2025 (3) TMI 1216 - AT - Income Tax

Assessment under Section 143(3) quashed as it should have been completed under Section 153C instead

Assistant Commissioner of Income Tax, Circle-8, New Delhi. Versus M/s Span India Pvt. Ltd. And (Vice-Versa)

ITAT Delhi quashed an assessment order passed u/s 143(3) for AY 2013-14, ruling it should have been completed u/s 153C instead. The tribunal found that ... Assessment u/s 153C OR 143(3) - assessment u/s 143(3) wherein additions have been made on the basis of the documents seized from the possession of the persons search in whose case no satisfaction is recorded that those papers belong to the assessee - HELD THAT:-The satisfaction note for initiating the proceedings u/s 153C was recorded by the AO of the assessee on 10/10/2024 thus Assessment Year relevant for previous year in which search was conducted in the case of the assessee should be the AY 2015-16 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 2009-10 to 2014-15 and the impugned year i.e. AY 2013-14 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. In view of this discussion and by respectfully following the judgement of Jasjit Singh [2014 (11) TMI 1012 - ITAT DELHI] which has been affirmed by high court as reported [2015 (8) TMI 982 - DELHI HIGH COURT] on similar facts, the assessment order passed u/s 143(3) dt. 27/03/2015 is hereby quashed. Appeal of the assessee is allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment are:Whether the assessment for the Assessment Year (AY) 2013-14 should have been completed under Section 153C instead of Section 143(3) of the Income Tax Act, 1961.The validity of the additions made by the Assessing Officer (AO) based on documents found during a search conducted on third parties.The legality of the approval process under Section 153D for the assessment order.The applicability of Section 14A disallowance in the present case.ISSUE-WISE DETAILED ANALYSIS1. Assessment under Section 153C vs. Section 143(3)Relevant legal framework and precedents: Section 153C of the Income Tax Act deals with the assessment of income of any other person, other than the person searched, based on documents seized during a search. The proviso to Section 153C states that the date of receiving the documents by the AO of the other person is considered the date of search for initiating proceedings under Section 153C.Court's interpretation and reasoning: The Tribunal noted that the satisfaction note for initiating proceedings under Section 153C was recorded on 10/10/2014. Therefore, the relevant assessment years for the block period should be AY 2009-10 to AY 2014-15. The Tribunal held that the assessment for AY 2013-14 should have been completed under Section 153C, not under Section 143(3).Key evidence and findings: The satisfaction note dated 10/10/2014 was crucial in determining the block period for assessment under Section 153C.Application of law to facts: The Tribunal applied the proviso to Section 153C, determining that the assessment for AY 2013-14 fell within the block period and should have been completed under Section 153C.Treatment of competing arguments: The Tribunal dismissed the Department's argument that the assessment was rightly completed under Section 143(3) due to the search conducted on 16/01/2013.Conclusions: The Tribunal quashed the assessment order passed under Section 143(3) for AY 2013-14, holding it void ab initio.2. Validity of Additions Based on Third-Party DocumentsRelevant legal framework and precedents: The use of documents found during a search on a third party requires compliance with Section 153C, including the recording of satisfaction by the AO of the person searched.Court's interpretation and reasoning: The Tribunal found that the AO did not record satisfaction for the documents seized from the Dhingra Group, which were used to make additions in the assessee's case.Key evidence and findings: The documents from the Dhingra Group were not accompanied by a satisfaction note indicating they belonged to the assessee.Application of law to facts: The Tribunal held that without proper satisfaction under Section 153C, the additions based on these documents were not legally permissible.Treatment of competing arguments: The Tribunal rejected the Department's reliance on these documents for making additions without following due process under Section 153C.Conclusions: The Tribunal deleted the additions made based on third-party documents.3. Legality of Approval under Section 153DRelevant legal framework and precedents: Section 153D requires that any assessment order under Section 153A or 153C be approved by a senior officer.Court's interpretation and reasoning: The Tribunal did not specifically address this issue, as the primary focus was on the applicability of Section 153C.Key evidence and findings: Not directly analyzed in the judgment.Application of law to facts: Not directly analyzed in the judgment.Treatment of competing arguments: The Tribunal focused on the procedural aspects of Section 153C rather than Section 153D.Conclusions: Not directly addressed due to the focus on Section 153C.4. Applicability of Section 14A DisallowanceRelevant legal framework and precedents: Section 14A deals with the disallowance of expenditure incurred in relation to income not includible in total income.Court's interpretation and reasoning: The Tribunal did not specifically adjudicate on this issue, as the primary legal ground regarding the validity of the assessment under Section 143(3) was decided in favor of the assessee.Key evidence and findings: Not directly analyzed in the judgment.Application of law to facts: Not directly analyzed in the judgment.Treatment of competing arguments: The Tribunal did not address this issue due to the quashing of the assessment order.Conclusions: Not adjudicated due to the primary legal ground being decided in favor of the assessee.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: The Tribunal held that 'the additions without initiating proceedings u/s 153C in the case of the assessee on the basis of documents seized during the search on 16/09/2011 in case of Dhingra Group is without any foundation.'Core principles established: The assessment for a particular year falling within the block period should be completed under Section 153C if documents belonging to the assessee are found during a search on a third party, and proper satisfaction is recorded.Final determinations on each issue: The Tribunal quashed the assessment order under Section 143(3) for AY 2013-14, deleted the additions based on third-party documents, and did not adjudicate on other grounds due to the primary legal ground being decided in favor of the assessee.