2025 (10) TMI 985 - AT - Income Tax

Deletion of additions under Sections 153A/153C upheld where seized documents showed no undisclosed income and transactions were declared

ITAT JAIPUR upheld the CIT(A)'s deletion of additions made under s.153C, holding that the seized documents did not disclose any undisclosed income. The ... Assessment u/s 153C - non specific reference to incriminating seized material in the satisfaction note recorded by AO for issue of notice u/s 153C - HELD THAT:- As is evident from the above satisfaction note that the issue that has been observed and noted is already disclosed and offered in the ITR filed. Record reveals that there apart, four Ikrarnama were relied upon, however were related to the same transaction of sale of land. The contention of the AR was that the same was supplied by the appellant during post search investigation and were not seized while the search. These facts, were not controverted by the DR. We find that these facts are narrated in the assessment order for AY 2012-13. It is not disputed that the entire transaction of sale consideration of Rs. 10.43 crore was disclosed in the return of income filed for AY 2012-13 and AY 2014-15 and the capital gain liability arising thereon was duly disclosed therein. These crucial facts are stated in the satisfaction note itself and even the ld. CIT DR admitted the same. It was not the case of the revenue that based on the seized material, the appellant was found to have declared lesser amount of sale consideration than declared in the agreements and in the return of income. Thus, once admittedly no undisclosed income was emanating from the seized documents, the same could not be termed as incriminating material. In the case of M/s Rigid Conductors (Supra) Pvt. Ltd. Jaipur [2023 (5) TMI 1102 - ITAT JAIPUR] it is held by the co-ordinate bench of ITAT Jaipur, that the registered property deed cannot be considered as incriminating material. It is noted that the only dispute raised was that the appellant has claimed a very high amount of indexed cost of acquisition based on the fair market value as on 01.04.1981 this year, as compared to AY 2012-13. Before us AO through ld. DR failed to establish that how such information was coming out of the seized material, so as to be termed as undisclosed income. [apart from being a matter of difference of opinion only to be given by the experts] The contentions of the CIT DR as regards the assessment for AY 2012-13, firstly, are not relevant as that year is not before us. However, in any case, there also she admitted that the transaction was fully disclosed in the return of income and some variation was made by the AO against which first appeal was filed and filed which was settled through VSVS. These facts in no manner helps the revenue in finding a fault in the decision of the CIT(A) against which the revenue is an appeal. It is evident that it was nothing but a case of review of the information which are already disclosed, considered and available on the record of the AO, much prior to the date of the search. Hence, there was nothing in the nature of incriminating material was found. Thus, the information upon which the addition was made is nothing but the accounted and assessed transaction and thereby consequent upon search the completed transaction or that of the assessment cannot be subjected to review without finding any incriminating document. Having noted that basic facts and considering the legal decision the CIT(A) has correctly directed to delete the addition. No infirmity in the finding of CIT(A) in accepting the plea of the Assessee that there is no incriminating document which was seized in the course of search relating to the addition sought to be made on account of the capital gain so arising on account of sale of the land partly this year, is already accepted and reflected in the return of income filed by the assessee in the relevant assessment years (AY 2012- 13 & 2014-15) and even the assessment of these stood completed. Therefore, the jurisdictional requirement of invoking the provision of section 153A r.w.s. 153C of the Act was not satisfied in this case and therefore, we upheld the finding of the CIT(A) based on the reasoned stated herein above and considering the binding decisions of various High Courts and final findings of the Apex Court on the decision cited here in above, we see no reason to interfere with the order passed by the CIT(A). ISSUES PRESENTED AND CONSIDERED 1. Whether a notice issued under section 153C is valid where the satisfaction note does not identify incriminating seized material that has a bearing on the specific assessment years sought to be reopened. 2. Whether additions in completed/unabated assessments can be sustained under section 153C in absence of incriminating material unearthed in search/requisition. 3. Whether notices/assessments under section 153C are time-barred by the limitation periods applicable under section 153B (and related provisions) when seized records were handed over earlier than the date of formal transfer of jurisdiction. 4. Whether assessments under section 153C fall outside the permissible block of years when the relevant block (six/ten years) is computed from the date of receipt of seized material by the jurisdictional AO of the non-searched person. 