AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1513
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....hia. Various incriminating papers/ documents were found and seized during the course of search and seizure operation in the group cases. The AO passed the assessment order u/s. 143(3) of the Act on 27.12.2017 wherein the returned income was accepted at Rs. 6,20,97,150/-. Accordingly, the claim of short term capital gains on sale of shares of M/s KD Trend Wear Limited and M/s Parnav Sports Academy Limited was not disturbed. Thereafter, the PCIT initiated the proceedings under section 263 of the Act and set aside the assessment order passed by the AO u/s. 143(3) in terms of the provisions of section 263 of the Act and directed the AO to frame fresh assessment after considering the observations of PCIT in the order passed u/s. 263 of the Act on 31.3.2021 to reexamine the issue of short term capital gains involving penny stock. Subsequently, on appeal filed by the appellant before the ITAT against the order passed by the PCIT under section 263 of the Act, the ITAT, Delhi Bench vide its order in ITA No. 456/Del/2021 dated 04.04.2022 set aside the aforesaid order of PCIT passed under section 263 of the Act. Subsequently, the Department went in appeal before the Hon'ble Delhi High Court a....
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....3(3) in terms of the provisions of section 263 of the Act and directed the AO to frame fresh assessment after considering the observations of PCIT in the order passed u/s 263 of the Act on 31-03-2021 to re-examine the issue of short-term capital gains involving penny stock. Subsequently, on appeal filed by the appellant before the Hon'ble Income Tax Appellate Tribunal (ITAT) against the order passed by the learned PCIT under section 263 of the Act. The Hon'ble ITAT Delhi Bench vide its order in ITA No 456/Del/2021 dated 04 04.2022 set aside the aforesaid order of PC IT passed under section 263 of the Act. Subsequently, the Department went in appeal before the Hon'ble Delhi High Court against the order passed by Hon'ble ITAT and Hon'ble Delhi High Court upheld the stand of Hon'ble ITAT and decided the matter in appellant's favour in order dated 17-9-2024. In view of this, the appellant contended that the income involving transaction of penny stock has come to finality. However, as said, the appellant has taken a number of grounds challenging the validity of assumption of jurisdiction under section 153C of the Act. He has relied on several decisions of Hon'ble Sup....
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....ver the said seized document after recording the satisfaction to the AO of the appellant. Subsequently, the AO of the appellant recorded his satisfaction on 17 09.2021and issued notice under section 153C of the Act to the appellant on 09.10.2021. The assessment order was passed under section 153C read with section 143(3) of the Acton 27.12 2022. Legal framework for initiation of proceeding under section 153C 6.5 Section 153C of the Act provides as under: (1) Notwithstanding anything contained in section 139, section 147, section 148. section 149, section 151 and section 153. where the Assessing Officer is satisfied that.- (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to. a person other than the person referred to in section 153A. then, the books of account or documents or assets, seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person....
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.... particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess or reassess the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made: Provided that the Assessing Officer shall assess or reassess the total income in respect of each assessment year falling within such six assessment years: 6.7 A collective reading of the aforesaid provisions would provide the legal framework of application of section 153C of the Act where search is conducted before 01 04.2017 In the instant case the search action had taken place on 08.03.2017 In brief, in the case of person other than the searched person, assessment or reassessment under section 153C of the Act was not automatic unlike the case of searched person Such assessment or reassessment could take place only when firstly, the AO of searched person was satisfied that the seized assets/documents belong/pertain/relate to a person other than the searched person and hands over the ....
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....le Supreme Court in CIT v. Singhad Technical Education Society [TS-5145-SC-2017-0] and has been recently endorsed by Hon'ble Delhi High Court in the case of Saksham Commodities Limited in [TS- 5160-HC-2024(Delhi). 6.9 With this background, the case of the appellant is examined. The main ground is whether assumption of jurisdiction under section 153C of the Act would be legally sustainable when there was no incriminating material found/seized This position would be appreciated from the facts of the case Appellant had filed its original return of income under section 139(1) of the Act on 20-08-2015 declaring an Income of INR 6.20,97.150/-. Subsequently, the case of the appellant was selected for scrutiny through CASS for making inquiries on four issues including the Short- Term Capital Gain u/s 111 of the Act AO passed the assessment order under section 143(3) of the Act on 27.12.2017 wherein the returned income was accepted. Thereafter, the PCIT initiated the proceeding under section 263 of the Act and set aside the assessment order passed by the AO u/s 143(3) in terms of the provisions of section 263 of the Act and directed the AO to frame fresh assessment after considerin....
