ITAT Delhi Quashes Assessment as Section 153C, Not Section 143(3), Was Applicable

Raja Varshney Vs DCIT (ITAT Delhi)

The Delhi Bench of the Income Tax Appellate Tribunal allowed the appeal filed by Raja Varshney against the order of the Commissioner of Income Tax (Appeals), Delhi, dated 12.02.2024, arising from the assessment order dated 29.12.2022 under Section 143(3) of the Income Tax Act, 1961 for A.Y. 2021-22. The assessee had originally filed his return on 08.03.2022 declaring total income of Rs. 1,03,88,430. His case was selected for scrutiny and notices under Sections 143(2) and 142(1) were issued.

A search and seizure action was conducted on 06.01.2021 in the case of the Hans group. During the search, a mobile phone belonging to Shri Vaibhav Jain was seized. According to the Assessing Officer, WhatsApp chats found on the mobile contained an image showing total sale consideration of Rs. 1,54,50,000 relating to a property at B-132, First Floor, Vihar, Delhi. The property had been registered for Rs. 49,00,000, and the AO concluded that the assessee had made an undisclosed cash investment of Rs. 1,05,50,000. The amount was added under Section 69 read with Section 115BBE, resulting in total income being determined at Rs. 2,09,38,430.

Before the Tribunal, the assessee challenged, among other matters, the jurisdiction of the AO to frame the assessment under Section 143(3) instead of Section 153C. The assessee also raised additional grounds contending that the assessment was liable to be quashed in the absence of notice under Section 153C and because the proceedings had not complied with the mandatory provisions of that section.

The Tribunal admitted the additional grounds because they raised purely legal issues and the relevant facts were available on record. It relied upon the decision of the Hon’ble Supreme Court in National Thermal Power Corporation {1998} 229 ITR 383 (SC) for admitting and adjudicating the legal grounds.

The Tribunal examined the satisfaction note and observed that the AO had recorded satisfaction on 10.10.2022, while the material also referred to a satisfaction note dated 03.10.2022. The satisfaction recorded that the seized assets, documents, digital data and information related to the assessee and that proceedings under Section 153C read with Section 153A were appropriate for A.Ys. 2015-16 to 2020-21. The assessee, however, had received a notice under Section 143(2) for A.Y. 2021-22.

Following the reasoning in Jasjit Singh, and the decisions concerning the date of receipt of seized documents for determining the relevant assessment years under Section 153C, the Tribunal held that the date of recording satisfaction was to be treated as the deemed date for possession of the seized documents. On that basis, six years were to be reckoned from that date. The Tribunal accepted the assessee’s submission that the assessment year relevant to the previous year in which the search was deemed to have occurred was A.Y. 2023-24, making A.Ys. 2018-19 to 2022-23 the six preceding assessment years.

Accordingly, the Tribunal held that the assessment for A.Y. 2021-22 should have been carried out by issuing notice under Section 153C rather than proceeding under Section 143(2). It therefore held the assessment order dated 29.12.2022 passed under Section 143(3) to be bad in law and quashed it. Since the assessment itself was quashed, the other grounds challenging the addition of Rs. 1,05,50,000 did not require adjudication. The appeal of the assessee was consequently allowed. The order was pronounced on 26.09.2024.

Cases Discussed

• Commissioner of Income Tax 14 Vs. Jasjit Singh, 2024 (4) TMI 268
• National Thermal Power Corporation (SC), {1998} 229 ITR 383 (SC)
• Commissioner of Income Tax -14 Vs. Shree Jasjit Singh, 2023 (1) TMI 572
• The Pr. Commissioner of Income Tax Central-1 Vs. Ojjus Medicare Pvt. Ltd. & Others, 2019 (10) TMI 350
• Jagjit Singh C/o. M/s. Satish Aggarwal & Associates Vs. ACIT, Central Circle -21, New Delhi, 2019 (10) TMI 350
• Shalimar Town Panners Pvt. Ltd. Vs. ACIT Central CIrlce – 23 New Delhi, 2020 (7) TMI 47
• Jagjit Singh Vs. ACIT, Central Circle-11, New Delhi, 2015 (8) TMI 982
• M/s. Spendor Landbase Limited Vs. Asstt. Commissioner of Income Tax, 2014 (11) TMI 1012
• Akanksha Gupta vs ACIT Central circle 04 Delhi, ITA no 3074/Del/2023

