2025 (8) TMI 1249 - AT - Income Tax

Assessee's s.153C assessment quashed: satisfaction defective for failing Rs.50 lakh threshold, relevance and time limits

ITAT DELHI allowed the assessee's appeal and quashed the s.153C assessment framed on 28.12.2018. The Tribunal held the s.153C(1) satisfaction dated ... Validity of the assessment u/s 153C - scope of statutory amendment in Section 153A (second proviso) inserted by a Finance Act, 2017 with effect from 1.4.2017 and adopted mutatis mutandis for section 153C(1) - Revenue’s case is that assessee’s case herein falls within the amended statutory expression “and for the relevant assessment year/(s) referred to in sub-section (1) of section 153A” and therefore it falls within the statutory block period. HELD THAT:- Section 153C(1) 1st proviso adopts the date of initiation of search in such a third person’s case as “date of receiving books …. .”, by the jurisdictional Assessing Officer of the person other than the searched person. We adopt the very statutory expression herein and find that going by the date of section 153C satisfaction recorded on 23.3.2018 by the assessee’s jurisdictional Assessing Officer, the assessment year 2011-12 before us is than beyond the said block of six assessment years. Revenue’s reliance on statutory amendment in Section 153A (second proviso) inserted by a Finance Act, 2017 with effect from 1.4.2017 and adopted mutatis mutandis for section 153C(1) - We quote PCIT v. Ojjus Medicare Pvt. Ltd. [2024 (4) TMI 268 - DELHI HIGH COURT] sub para ‘B’ that before the learned Assessing Officer records the corresponding section 153C satisfaction, there has to be a clear cut indication therein that the income having escaped must satisfy the threshold limit of Rs. fifty lakhs. We thus accept the assessee’s instant legal ground as the learned Assessing Officer; be that in case of the searched assessee as well as the appellant herein, had nowhere recorded any such satisfaction invoking the pecuniary limit of Rs. fifty lakhs and therefore the Revenue’s endeavour to treat the impugned A.Y. 2011-12 as falling within section 153C is declined in very terms. As evident from a perusal of these twin impugned section 153C satisfactions, both dated 23.3.2018, that there is no clarity found as to whether the corresponding seized material ‘Annexure A-4” in fact pertains or pertained to or any information contained therein, relates to the assessee(s) as prescribed under clause (b) thereof. We are afraid that the amended section 153C(1) with effect from 1.6.2015 stipulates that such document could only “pertains or “pertain” to/or any information contained therein could “relevant to” any third person other than the searched assessee. This is for the precise reason that the legislature’s instant amendment had substituted the earlier provision wherein such seized document(s) could also belong to persons other than the searched assessee. We thus conclude that both going by the specified assessment years as well as validity of the impugned section 153C satisfaction note herein the impugned section 153C assessment framed on 28.12.2018 in the instant case is not sustainable in law. The same is accordingly quashed. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessment framed under section 153C for assessment year 2011-12 is valid where the search was carried out in July 2015 and the section 153C satisfaction was recorded on 23.03.2018, given the six-assessment-year limitation. 2. Whether the amended provisos to section 153A (as applied mutatis mutandis to section 153C) and the requirement of recording a threshold satisfaction of 'income having escaped' exceeding Rs. 50 lakhs (post-amendment) validate assessments for years outside the six-year block absent such recorded satisfaction. 3. Whether a section 153C satisfaction is valid when the satisfaction note and seized material do not clearly record that the seized documents 'pertain to' or contain information 'relevant to' the person other than the searched person, as required by the post-1.6.2015 amendment to section 153C(1). ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of section 153C assessment for A.Y. 2011-12 (statutory time bar) Legal framework: Section 153C operates to enable assessment of a person other than the searched person where books or documents seized during a search relate to that other person; assessment years within the statutory 'block' arising from the date of initiation of search are ordinarily assessable, subject to the statutory six-assessment-year limitation. Precedent Treatment: The court applied the principles articulated in recent authority(s) holding that the six-assessment-year block is determinative, and that the date of recording the section 153C satisfaction (or the date of initiation of search as integrated into statutory text) controls the temporal scope of assessments under section 153C. Interpretation and reasoning: The Court adopts the statutory expression that section 153C(1) 1st proviso uses the date of