Assessment under sections 153B(1)(b) and 143(3) invalid; search materials required mandatory section 153C procedure instead for jurisdiction

ITAT Delhi-AT held that the assessment framed u/s 153B(1)(b) r.w.s. 143(3) pursuant to search u/s 132 was without valid jurisdiction. No search was conducted at the assessee's premises and the incriminating documents were found at third-party locations and later received by the jurisdictional AO, attracting the mandatory procedure u/s 153C rather than 153A. Relying on a coordinate bench ruling in a similar fact matrix, the Tribunal upheld the assessee's additional ground under Rule 27, declaring the assessment invalid for want of proper assumption of jurisdiction. Consequently, the assessee's cross-objection was allowed and the Revenue's appeal was rendered infructuous and dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether, in an appeal filed by the Revenue, the assessee could invoke Rule 27 of the Income-tax (Appellate Tribunal) Rules and/or cross objections to challenge the assumption of jurisdiction under section 153A of the Income-tax Act.

1.2 Whether an assessment framed under section 153B(1)(b) read with section 143(3) on the footing of a search under section 132 was valid when no search was conducted in the case of the assessee and the seized material was found in the premises of another person, attracting the scheme of section 153C.

1.3 How the "six assessment years" block is to be reckoned in the case of a person other than the searched person under section 153C, in light of the date of receipt of seized material by the jurisdictional Assessing Officer.

1.4 Consequential effect on the assessment and on the Revenue's appeal if the assumption of jurisdiction is found to be invalid.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Assessee's right to challenge jurisdiction under Rule 27 / Cross Objections

Interpretation and reasoning

2.1 The Court noted that the assessee, by cross objections and by placing reliance on Rule 27 of the ITAT Rules, challenged the very assumption of jurisdiction under section 153A and asserted that, if at all, assessment ought to have been made under section 153C.

2.2 The Court held that a jurisdictional objection going to the root of the assessment can be raised at any stage so long as it can be decided on admitted facts. It relied on the Delhi High Court decision which clarified that Rule 27 is not to be read narrowly and permits a respondent to support the order of the first appellate authority on any ground, including one decided against him, particularly where the validity of the proceedings goes to the root of the matter.

Conclusions

2.3 The additional jurisdictional ground in the cross objections was held admissible and liable to be adjudicated, and the assessee was allowed to invoke Rule 27 to assail the assumption of jurisdiction under section 153A.

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Issue 2: Validity of assessment under section 153B(1)(b) r.w.s. 143(3) based on search jurisdiction (sections 132 and 153A) instead of section 153C

Legal framework as discussed

2.4 The assessment was framed under section 153B(1)(b) read with section 143(3) pursuant to a search under section 132 in the "Jasmine Buildmart Pvt. Ltd. Group of Cases". The assessee contended that:

(a) No panchnama was drawn in the name of the assessee and no search was conducted at its premises.

(b) Alleged incriminating material "belonging to" the assessee was found in the premises of another person.

(c) In such a situation, the proper route for assessment is under section 153C and not under section 153A read with section 153B(1).

2.5 Reliance was placed on judicial precedents, including the decisions discussing section 153C and its proviso, and on the proposition that jurisdictional pleas may be taken at any stage.

Interpretation and reasoning

2.6 The Court examined the panchnama and found that the search under section 132 was not conducted in the name or at the premises of the assessee. The so-called incriminating material relied upon by the Assessing Officer was received by the jurisdictional Assessing Officer of the assessee on 29.08.2013.

2.7 On these admitted facts, it concluded that the assessee was a "person other than the searched person" and that the case fell squarely within the ambit of section 153C, which specifically governs assessments where seized material "belongs to" a person other than the one searched.

2.8 The Court also noted that the "search year" in the group was assessment year 2014-15, while the year under consideration was 2012-13, and, having regard to the date of receipt of the seized material, the present year fell within the relevant block period only under the scheme of section 153C.

2.9 A coordinate Bench ruling in a connected case (for similar assessment year in the case of a director of the group) was relied on, where on similar facts it had been held that the assessment could only be framed under section 153C and not under the regular provisions.

Conclusions

2.10 The Court held that the Revenue proceeded on an incorrect assumption that a search had been conducted on the assessee and wrongly invoked section 153A / 153B. The correct legal route for assessment was under section 153C. Consequently, the impugned assessment under section 153B(1)(b) r.w.s. 143(3) was without jurisdiction and void.

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Issue 3: Reckoning of block period of "six assessment years" under section 153C

Legal framework as discussed

3.1 The Court referred to the first proviso to section 153C, as explained and applied by higher judicial authorities. It observed that, for a person other than the searched person, the starting point for computing the block of six (or ten) assessment years is the date on which the books of account, documents or assets seized are received by the jurisdictional Assessing Officer.

3.2 Judicial authorities were cited to affirm that, in a 153C situation, the "previous year of search" is effectively substituted by the year in which such seized material is handed over to the jurisdictional Assessing Officer of the non-searched person, and that the Revenue's contention that the block is to be reckoned only with reference to the date of search was not sustainable.

Interpretation and reasoning

3.3 Applying this principle, the Court noted that the seized documents relating to the assessee were received by the jurisdictional Assessing Officer on 29.08.2013. The present assessment year 2012-13, therefore, fell within the six-year block period only when computed from this date of receipt under the scheme of section 153C, not from the date of the original search as if the assessee were the searched person.

Conclusions

3.4 The block period had to be reckoned with reference to the year of receipt of the seized materials by the jurisdictional Assessing Officer, reinforcing that the assessment of the assessee should have been undertaken under section 153C, not under section 153A / 153B as a searched person.

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Issue 4: Consequences of invalid jurisdiction on assessment and Revenue's appeal

Interpretation and reasoning

4.1 Having held that the assumption of jurisdiction under section 153A / 153B was invalid and that the impugned assessment was void ab initio, the Court considered the impact on the issues raised by the Revenue on the nature of surrendered income and the allowability of related expenditure.

4.2 Since the very foundation of the assessment stood quashed, the merits of the Revenue's grounds regarding characterisation of the surrendered amount and deductions thereon became academic.

Conclusions

4.3 The additional ground in the cross objections was sustained; the cross objections were allowed.

4.4 The impugned assessment order was quashed as void for lack of jurisdiction.

4.5 The Revenue's appeal was rendered infructuous and was dismissed.

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