FULL TEXT OF THE ORDER OF ITAT DELHI

This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals), Delhi [hereinafter referred to as “CIT(A)”] vide order dated 12.02.2024 pertaining to A.Y. 2021-22 and arises out of the assessment order dated 18.01.2023 under section 143(3) of the Income Tax Act 1961 [hereinafter referred as ‘the Act’].

2. Aggrieved by the order of the Ld CIT(Appeals) the assessee is in appeal before us by raising the following grounds:-

1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts.

2. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the AO despite the fact that order passed by the AO under section 143(3) of the Act is illegal, void and non-est as the same has been passed under section 143(3) of the Act as against the specific provisions under section 153C of the Act.

3. On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the AO despite the fact that the assessment order passed under section 143(3) of the Act is null and void as the same has been passed in violation of CBDT Circular No. 19/2019 requiring mandatory DIN in the body of the assessment order.

4. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the order passed by the learned AO under Section 143(3) of the Act is bad and liable to be quashed as the same has been framed consequent to a search which itself was unlawful and invalid in the eye of law.

5. On the facts and circumstances of the case, learned CIT (A) has erred, both on facts and in law, in rejecting the contention of assessee that the proceedings initiated against the assessee and the assessment framed under section 143(3) of the Act are in violation of mandatory provisions of Section 153D of the Act and as such the same is bad in eyes of law. The purported approval u/s 153D of the Act is illegal, bad in law and also without any application of mind.

6. (i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition of Rs. 1,05,50,000/- made by the AO on account of unexplained investment in the property under section 69 read with section 115BBE of the Income Tax Act.

(ii) That the abovesaid addition has been confirmed rejecting the detailed submissions and explanations along with the evidences brought on record by the assessee in this regard.

7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the abovesaid addition despite the fact that the same has been made by the AO on the basis of image extracted from the whatsapp chats between the third parties and not related to the assessee.

8. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in rejecting the contention of the assessee that the document relied upon by the AO does not contain the signature and is a dumb document and shall not be relied upon.

3. The assessee has also raised additional grounds of appeal:-

“11 On the facts and circumstances of the case, the learned AO has erred in considering the assessment year under consideration as the assessment year relevant to the pervious year in which search was conducted and consequently passing the assessment order under section 143 (3) of the Act instead of section 153C of the Act.

12. On the facts and circumstances of the case, assessment order is otherwise liable to be quashed in the absence of notice being issued under section 153C of the Act.

13. On the facts and circumstances of the case, the assessment proceedings initiated without complying with the provision of section 153C of the Act is bad in law and without jurisdiction and the same is liable to be quashed.”

4. The brief case of the assessee is that assessee is an individual and filed his return of income on 08-03-2022 declaring total income of Rs 1,03,88,430/-. The return of income was processed u/143(1) of the Act. The case of the assessee was selected for scrutiny assessment. Notice u/s 143(2) of the Act was issued and served there after case was transferred to the office of DCIT and another notice was served with questionnaire u/s 142(1) of the Act. A search and seizure action were carried out on 06-01-2021in the case of Hans group with whom the assessee Raja Varshney had entered into unaccounted cash transactions. According to the AO, during the course of search action the mobile of Shri Vaibhav Jain was seized from the office M/s Jainco Ltd G-2 Plot No 5 Sikka Complex Preet Vihar New Delhi. In the whatsapp chats with Thakur an image having details of total sale consideration of Rs 1,54,50,000/- relating to purchase of property at B-132 First Floor Vihar Delhi was found from the mobile phone of Shri Vibhav Jain. The AO was found that property was purchased by the assessee and it was registered at consideration of Rs 4900000/-only and the assessee was involved in cash transaction with regard this property for a consideration of Rs 10550000/-. The AO passed the assessment order u/s 143(3) of the Act determining total income at Rs 20938430/-after making an addition of Rs.10550000/- towards undisclosed cash investment.

