Investigation Officer's failure to issue required certificate invalidates Section 153A proceedings despite cash seizure during elections

The ITAT Mumbai quashed proceedings under Section 153A for assessment years 2019-20 and 2020-21 due to procedural violations. Cash of Rs. 10 lakh was found during election period, but the department failed to comply with Rule 112F and CBDT Circular No.10 of 2012. The Investigation Officer did not issue the required certificate with Director General approval before initiating proceedings. Despite finding cash and diary during surveillance, no proper investigation was conducted. The tribunal held that without following prescribed procedures for election period seizures, the assessment officer could not validly issue Section 153A notices for six earlier assessment years.

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The core legal issues considered in this judgment revolve around the validity and procedural correctness of assessment proceedings initiated under Section 153A read with Rule 112F of the Income Tax Rules, in the context of cash seizure during the election period. Specifically, the Tribunal examined:

• Whether the Assessing Officer (AO) erred in passing assessment orders without providing a copy of the certificate duly signed by the Investigating Officer under Rule 112F read with Section 153A and Circular No. 10/2012.
• Whether the AO was required to record satisfaction under Section 153A read with Rule 112F before initiating assessment proceedings.
• Whether the AO erred in mechanically relying on approval granted under Section 153D without considering Rule 112F provisions.
• The validity of additions made based on seized material, particularly "dumb documents" lacking signatures, names, and dates.
• Whether the assessment notices issued under Section 153A for six preceding assessment years were valid in light of the provisions of Rule 112F and the third proviso to Section 153A, given the seizure of cash during the election period.

Issue-wise detailed analysis is as follows:

1. Validity of Assessment Proceedings under Section 153A and Rule 112F:

The legal framework involves Section 153A of the Income Tax Act, which mandates assessment or reassessment for six assessment years preceding the year in which search or requisition is made. However, the third proviso to Section 153A empowers the Central Government to specify cases where such notices are not required. Pursuant to this, Rule 112F was inserted to exclude cases where search or requisition is made during the election period in an assembly or parliamentary constituency, and where seized assets are connected to the ongoing election process.

CBDT Circular No. 10/2012 elucidates that in such cases, the Investigating Officer, with approval of the Director General of Income Tax, must certify that the search/requisition was in the territorial area of an election constituency, the assets seized relate to the election process, and no evidence or investigation is required for assessment years other than the year relevant to the search/requisition. This certificate must be communicated to the Commissioner of Income Tax and the AO.

In this case, cash of Rs. 10,00,000 was intercepted during the General Election of 2019 from the vehicle in which the assessee was present. The cash and a red cash voucher book were seized and requisition was made under Section 132A. The AO initiated proceedings under Section 153A for six preceding years and the relevant assessment year.

The assessee contended that since the cash was seized during the election period, and the case falls under Rule 112F, the AO was not entitled to issue notices for six preceding years without the prescribed certificate. The AO and Revenue argued that the case did not fully fall within Rule 112F because the seized diary contained incriminating information requiring investigation beyond the relevant assessment year, and therefore, issuance of notices was justified.

The Tribunal examined the facts and noted that the cash was seized during the election period, and the seizure was made in the territorial area of an election constituency. Furthermore, the AO admitted that no certificate as mandated under Rule 112F and Circular 10/2012 was issued or communicated. The Tribunal emphasized that the procedure prescribed by Rule 112F and the Circular is mandatory and non-compliance renders the assessment proceedings invalid.

The Tribunal rejected the Revenue's argument that the presence of the diary justified initiation of proceedings for six years, noting that the diary was found along with the seized cash and no further investigation was carried out to warrant assessment for multiple years. The Tribunal held that the case squarely falls within the ambit of Rule 112F, and the AO was precluded from issuing notices for six preceding years without the requisite certificate.

Consequently, the Tribunal concluded that the entire assessment proceedings under Section 153A for AY 2019-20 and 2020-21 were bad in law and quashed the same.

2. Requirement of Providing Copy of Certificate under Rule 112F:

The assessee raised a legal ground that the AO erred by not providing a copy of the certificate signed by the Investigating Officer as required under Rule 112F and Circular No. 10/2012. The Tribunal noted that the AO admitted no such certificate was issued. The Tribunal held that this procedural lapse was fatal to the validity of the assessment proceedings.

3. Necessity of Recording Satisfaction under Section 153A read with Rule 112F:

The assessee contended that the AO failed to record satisfaction as mandated under Section 153A read with Rule 112F. The Revenue submitted that no satisfaction note is required under Section 153A for cases where warrant under Section 132/132A is issued. The Tribunal accepted the Revenue's submission, holding that recording satisfaction is not a statutory requirement under Section 153A.

4. Reliance on Approval under Section 153D:

The assessee challenged the AO's reliance on approval granted under Section 153D in a mechanical manner without considering Rule 112F. The Revenue produced a copy of the approval. Given that the Tribunal quashed the assessment on procedural grounds related to Rule 112F, it did not delve into the merits of this issue.

5. Validity of Additions Based on Seized Material:

The assessee challenged additions made on the basis of the red cash voucher book and cash receipts, arguing that the seized documents were "dumb documents" lacking signatures, names, and dates, thus not admissible for making additions. The Tribunal did not adjudicate on these merits as the entire assessment was quashed on procedural grounds.

6. Time-Barred Appeal and Delay Condonation:

The Tribunal noted that the assessee's appeal was time barred by 192 days. Upon hearing both parties and considering the affidavit filed by the assessee, the Tribunal found a reasonable cause for delay due to lack of awareness and communication gaps. There was no intentional delay or laches. Accordingly, the delay was condoned.

Conclusions:

The Tribunal concluded that the assessment proceedings initiated under Section 153A for the six preceding assessment years were invalid due to non-compliance with the mandatory procedural requirements under Rule 112F and CBDT Circular No. 10/2012. The absence of the Investigating Officer's certificate and failure to communicate the same to the assessee and the Commissioner of Income Tax vitiated the proceedings. The Tribunal held that the AO was precluded from issuing notices for six preceding years when the cash was seized during the election period, unless the prescribed procedure was followed. Consequently, the Tribunal quashed the assessment orders for AY 2019-20 and 2020-21.

Since the assessments were quashed on this ground, the Tribunal did not decide the additional legal grounds or merits of the appeal, rendering them infructuous.

Significant holdings and core principles established include:

• "The case of the assessee thus clearly falls within the scope and ambit of Rule 112F read with third proviso to Section 153A."
• "Once the procedure prescribed in said rule as clarified by the CBDT has not been complied with and no certificate has been issued by the Investigation Officer even when the cash was found during the election period, ld. AO could not have issued notices u/s. 153A for the six earlier assessment years."
• "The entire proceedings u/s. 153A for the A.Y.2019-20 and 2020-21 is held as bad in law and accordingly, the same is quashed."
• "The amendment was introduced to reduce infructuous and unnecessary proceedings under the Income Tax Act in cases where search is conducted u/s. 132 or requisition was made u/s. 132A and cash were seized during the election period on a single warrant and no evidence is available or investigation is required."

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