Assessment framed under section 143(3) for AY 2023-24 quashed; should have been initiated under section 153C for 2017-18 to 2022-23

ITAT held that the assessment framed under section 143(3) dated 31.12.2022 was unsustainable and ought to have been initiated under section 153C; accordingly the impugned assessment was quashed. The Tribunal determined the assessment year for the present proceedings to be AY 2023-24 and held that AYs 2017-18 through 2022-23 were the relevant years for proceedings under section 153C. The assessee's challenge was accepted in view of coordinating bench decisions.

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ISSUES PRESENTED AND CONSIDERED

1. Whether an assessment finalized under Section 143(3) is valid when satisfaction for initiation of proceedings under Section 153C r.w.s. 153A is recorded on a later date, and if not, whether such assessment must be quashed.

2. Whether the date of recording of satisfaction for purposes of Section 153C is to be treated as the deemed date of search and, consequently, how the period of limitation and the relevant assessment years are to be reckoned.

3. Whether decisions of Coordinate Benches addressing identical facts (search/cloned data) are to be followed in determining the appropriate jurisdictional provision (Section 153C v. Section 143(3)) and the validity of assessments framed under Section 143(3).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of assessment under Section 143(3) where satisfaction for Section 153C proceedings was recorded on a later date

Legal framework: Section 153C r.w.s. 153A governs assessment proceedings in respect of any person in whose case any books of account, etc., seized or requisitioned belong or pertain to; the statutory scheme treats the date of recording of satisfaction for initiation of proceedings under Section 153C as the deemed date of search for the non-searched person.

Precedent Treatment: Coordinate Benches of the Tribunal dealing with identical search data and cloned material have held that where satisfaction under Section 153C is recorded, assessment proceedings must be initiated under Section 153C and not under Section 143(3). Those decisions were followed by The Tribunal in the instant matter.

Interpretation and reasoning: The Tribunal reasoned that the satisfaction note dated 30.12.2022, recorded for initiating proceedings under Section 153C, operates as the deemed date of search for the non-searched person; consequently, the AO's proceeding directly under Section 143(3) (finalising assessment on 31.12.2022) was constitutionally and legally misplaced because the statutory scheme required initiation of proceedings under Section 153C. The presence of seized data (forensic extraction of WhatsApp images and cash-related material) linking unexplained cash to construction expenses of the relevant property placed the matter squarely within the ambit of Section 153C.

Ratio vs. Obiter: Ratio - where satisfaction for initiating Section 153C proceedings is recorded, the appropriate mode of assessment for the non-searched person is under Section 153C and not under Section 143(3); an assessment completed under Section 143(3) in such circumstances is invalid and liable to be quashed. Obiter - factual observations regarding the nature of the seized material as corroborative evidence for cash expenditures.

Conclusions: The assessment order passed under Section 143(3) was quashed because proceedings ought to have been initiated under Section 153C upon recording of satisfaction. The Tribunal allowed the appeal on this ground.

Issue 2: Deemed date of search, limitation and relevant assessment years

Legal framework: Statutory scheme provides that for a non-searched person, the date of recording of satisfaction to initiate Section 153C proceedings is treated as the date of search; limitation for assessment under Section 153C is to be reckoned from that deemed date of search.

Precedent Treatment: Coordinate Bench decisions (involving the same set of seized/cloned data) were treated as authoritative for determining the correct computation of limitation and the relevant assessment years following the recorded satisfaction date.

Interpretation and reasoning: The Tribunal applied the principle that the satisfaction note recorded on 30.12.2022 is the deemed date of search for the non-searched person. From that date, the Tribunal computed the six-year period and determined the assessment years which could be legitimately reopened or proceeded against under Section 153C: the years 2017-18 through 2022-23 fall within the six-year window, and the assessment year 2023-24 corresponds to the previous year in which the deemed search took place. The Tribunal treated the recordation date as determinative for all limitation calculations and for delineating the scope of Section 153C proceedings.

Ratio vs. Obiter: Ratio - the computation of limitation and identification of relevant assessment years must use the date of recording of satisfaction under Section 153C as the deemed date of search; thus, the permitted assessment years are those within the statutory period reckoned from that date. Obiter - numeric illustration of the specific assessment years in the case at hand.

Conclusions: The deemed date of search is 30.12.2022 for limitation purposes; six-year reckoning from that date yields A.Y. 2017-18 to A.Y. 2022-23 as relevant years for proceeding under Section 153C, and A.Y. 2023-24 corresponds to the previous year in which the search was deemed to have been conducted.

Issue 3: Applicability of Coordinate Bench precedent and dispositive effect on assessments framed under Section 143(3)

Legal framework: Legal consistency and application of Tribunals' precedents on identical factual matrices are material to deciding whether an assessment conforms to the statutory requirements (i.e., initiation under Section 153C when seized data pertains to a non-searched person).

Precedent Treatment: The Tribunal expressly followed several Coordinate Bench decisions concerning the same search operation and cloned data; those decisions held that assessments for the non-searched persons had to be under Section 153C and not Section 143(3).

Interpretation and reasoning: Given identical facts - forensic extraction of data linking cash components to construction of a property and satisfaction notes recording undeclared cash - the Tribunal applied the established ratio of the Coordinate Benches. The Tribunal held that where the Assessing Officer finalised assessment under Section 143(3) notwithstanding a recorded satisfaction to invoke Section 153C, such assessments are vitiated for jurisdictional error. The Tribunal applied the precedent mutatis mutandis to each appeal before it.

Ratio vs. Obiter: Ratio - Coordinate Bench decisions on identical facts are binding for the Tribunal's determination that assessments framed under Section 143(3) were improper where Section 153C proceedings should have been initiated; the Tribunal's conclusion to quash the impugned orders follows directly from that precedent. Obiter - reference to specific factual extracts from the seized material relied upon by the Coordinate Benches.

Conclusions: The Tribunal followed Coordinate Bench precedents and applied their reasoning to quash the assessments framed under Section 143(3), holding that such orders ought to have been passed under Section 153C; appeals were allowed accordingly.

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