5. Aggrieved with the order, the assessee has filed an appeal before the Ld CIT(A). The Ld CIT(A) dismissed the appeal vide order dated 12-02-2024 against which the assessee is in appeal before us.

6. The Ld AR has submitted that the order passed by AO is without jurisdiction and liable to be quashed. The assessment for A.Y.2021-22 has been wrongly framed u/s 143(3) of the Act by ignoring the mandatory provision of the section 153C of the Act. The case is squarely covered by Hon’ble ITAT judgement in the case of Akanksha Gupta vs ACIT Central circle 04 Delhi ITA no 3074/Del/2023. The Ld AR has further submitted that the satisfaction note was recorded on 03-10-2022 for initiating proceedings u/s 153C of the Act for A.Y.2015-16 to 2020-21 and u/s 143(2) of the Act for A.Y.2021-22 (Satisfaction note dated 10-10-2022). The satisfaction note recorded by the AO is reproduced as under;

7. The Ld AR further submitted that the notice u/s 143(2) of the Act for A.Y. 2021-22 was issued on 30-06-2022 which is placed at page no 10-11 of the paper book. He has further submitted that it is settled position in law that in respect of assessment proceedings u/s 153C of the Act, blocked period of six assessment years has to be reckoned from the date of receipt of the documents by the AO. In this regard, reliance has placed on the following judgments;

1. M/s. Spendor Landbase Limited Vs. Asstt. Commissioner of Income Tax 2014 (11) TMI 1012

2. Jagjit Singh Vs. ACIT, Central Circle-11, New Delhi 2015 (8) TMI 982

3. Commissioner of Income Tax -14 Vs. Shree Jasjit Singh 2023 (1) TMI 572

4. Commissioner of Income Tax 14 Vs. Jasjit Singh 2024 (4) TMI 268

5. The Pr. Commissioner of Income Tax Central-1 Vs. Ojjus Medicare Pvt. Ltd. & Others. 2019 (10) TMI 350

6. Jagjit Singh C/o. M/s. Satish Aggarwal & Associates Vs. ACIT, Central Circle -21, New Delhi 2019 (10) TMI 350

7. Shalimar Town Panners Pvt. Ltd. Vs. ACIT Central CIrlce – 23 New Delhi 2020 (7) TMI 47

8. The Ld AR has submitted that for the assessment proceedings u/s 153C of the Act, the period of six years immediately preceding the assessment year relevant for the previous year, in which search was conducted has to be reckoned from the date of receipt of the documents by the AO of the assessee which is 30-06-2022 and accordingly assessment years relevant for the previous year in which search was conducted is AY.2023-2024 and the six assessment years immediately preceding the assessment year, relevant for the previous year in which search was conducted will be AY 2018­20 to 2022-23. He has also submitted that in the present case assessment proceedings for AY 2021-22 should have been framed u/s 153 C of the Act after issuance of notice u/s 153C of the Act. The Ld AR has further submitted that in the present case assessment year i.e.2021-22, it was wrongly framed u/s 143(3) of the Act by issuing the notice u/s 143(3) of the Act on 30-06-2022 along with notice u/s 153C of the Act for Assessment years 2015-16 to 2021-2022.

9. The Ld DR has submitted that the below authorities have passed the order as per law. He supported the orders of the authorities below.