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.... Therefore, in view of the Hon'ble Supreme court's decision in DCIT Vs. U. K. Paints (Overseas) Ltd. [2023] 150 taxmann.com 108 (SC), the decisions of jurisdictional High Court in CIT Vs Kabul Chawla(2016) 380 ITR 573(Delhi) etc., no proceeding could be initiated under section 153C of the Act in the absence of any incriminating documents Accordingly, this ground is allowed. 6.11 The second argument is that the incriminating material, if any pertains to financial year 2015-16 relating AY 2016-17 as evidenced from the satisfaction note of AO of the appellant discussed above As per the satisfaction note, the purported incriminating material is in respect of certain cash transactions for the period 7.12.2015 to 09.12.2015 relating to FY 2015-16 (AY 2016-17). As discussed above, the legal requirement to assume jurisdiction under section 153C of the Act is that such incriminating material should have a bearing on the determination of the total income of the assessee. Apparently, the cash transactions that are relating to the appellant pertain to AY 2016-17 and therefore, do not have a bearing on determination of total income of the appellant for A Y 2015- 16, Appeal No. 26/1....
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....e, there is no dispute to the fact that the assessment year under consideration is an unabated/completed year. In such a situation, assumption of jurisdiction to initiate proceedings is held to be bad in law by the Hon'ble Supreme Court in the case of PCIT Vs Abhisar Build well (P.) Ltd [2023] 149 taxmann.com 399 (SC). The Hon'ble Supreme court in the aforesaid case had held that in respect of completed assessments/unabated assessments no addition can be made by Assessing Officer in absence of any incriminating material found during course of search under section 132 or requisition under section 132A of the Act. Similar view was taken by the jurisdictional High Court in the case of CIT VS. Kabul Chawla, 380 ITR (Delhi) 573. Further, the Hon'ble Supreme Court in another case In DCIT Vs. U. K. Paints (Overseas) Ltd. [2023] 150 taxmann.com 108 (SC), dated 25.04.23 has held, while confirming the decision of the High Court in setting aside the Assessment order that where no incriminating material was found in case of any of assessee either from assesses or from third party, the assessment made under section 153C of the Act is invalid. In the light of the above, the appellant suc....
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.... question could not be considered "unabated" due to the PCIT's intervention and directions, which necessitated a fresh assessment. Further, the issue is complicated by the fact that the matter is still under litigation, with the department having preferred to file a Special Leave Petition (SLP) before the Hon'ble Supreme Court against the decision of the Hon'ble High Court, which had ruled in favor of the assessee and set aside the PCIT's order. Given the ongoing legal proceedings, the assessment for AY 2015-16 cannot be regarded as final, and, consequently, the proceedings under Section 153C are justified. It was further submitted that Ld. CIT(A) also erred in concluding that the proceedings under Section 153C were invalid, and in doing so, overlooked the fact that the entire reassessment process was based on the directions issued by the PCIT in his order under Section 263. The assessment year in question, AY 2015-16, was subject to reassessment and scrutiny, and therefore. The jurisdiction under Section 153C was rightly invoked. She further submitted that Ld. CIT(A) erroneously relied on the rulings in PCIT v. Abhisar Buildwell Pvi. Ltd. (2023), DCIT v. U.K. Paint....
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....53C of the Act and according to which AO has not assumed in accordance with law. His emphasis was on the 'satisfaction note' dated 06.10.2021, at pages 137 to 142 of the Assessee's Paper Book. He further submitted that the deemed date of search, in the case of assessee being the person other than the searched person, is 17.09.2021 when information was handed over to the AO of assessee by AO of searched person as per the decision of the Hon'ble Supreme court in the case of CIT vs. Jasjit Singh (2023) 458 ITR 0437. The Assessing Officer recorded the satisfaction noted on 17.9.2021 for (AY 2021-22, 2020-21, 2019-20, 2018-19, 2017-18, 2016-17) and satisfaction note dated 6.10.2021 for the instant assessment year and issued notice u/s. 153C of the Act dated 09.10.2022. Therefore, the impugned year is beyond 6 years and is thus outside of block period, and hence, the AY 2015-16 is outside the provisions of section 153C of the Act. Also it is noted that as per satisfaction note, year should have been AY 2016-17 and not AY 2015-16 and no material is there for AY 2015- 16, which is contrary to view taken by the Hon'ble Supreme Court in the case of CIT vs. Singhad Technical Education Society....
