2025 (3) TMI 40 - AT - Income Tax

Assessment under section 143(3) quashed as AY 2021-22 fell within section 153C block period proceedings

ITAT Delhi held that assessment under section 143(3) was improper where satisfaction note for section 153C proceedings was recorded on 10-10-2022, making ... Assessment u/s 153C v/s 143(3) - six assessment years determination - date of receiving seized documents for determining the assessment period - HELD THAT:- As relying on Aakansha Gupta [2024 (7) TMI 1133 - ITAT DELHI] as in the case of the assessee also the satisfaction note for initiating the proceedings u/s 153C were recorded by the AO of the assessee on 10-10-2-2022 thus assessment year relevant for previous year in which search was conducted in the case of the assessee should be the Assessment Year AY 2023-24 and the six assessment years immediately preceding the assessment year relevant for the previous year in which search was conducted for initiating proceeding u/s 153C of the Act will be AY 2017-18 to 2022-23 and the impugned year i.e. AY 2021-22 is fallen in such block period thus the assessment should have been completed u/s 153C and not u/s 143(3) as has been done in the present case. Also in the case of Jasjit Singh [2014 (11) TMI 1012 - ITAT DELHI] which has been affirmed by the Hon’ble jurisdictional high court as reported in [2015 (8) TMI 982 - DELHI HIGH COURT] the assessment order passed u/s 143(3) dt. 28.12.22 is hereby quashed. Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:1. Whether the assessment order passed under Section 143(3) of the Income Tax Act is valid when proceedings should have been initiated under Section 153C.2. Whether the assessment order is void due to the absence of a Document Identification Number (DIN) as mandated by CBDT Circular No. 19/2019.3. Whether the assessment proceedings are valid in the absence of incriminating material found during the search.4. Whether the addition of Rs. 78,75,000/- on account of alleged undisclosed interest income is justified.ISSUE-WISE DETAILED ANALYSIS1. Validity of Assessment Order under Section 143(3) vs. Section 153C- Relevant legal framework and precedents: Section 153C of the Income Tax Act deals with assessments related to persons other than those searched, based on seized documents. The Tribunal referenced prior cases, including Akansha Gupta and DSL Properties, which established that the date of receiving seized documents is crucial for determining the assessment period under Section 153C.- Court's interpretation and reasoning: The Tribunal emphasized that the satisfaction note recorded on 10-10-2022 should be the date from which the six-year block period is calculated. Consequently, the assessment should have been conducted under Section 153C, not Section 143(3).- Key evidence and findings: The satisfaction note dated 10-10-2022 indicated the AO received the seized documents on this date, making it the effective date for initiating proceedings under Section 153C.- Application of law to facts: The Tribunal applied the principle that the assessment year relevant to the previous year in which the search was conducted should be AY 2023-24, with the preceding six years being AY 2017-18 to 2022-23.- Treatment of competing arguments: The Tribunal dismissed the Revenue's arguments supporting the Section 143(3) assessment, aligning with the precedent that requires Section 153C proceedings.- Conclusions: The assessment under Section 143(3) was deemed invalid, necessitating proceedings under Section 153C.2. Absence of Document Identification Number (DIN)- Relevant legal framework and precedents: CBDT Circular No. 19/2019 mandates the inclusion of a DIN in assessment orders to ensure transparency and accountability.- Court's interpretation and reasoning: The Tribunal noted the absence of a DIN in the assessment order, violating the mandatory requirement set by the CBDT Circular.- Key evidence and findings: The assessment order lacked a DIN, as confirmed by the appellant's submissions.- Application of law to facts: The Tribunal acknowledged the procedural irregularity, further supporting the quashing of the assessment order.- Conclusions: The absence of a DIN rendered the assessment order procedurally flawed.3. Validity of Assessment in Absence of Incriminating Material- Relevant legal framework and precedents: For assessments under Section 153C, incriminating material must be found during the search to justify proceedings.- Court's interpretation and reasoning: The Tribunal observed that the WhatsApp chats, which formed the basis of the assessment, were not directly related to the assessee and lacked evidentiary value.- Key evidence and findings: The Tribunal found no direct incriminating evidence against the assessee in the seized materials.- Conclusions: The lack of incriminating material further invalidated the assessment proceedings.4. Addition of Rs. 78,75,000/- on Account of Alleged Undisclosed Interest Income- Relevant legal framework and precedents: The addition was based on alleged cash investments and interest income derived from WhatsApp chats.- Court's interpretation and reasoning: The Tribunal found the addition arbitrary, as it relied on uncorroborated evidence from third-party WhatsApp chats.- Key evidence and findings: The Tribunal noted the lack of corroborative evidence linking the assessee to the alleged transactions.- Application of law to facts: The Tribunal rejected the addition due to the absence of substantiated evidence.- Conclusions: The addition was unjustified and unsupported by reliable evidence.SIGNIFICANT HOLDINGS- The Tribunal held that the assessment order under Section 143(3) was invalid, as the proceedings should have been initiated under Section 153C. The Tribunal stated, 'the assessment for AY 2021-22 should have been carried out by issuing notice u/s 153C of the Act and not u/s 143(2) of the Act as done by the AO in this case.'- The absence of a DIN in the assessment order constituted a procedural defect, further invalidating the order.- The Tribunal quashed the assessment order, stating, 'the assessment order dated 29.12.2022 passed u/s 143(3) of the Act by the issuance of notice u/s 143(2) of the Act dated 30.06.2022 is bad in law.'- The Tribunal did not adjudicate other grounds due to the quashing of the assessment order, rendering them academic.