5. Whether the assessing officer may rely on predecessors' findings or registered documents/agreements (including property deeds) as 'incriminating material' for the purpose of invoking section 153C. 6. Whether substantive additions (disallowance of indexed cost of acquisition and cost of improvement) and consequential interest (sections 234A/234B/234C) are sustainable where the section 153C notice/assessment is found invalid for want of jurisdiction/incriminating material. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notice under section 153C where satisfaction note lacks year-wise identification of incriminating seized material Legal framework: Section 153C empowers the AO of a non-searched person to proceed if books/documents/assets seized in search on another person 'have a bearing on the determination of the total income' of the non-searched person for specified years; the jurisdictional AO must record satisfaction showing such bearing. Precedent treatment: Authorities (Supreme Court and High Courts) require that satisfaction notes must reflect application of mind and year-wise nexus between seized material and the income of the third person; mere transfer or generic recital is insufficient. Decisions emphasise that registered documents or material already available in records are not necessarily 'incriminating material'. Interpretation and reasoning: The Tribunal analysed the satisfaction note and found it did not record how the seized documents produced information that bore on the assessee's income year-wise. The satisfaction largely repeated disclosed information already in income-tax records and did not identify incriminating content seized during search that would alter completed assessments. Ratio vs. Obiter: Ratio - a satisfaction note that fails to identify seized material and its bearing year-wise cannot validly invoke section 153C. Obiter - observations on what constitutes sufficient detail in various factual patterns. Conclusion: Notice under section 153C was invalid because the AO's satisfaction did not specify incriminating seized material having bearing on the assessment years; AO effectively borrowed conclusions without independent year-wise reasoning. Issue 2 - Power to alter completed/unabated assessments under section 153C absent incriminating material Legal framework: Section 153C operates to enable assessment/reassessment in respect of years within the prescribed block where seized material is shown to be incriminating; AbhisarBuildwell and related precedence hold that completed/unabated assessments may be interfered with under search provisions only if incriminating material is found. Precedent treatment: Binding jurisprudence (Supreme Court and High Courts) establishes that absent incriminating material, AO cannot make additions in completed assessments under section 153C; recourse remains to re-assessment under sections 147/148 subject to their conditions. Interpretation and reasoning: Here the transactions (sale consideration and LTCG) were disclosed in the assessee's returns and earlier assessments; the seized/registered documents did not reveal undisclosed income or suppression of consideration. The AO's additions were based on comparisons of existing returns/assessments rather than newly found incriminating material. Ratio vs. Obiter: Ratio - additions in completed assessments under section 153C require incriminating material discovered during search; absent such material, section 153C cannot be the basis for additions. Obiter - procedural notes on when reassessment under sections 147/148 remains open. Conclusion: Additions in completed/unabated assessments could not be sustained under section 153C because no incriminating material was unearthed; the correct course (if any) would have been reassessment under section 147/148 subject to statutory requirements. Issue 3 - Limitation: whether notices/assessments under section 153C were time-barred having regard to section 153B and date of receipt of seized records Legal framework: Section 153B prescribes the time limits for completion of assessments following search/requisition; the first proviso to section 153C treats date of receipt of seized records by the AO of the non-searched person as the relevant reference for computing the block of years. Jurisprudence requires strict reckoning of limitation and the date of physical/official handover or effective receipt. Precedent treatment: Courts have emphasised that the date of handover/receipt (or date of satisfaction note where handover date is not established) is material for limitation; long unexplained delay or failure to show date of receipt can render notices/orders time-barred. Interpretation and reasoning: The record showed seized records were transmitted by investigation wing to the jurisdictional AO earlier (letter dated 18.03.2019) though the AO who issued notices relied on a later transfer of jurisdiction date. The Tribunal accepted that limitation must be reckoned from effective receipt/handing over, not merely from administrative transfer; consequently the assessments and notices issued much later exceeded prescribed time limits. Ratio vs. Obiter: Ratio - limitation under section 153B/first proviso to section 153C must be computed from the date of actual receipt/handing over of seized records (or, where appropriate, the date recorded