initiation of search in the searched person's case as the date of 'receiving books' by the jurisdictional AO of the third person; the satisfaction in the assessee's file was recorded on 23.03.2018, and on that date the assessment year 2011-12 lay beyond the six-assessment-year block. Hence the assessment framed for A.Y. 2011-12 is time-barred. Ratio vs. Obiter: Ratio - the controlling principle that the section 153C assessment must fall within the six-assessment-year block as ascertained by the relevant statutory date of satisfaction/receipt; application of that principle leads to quashing of assessments for years outside the block. Conclusion: The section 153C assessment for assessment year 2011-12 is not sustainable as it falls outside the six-assessment-year statutory block when measured by the operative date of satisfaction (23.03.2018). ISSUE-WISE DETAILED ANALYSIS - Issue 2: Effect of Finance Act, 2017 amendment (second proviso to section 153A) and requirement of recording pecuniary satisfaction Legal framework: The Finance Act, 2017 amendment to section 153A introduced a proviso requiring recording of satisfaction that income which has escaped assessment exceeds a specified threshold (Rs. 50 lakhs), and the amendment has been read mutatis mutandis into section 153C satisfaction requirements. Precedent Treatment: The judgment relies on and follows reasoning in authority holding that before an AO records a section 153C satisfaction, there must be a clear, recorded satisfaction that the income escaped meets the pecuniary threshold; absence of such recorded satisfaction invalidates invoking the extended block period under the amended provisions. Interpretation and reasoning: The Court finds no recorded satisfaction by the Assessing Officer invoking the pecuniary limit of Rs. 50 lakhs either in relation to the searched assessee or the appellant; absent the threshold satisfaction, the Revenue cannot extend the temporal scope of assessments by invoking the amended proviso. The Court accepts that the Assessing Officer failed to satisfy the statutory requirement prior to framing assessment under section 153C. Ratio vs. Obiter: Ratio - a statutory threshold satisfaction under the amended proviso must be recorded by the AO for the amendment to operate; lack of such recording prevents application of the extended period. Conclusion: The Revenue's contention that the amended proviso brings the impugned assessment within the block fails because the required pecuniary satisfaction was not recorded; consequently, the section 153C assessment cannot be sustained on that basis. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Sufficiency and content of section 153C satisfaction note and seized material linkage Legal framework: Post-1.6.2015 amendment to section 153C(1) substituted language requiring that seized documents 'pertain to' or contain information 'relevant to' a person other than the searched person (replacing earlier broader language that allowed seized documents to merely 'belong to' other persons). Precedent Treatment: The Court treats the amended statutory language strictly; earlier permissive interpretations that allowed 'belonging to' persons other than the searched person are superseded by the tighter 'pertain to'/'relevant to' formulation. Interpretation and reasoning: The twin satisfaction notes dated 23.03.2018 lack clarity whether the seized Annexure A-4 in fact pertains to or contains information relevant to the appellant. The Department's reliance on an assertion at the bottom of the satisfaction that seized documents 'belonged to' the appellant is insufficient because the statute now requires a showing that documents pertain to or are relevant to the third person. Thus, both substantive linkage and the requisite recorded satisfaction are absent. Ratio vs. Obiter: Ratio - a valid section 153C satisfaction must clearly indicate that the seized material pertains to or contains information relevant to the third person; mere notation that documents 'belong' to a person does not satisfy the statutory requirement after amendment. Conclusion: The satisfaction notes are deficient for failing to establish the statutory nexus between seized material and the appellant; this deficiency, together with the time-bar and absence of pecuniary satisfaction, renders the section 153C assessment unsustainable. OVERALL CONCLUSION AND EFFECT The section 153C assessment framed for assessment year 2011-12 is quashed because (a) the assessment year falls outside the six-assessment-year block when measured by the operative satisfaction/receipt date; (b) the Assessing Officer did not record the statutory pecuniary satisfaction required by the amended proviso (Rs. 50 lakhs) that would permit extending the block period; and (c) the satisfaction notes do not establish that the seized documents 'pertain to' or contain information 'relevant to' the person other than the searched person as required by the post-1.6.2015 amendment. All other merits issues are rendered academic.