Validity of proceedings under Section 153C questioned as ledger entries show expenses and TDS; AO ordered to decide objections

Challenge to validity of proceedings under Section 153C focused on whether the foundational jurisdictional fact for invoking the provision exists. The argument was that ledger entries recovered from searched premises relate to expenditure and show tax deducted at source, affecting characterization of the entries as assets and thereby the statutory premise for issuing a Section 153C notice. Court found a plausible ground to oppose the proceedings on that basis and directed the assessing officer to decide the petitioners objections by a specified date, with a reasoned order to be communicated to the petitioner.

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Issues: Whether proceedings initiated under Section 153C of the Income-tax Act, 1961 against the petitioner are maintainable where the alleged entries reflect expenditure (with TDS deduction) rather than creation of an asset, and whether the Assessing Officer must first decide the petitioners jurisdictional objections and representations by a reasoned order.

Analysis: The Court considered whether the foundational fact required to invoke Section 153C namely, material indicating creation of an asset by the petitioner exists on the record, noting that the ledger entries relied upon pertain to expenditure and that TDS has been deducted. The Court observed that the petitioner has filed representations/replies raising jurisdictional objections which remain undecided by the Assessing Officer. Given these circumstances the Court found the petitioner has a plausible ground to oppose the Section 153C proceedings and directed the Assessing Officer to decide the petitioners objections/representations by a reasoned order within a specified timeline. The Court also provided limited interim relief by keeping further action on the show cause notice in abeyance for a short period to enable the petitioner to avail remedies if dissatisfied with the AOs order.

Conclusion: The Court required the Assessing Officer to decide the petitioners representations and jurisdictional objections by a reasoned order within the prescribed period and granted limited interim protection by keeping the proceedings arising from the notice dated 04.11.2025 in abeyance until a specified date; this outcome is partly in favour of the assessee.

Ratio Decidendi: Where the material relied upon to invoke Section 153C reflects expenditure (with TDS deduction) rather than creation of an asset, the Assessing Officer must first consider and record a reasoned decision on jurisdictional objections before proceeding further, and interim abeyance may be granted to protect the petitioners right to seek remedies against that decision.

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