10. We have the parties and perused the material available on record.

11. Firstly, we take up the additional ground for adjudication which goes to the root of the matter as it challenges the legality of the order u/s.143(3) dated 29-12-2022 of the Act. These additional grounds were not raised before the Ld CIT(A) nor the similar plea was taken before the AO but the additional grounds are purely legal and all the facts of the case are on record, therefore, the same is admitted in view of the decision of the Hon’ble Apex Court in the case of National Thermal Power Corporation {1998} 229 ITR 383 (SC) and is hereby adjudicated.

12. On perusal of the satisfaction note it reveals that same was recorded on 10-10-2022 by the AO after giving the findings that the seized assets and documents /digital data and information relates to assessee and it is a fit case for initiating proceedings u/s 153C r.w.s153A of the Act for the A.Y. 2015-16 to 2020-21. The AO has issued the notice u/s.143(2) of the Act. On the similar facts, the coordinate Bench of the Tribunal in the case of Jasjit Singh (supra), it was held that the date of receiving of the seizes documents would become the date of search and six years period would be reckoned from this date. In the case of Jasjit Singh held as under :-

“15. We find that an identical issue has been decided by Delhi Bench of the Tribunal in the case of DSL Properties P. Ltd. (supra) in favour of the assessee accepting the similar contention of the assessee. Similar view has been expressed by the Delhi Bench of the Tribunal in the case of V.K. Fiscal (supra) holding that the date of receiving of the seized documents would become the date of search and six years period would be reckoned from this date. For a ready reference para no. 19, 21, 22 & 23 of the decision of Delhi Bench of the Tribunal in the case of DSL Properties (supra) are being reproduced hereunder:

“19. “We have carefully considered the rival submissions. Proviso to section 153C reads as under:

“Provided that in case of such other person, the reference to the date of initiation of the search u/s 132 or making of requisition u/s 132A in the second proviso to sub-section (1) off section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the AO having jurisdiction over such other person.”

20. The above proviso refers to second proviso to sub­section (1) of section 153A. That section 153(1) and its first and second provisions read as under: –

“153A. ((1)] 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 initiated u/s 132 or books of account, section 132A after the 31st day of May, 2003, the AO 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 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 u/s 139;

(b) Assess or reassess the total income or 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 AO shall assess or reassess the total income in respect of each assessment year falling within such six assessment years:

Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years referred to in this sub-section) pending on the date of initiation of the search u/s 132 or making of requisition u/s 132A, as the case may be, shall abate.”

21. From the above, it is evident that as per clause (b) of subsection (1) of section 153A and second proviso, the AO can be issue notice for assessment or reassessment of total six assessment years immediately preceding the assessment year relevant to previous year in which search is conducted. As per proviso to section 153C, the date of search is to be substituted by the date of receiving the books of account or documents or assets seized by the AO having jurisdiction over such other person. Ld. DR has stated that since the AO of the person searched and the AO of such other person was the same, no handing over or taking over of the document was required. That section 153C(1) and its proviso have to be read together in a harmonious manner. While interpreting section 153C, we have already held that for initiating valid jurisdiction u/s 153C, even if the AO of the person searched and the AO of such other person is the same, he has to first record the satisfaction in the file of the person searched and thereafter, such note alongwith the seized document/books of account is to be placed in the file of such other person. The date on which this exercise is done would be considered as the date of receiving the books of account or document by the AO having jurisdiction over such other person. Though while examining the facts of the assessee’s case we have arrived at the conclusion that no such exercise has been properly carried out and, therefore, initiation of proceedings u/s 153C itself is invalid, however, since both the parties have argued the issue of period of limitation also, we deem it proper to adjudicate the same. Since in this case satisfaction is recorded on 21st June, 2010 and notice u/s 153C is also issued on the same date, then only conclusion that can be drawn is that the AO of such other person has taken over the possession of seized document on 21st June, 2010. Accordingly, as per section 153(1), the AO can issue the notice for the previous year in which search is conducted (for the purpose of Section 1530 the document is handed over) and six assessment years preceding such assessment year. Now, in this case, the previous year in which the document is handed over is 1st April, 2010 to 31st March, 2011. The assessment year would be A.Y. 2011-12. Six preceding previous years and relevant assessment year would be as under:

22. The Assessing Officer has issued notice u/s 153C for A.Y. 2004-05 which is clearly barred by limitation. Therefore, issue of notice u/s 153C issued by the Revenue cannot be sustained on both the above counts, ie., it is legally not valid as conditions laid down u/s 153C has not been fulfilled and it is barred by limitation. In view of the above, we quash the notice issued u/s 153C and consequently, the assessment completed in pursuance to such notice, is also quashed.

23. Since we have quashed the assessment order itself, the additions challenged by the assessee by way of other grounds of appeal do not survive, and, therefore, do not require any adjudication.

16. We thus, find that the issue raised in the additional ground has been answered in favour of the assessee, by the Coordinate Delhi Bench of the Tribunal in the case of DSL Properties (supra).

17. So far as decision of Hon’ble Delhi High Court in the case of SSP Aviation Ltd. vs. DCIT (supra) relied upon by the Id. CIT(DR) is concerned, we find that it is not helpful to the revenue as in that case also in para no. 14 of the judgment it has been held as under.

14. “Now there can be a situation when during the search conducted on one person u/s 132, some documents or valuable assets or books of account belonging to some other person, in whose case the search is not conducted, may be found. In such case, the AO has to first be satisfied u/s 153C, which provides for the assessment of income of any other person, Le., any other person who is not covered by the search, that the books of account or other valuable article or document belongs to the other person (person other than the one searched). He shall hand over the valuable article or books of account or document to the AO having jurisdiction over the other person. Thereafter, the AO having jurisdiction over the other person has to proceed against him and issue notice to that person in order to assess or reassess the income of such other person in the manner contemplated by the provisions of section 153A. Now a question may arise as to the applicability of the second proviso to section 153A in the case of the other person, in order to examine the question of pending proceedings which have to abate. In the case of the searched person, the date with reference to which the proceedings for assessment or reassessment of any assessment year within the period of the six assessment years shall abate, is the date of initiation of the search u/s 132 or the requisition u/s 132A. For instance, in the present case, with reference to the Puri Group of Companies, such date will be 5.1.2009. However, in the case of the other person, which in the present case is the petitioner herein, such date will be the date of receiving the books of account or documents or assets seized or requisition by the AO having jurisdiction over such other person. In the case of the other person, the question of pendency and abatement of the proceedings of assessment or reassessment to the six assessment years will be examined with reference to such date.”

18. In view of the above finding, the assessment framed u/s 143(3) of the Act for the A.Y. 2009-10 in the present case is not valid. Respectfully following the above cited decisions on an identical issue, the additional ground no. 4 in the present case is decided in favour of the assessee and in the result the assessment order is quashed as void.

19. Since in the above finding on the issue raised in additional ground no. 4 we have quashed the assessment order itself, the additions questioned by the assessee by way of other grounds of the appeal do not survive and, therefore, do not require any adjudication.

20. In the result, the appeal of the assessee is allowed.”

13. From the above discussion the date of recording of the satisfaction will be the deemed date for the possession of the seized documents which is 03-10-2022 and six years would be reckoned from this date. The submission made by Ld AR is tenable that the assessment year relevant for previous year in which search was conducted in the case of the assessee will be AY 2023-24 and six years immediately preceding the assessment year relevant for u/s 153C of the Act will be AY 2018-19 to 2022-23. The assessment for AY 2021-22 should have been carried out by issuing notice u/s 153C of the Act and not u/s 143(2) of the Act. There fore the assessment order dated 29-12-22 passed u/s 143(3) of the Act is bad in law and liable to be quashed and quashed accordingly. The additional grounds filed by the assessee are allowed.

14. In the result, the appeal of assessee is allowed.

Order pronounced in the open court on 26.09.2024.