2025 (2) TMI 222 - AT - Income Tax

Section 153C notices held invalid, assessment order quashed, rectification orders void, seized cash treated as advance tax

The ITAT Bangalore ruled in favor of the assessee on multiple issues. The tribunal held that Section 153C notices were invalid following HC precedent, ... Validity of notice u/s. 153C - Validity of rectification of orders under Section 154 - HELD THAT:- Perusal of the findings of the Hon’ble jurisdictional High Court would show that the Hon’ble High Court [2024 (2) TMI 116 - KARNATAKA HIGH COURT] was please to hold that notices u/s. 153C is bad in law. However, in [2022 (8) TMI 1233 - KARNATAKA HIGH COURT] which is related to the impugned assessment year, the Hon’ble High Court after quashing the earlier order has remanded the matter to the revenue for deciding it afresh in view of the judgment rendered by the Hon’ble High Court. Perusal of the above findings would prove beyond doubt that the impugned order of the AO dated 31.12.2019 is no more in existence, as the Hon’ble High Court has already quashed the assessment order. Therefore, the 154 orders passed by the revenue are also non-est as the same are passed in consequence to an order which is already set aside by the Hon’ble jurisdictional High Court. Treatment of cash seized from the premises of the assessee - It is the categorical finding of the Hon’ble jurisdictional High Court that the cash found was belonging to the assessee only and the revenue has also accepted the said cash as payment of advance tax. It is further worthy to note that the assessee vide letter dated 18.11.2019 has categorically stated that cash seized from the premises of the assessee may be adjusted against the outstanding tax liability. Therefore, we are of the view that the cash found from the premises of the assessee was actually belonging to the assessee and hence in terms of the request of the assessee, the same cash shall be treated as payment of advance tax by the assessee. Assessee appeal allowed. Deduction of employees contribution of PF & ESI amount paid beyond the due date specified under the relevant regulations, is no more res integra in view of the judgment of the Hon’ble Supreme Court in the case of Checkmate [2022 (10) TMI 617 - SUPREME COURT]. Therefore, there is no merit in restoring the matter back to the file of the ld. CIT(Appeals) and opportunity of being heard to the assessee. ISSUES PRESENTED and CONSIDEREDThe primary legal issues considered in this judgment are:The validity of notices issued under Section 153C of the Income Tax Act.The treatment of cash seized during a search operation and its adjustment against the tax liability of the assessee.The disallowance of employees' contributions to PF and ESI deposited beyond the due date under relevant regulations.The jurisdiction and authority of the Assessing Officer (AO) to issue intimation under Section 143(1) after the issuance of a notice under Section 143(2).The rectification of orders under Section 154 of the Income Tax Act.ISSUE-WISE DETAILED ANALYSIS1. Validity of Notices under Section 153CThe relevant legal framework involves the provisions of Section 153C of the Income Tax Act, which pertains to the assessment of income in cases where incriminating material is found during a search operation. The Court relied on precedents set by the Hon'ble Apex Court regarding the interpretation of Section 153C.The Court observed that the notices issued under Section 153C were quashed by the Hon'ble High Court, which found them to be legally unsustainable. The High Court remanded the matter to the Revenue for reconsideration, emphasizing that the notices were bad in law.The Tribunal concluded that since the assessment order based on these notices was set aside, any subsequent orders, including those under Section 154, were non-est (non-existent).2. Treatment of Cash Seized and Adjustment Against Tax LiabilityThe legal framework involves Section 292C of the Income Tax Act, which presumes that cash found during a search belongs to the owner of the premises. The Court examined the evidence, including the Income Tax Return filed by the assessee, which included the cash as advance tax.The High Court found that the cash belonged to the assessee and accepted it as advance tax payment. The Tribunal agreed with this finding, noting that the Revenue had accepted the cash as advance tax, and thus, the appeal concerning the cash seizure was allowed.3. Disallowance of Employees' Contributions to PF and ESIThe legal issue revolves around the disallowance of contributions deposited beyond the due date specified under PF and ESI regulations. The Tribunal referred to the Supreme Court's decision in the Checkmate case, which held that such contributions are not deductible if paid after the due date.The Tribunal dismissed the appeal on this issue, noting that the law was settled and the contributions were not deductible.4. Jurisdiction of AO to Issue Intimation under Section 143(1)The legal question here is whether the AO can issue an intimation under Section 143(1) after issuing a notice under Section 143(2). The Tribunal noted that Section 143(1D) prohibits such action only for assessment years before 2017, and since the case involved AY 2018-19, the AO's action was valid.The Tribunal dismissed the appeal, confirming the AO's jurisdiction.5. Rectification of Orders under Section 154The issue involved the rectification of an order where the assessee contended there was no apparent mistake. The Tribunal found that since the original assessment order was quashed, any rectification based on it was also invalid.The Tribunal dismissed the appeal as infructuous, given the prior adjudication on the substantive issues.SIGNIFICANT HOLDINGSThe Tribunal's significant holdings include:The notices under Section 153C were invalid, and the subsequent assessment orders were quashed, rendering any rectifications based on them non-existent.The cash seized during the search belonged to the assessee and was rightly treated as advance tax payment.Employees' contributions to PF and ESI paid beyond the due date are not deductible, as per the Supreme Court's ruling in the Checkmate case.The AO's issuance of intimation under Section 143(1) after a Section 143(2) notice was valid for AY 2018-19.The Tribunal concluded by allowing the appeal related to the cash seizure and dismissing the appeals concerning PF and ESI contributions and rectification orders.