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....e the provisions of section 153C of the Act. Also it is noted that as per satisfaction note, year should have been AY 2016-17 and not AY 2015-16 and no material is there for AY 2015- 16, which is contrary to view taken by the Hon'ble Supreme Court in the case of CIT vs. Singhad Technical Education Society (2017) 397 ITR 344 (SC). Further, it is observed that Assessing Officer has not recorded satisfaction year-wise rather recorded a satisfaction in single consolidated satisfaction, which is against the law settled by the Hon'ble Supreme Court in the case of CIT vs. Singhad Technical Education Society. 6.1 It is also noted that in the instant case, the proceeding under section 153C of the Act was initiated consequent to a search & seizure action conducted under section 132 of the Act in the case of Puneet Kulthia on 08.03.2017 wherein certain documents/information pertaining to the assessee was found and seized. Thereafter, the AO of the searched person handed over the said seized document after recording the satisfaction to the AO of the assessee. Subsequently, the AO of the assessee recorded his satisfaction on 17 09.2021 and issued notice under section 153C of the Act to the a....
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....d or requisition is made and for the relevant assessment year or years as referred Io in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated. Further, section 153A of the Act provides that: "153A Notwithstanding anything contained in section 139. section 147. section 148. section 149 section 151 and section 153. in the case of a person where a search is initialed under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May. 2003.The Assessing Officer shall- (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years and for the relevant assessment year or years referred to in clause (b) referred to in clause (b). in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assess ....
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....nts or assets by the jurisdictional AO. Therefore, for the purposes of section 153C, the date of search is not relevant here, the date of receiving of books of account or documents or assets by the jurisdictional AO is the reference point for deciding the assessment years for which an assessment or reassessment is required to be made. Also it is noted that notice under section 153C of the Act could be issued for only such assessment years being unabated/completed years in respect of which there was incriminating material in possession of this legal position as has been settled by the Apex court in PCIT Vs Abhisar Build well (P.) Ltd [2023] 149 taxmann.com 399 (SC) and PCIT vs. S.S. Con Build (P.) Ltd. [2023] 151 taxmann.com 317 (SC). In addition to the above, not only there should be incriminating material but those incriminating material would be having bearing on the determination of total income for such years so as to initiate proceedings under section 153C of the Act. This position of law is now settled by the Hon'ble Supreme Court in CIT v. Singhad Technical Education Society [TS-5145-SC-2017-0] and has been endorsed by Hon'ble Delhi High Court in the case of Saksham Comm....
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...., the cash transactions that are relating to the appellant pertain to AY 2016-17 and therefore, do not have a bearing on determination of total income of the appellant for A Y 2015-16. Hence, notice issued under section 153C of the Act is contrary to the provisions of law. This issue has now been settled by Hon'ble Supreme Court in the case of CIT VS. SINGHAD TECHNICAL EDUCATION SOCIETY 397 ITR 344 (SC) wherein the Apex Court has held that incriminating material seized must pertain to assessment years in question in order to assume jurisdiction to issue notice under section 153C of the Act. Similar view has been taken by the Hon'ble Jurisdictional High Court in the case of Saksham Commodities Limited in [TS- 5160-HC-2024(Delhi)]. The Court has held that "the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY was not intended to set off a chain reaction or a waterfall effect on all AYs' which could form part of the "relevant assessment year". The jurisdictional Assessing Officer ('AO') would have to firstly be satisfied that the material received was likely to have a bearing on or impact the total inco....
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....tion is that assessment under section 153C of the Act could be initiated only on the basis of incriminating document found and seized during the course of search action. Further, the assessment year under consideration being an unabated year, no proceeding under section 153C of the Act would be initiated without any incriminating material found/seized in view of Hon'ble Supreme court in the case of Abhisar Buildwell case. Appellant's contention is that the assessment is made on the basis of regular books of A/c. Similar view was taken by the jurisdictional High Court in the case of CIT VS. Kabul Chawla, 380 ITR (Delhi) 573. Further, the Hon'ble Supreme Court in another case in DCIT Vs. U. K. Paints (Overseas) Ltd. [2023] 150 taxmann.com 108 (SC), dated 25.04.23 has held, while confirming the decision of the High Court in setting aside the Assessment order that where no incriminating material was found in case of any of assessee either from assesses or from third party, the assessment made under section 153C of the Act is invalid. In the light of the above, the revenue on this ground fails. 6.4. As regards, other contention relating to satisfaction notes recorded by the A....