AY 2022-23, the assessment for AY 2021-22 fell within section 153C's ambit. The AO should have issued notice under section 153A read with 153C instead of regular assessment proceedings. The assessee's appeal was allowed.

---

---

Issues Involved:

1. Non-compliance with Section 153C of the Income Tax Act, rendering the assessment order void ab-initio.
2. Assessment order passed without approval under Section 153D, rendering it invalid.
3. Jurisdictional challenge on the assessment order passed under Section 143(3) instead of Section 153C.
4. Use of digital evidence without proper authentication under Section 65B of the Indian Evidence Act.
5. Non-compliance with mandatory CBDT instructions/guidelines.

Issue-wise Detailed Analysis:

1. Non-compliance with Section 153C:

The primary issue raised by the assessee was the non-compliance with Section 153C of the Income Tax Act. The assessee argued that the assessment should have been conducted under Section 153C, as the documents were handed over to the Assessing Officer (AO) of the assessee in the previous year relevant to Assessment Year (AY) 2022-23. According to the proviso to Section 153C, the date of search is substituted by the date of handing over the documents. The AO's failure to issue a notice under Section 153C rendered the assessment order void ab-initio. The Tribunal found substantial merit in this argument, noting that the AO had erroneously based the assessment on the actual date of search rather than the date of receipt of incriminating documents. Consequently, the assessment for AY 2021-22 should have been completed under Section 153C, and the failure to do so invalidated the assessment order.

2. Assessment Order Passed Without Approval Under Section 153D:

The assessee contended that the assessment order was invalid as it was passed without the mandatory approval under Section 153D of the Act. The approval was instead taken under Section 119, which does not provide the authority for such approval. The Tribunal noted that the absence of approval under Section 153D, which is required for assessments related to search actions, rendered the assessment order invalid. The Tribunal emphasized that compliance with Section 153D is mandatory, and any breach results in an invalid assessment.

3. Jurisdictional Challenge on Assessment Order Passed Under Section 143(3):

The assessee challenged the jurisdiction assumed by the AO in framing the assessment under Section 143(3) instead of Section 153C. The Tribunal agreed with the assessee, stating that the assessment for AY 2021-22 should have been conducted under Section 153C, given the satisfaction note and the incriminating documents related to the assessee. The regular assessment under Section 143(3) was thus not supportable in law, and the assessment order was deemed void ab-initio.

4. Use of Digital Evidence Without Proper Authentication:

The assessee argued that the addition of Rs. 97,37,300/- under the head long-term capital gain was based on digital evidence found from third-party devices, which were not corroborated by facts on record and lacked a valid certificate of authentication under Section 65B of the Indian Evidence Act. The Tribunal did not specifically address this issue, as the assessment order was already quashed on jurisdictional grounds.

5. Non-compliance with Mandatory CBDT Instructions/Guidelines:

The assessee claimed that the assessment was completed without adhering to mandatory CBDT instructions/guidelines. However, the Tribunal did not delve into this issue, given the quashing of the assessment order on other grounds.

Conclusion:

The Tribunal quashed the assessment order, finding it void ab-initio due to the jurisdictional error of not conducting the assessment under Section 153C and the lack of mandatory approval under Section 153D. Consequently, the appeal of the assessee was allowed, and the assessment order was set aside.

---