in satisfaction note), and delay may invalidate subsequent notices/orders. Obiter - discussion on analogous equitable considerations where statute is silent. Conclusion: Notices and assessments were time-barred to the extent the AO could not demonstrate receipt within the statutory window; accordingly limitation objection supported invalidity of the impugned proceedings (this finding contributed to quashing the assessment). Issue 4 - Computation of the block of years (six/ten years) and jurisdictional reach of section 153C Legal framework: Section 153C references the block of six years preceding the assessment year relevant to the previous year in which the seized records are received by the AO of the non-searched person (first proviso). The block may be extended to ten years only if statutory conditions (fourth proviso to section 153A) are satisfied. Precedent treatment: Courts have repeatedly held that the block must be calculated from the date of receipt by the non-searched person's AO; mis-computation can place sought years outside jurisdiction and invalidate notices/orders for those years. Interpretation and reasoning: If the AO's asserted date of receipt (03.03.2022) were accepted, the relevant six-year block would have been AY 2016-17 to 2021-22, making AY 2014-15 outside the block; alternatively, evidence indicated receipt occurred earlier, and in any event the AO did not justify invoking extended ten-year period. The AO's inconsistent stance undermined jurisdiction over earlier assessment years. Ratio vs. Obiter: Ratio - block years under section 153C must be computed from the date of receipt of seized materials by the jurisdictional AO; years falling outside that block cannot be subjected to section 153C proceedings. Obiter - commentary on conditions necessary to invoke ten-year extension. Conclusion: The AO lacked jurisdiction to invoke section 153C for assessment years outside the statutory block; the impugned assessment year was therefore not properly within the section 153C ambit. Issue 5 - Whether registered property deeds/agreements or predecessor AO's findings can be treated as incriminating material Legal framework: Incriminating material for section 153C must be material unearthed in the search/requisition that discloses undisclosed income or misrepresentation not previously apparent in the assessed records; mere registered documents or material already in public or tax records generally do not qualify. Precedent treatment: Decisions caution against treating registered property deeds or documents already known/available as 'incriminating' unless they disclose new facts not previously on record. Interpretation and reasoning: The documents relied upon were either registered sale/possession agreements already considered in prior returns/assessments or materials supplied during post-search investigation; they did not disclose concealed consideration or new incriminating facts. AO chiefly relied on predecessor's conclusions rather than independent seized incriminating evidence. Ratio vs. Obiter: Ratio - registered property deeds/previously available documents are not de facto incriminating material; AO must demonstrate that seized material revealed new incriminating facts. Obiter - on the need for independent exercise of mind by the receiving AO. Conclusion: The documents did not constitute incriminating material sufficient to support section 153C proceedings; reliance on predecessor's findings and registered deeds was inadequate. Issue 6 - Validity of substantive additions (indexed cost disallowance, cost of improvement) and consequential interest where section 153C proceedings are invalid Legal framework: If the foundational notice/assessment under section 153C is invalid for want of jurisdiction or incriminating material, consequential additions and interest based on that assessment cannot stand; interest rules (sections 234A/234B/234C) also have independent conditions (e.g., advance tax exceptions for senior citizens). Precedent treatment: Courts have quashed additions and incidental consequences where the initiating proceedings were invalid; interest liability must be re-computed in light of appellate outcomes and statutory exceptions. Interpretation and reasoning: Tribunal upheld the appellate authority's deletion of additions because they were premised on invalid section 153C proceedings. On interest, the record showed the assessee was a senior citizen with no business income; earlier appellate order had deleted 234B interest, and the same consequence applies here - interest charges tied to the quashed additions cannot be sustained and must be adjusted in conformity with applicable exceptions. Ratio vs. Obiter: Ratio - substantive additions and consequential interest founded on invalid section 153C proceedings fall; interest cannot be sustained where statutory conditions for advance-tax liability are not met. Obiter - procedural direction to give effect to appellate order and compute interest accordingly. Conclusion: Additions disallowing indexed cost and cost of improvement, and consequential interest charged under sections 234A/234B/234C, could not be sustained because the section 153C notice/assessment lacked jurisdiction and incriminating foundation; interest to be adjusted consistent with statutory exceptions and appellate directions.