AO cannot assume Section 153C jurisdiction in absence of incriminating documents

Neesa Technologies Pvt. Ltd. Vs DCIT (ITAT Ahmedabad)

Since the proceedings u/s. 153C of the Act were initiated in the present case on the basis of documents which we have held above neither belonged to the assessee nor were incriminating in nature, they were not sufficient for assuming jurisdiction u/s. 153C of the Act. The jurisdiction so assumed in the present case is clearly invalid and the assessment framed accordingly is liable to be quashed.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

These four appeals have been filed by the same Assessee for different assessment years against the consolidated order passed by the Commissioner of Income Tax (Appeals)-12, Ahmedabad, (in short referred to as CIT(A)), dated 02-11-2016, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Years (A.Ys) 2007-08 to 2010-11 .

2. At the outset itself, it was pointed out that the issues in these appeals were common arising in the back drop of identical set of facts. All the appeals were therefore taken up together for hearing and are being disposed off vide this common consolidated order.

2.1. It was thereafter pointed out that all the appeals were time barred by two days and the delay was condoned by the Bench vide its order passed on 09.10.2018, copy of which was placed before us. On going through the same, we find that it was noted by the Bench that the delay being a very small one of two days only, there could have been human error in calculating the time limit and it could not be attributed that the assessee had adopted dilatory strategy in filing its appeal and accordingly the delay was condoned.

2.2. Having noted so, the hearing in the matter was proceeded with. Ld. Counsel for the assessee pointed out that besides the grounds raised in Form No.36, additional grounds had been raised in all the appeals vide letter dated 7^Th September 2018, challenging the validity of the assessment framed u/s. 153C of the act as under:

1.0 The Assessment Order passed by the learned Assessing Officer is without jurisdiction and void-ab initio and is liable to be quashed, as proceedings initiated under section 153C are without satisfying conditions envisaged under the Act and are thus illegal, time barred and bad in law.

2.0 In the facts and circumstances of the case issue of Notice u/s 153C of the Income Tax Act, 1961 is bad in law as the learned Assessing Officer(s) of the searched persons had failed to record satisfaction before initiation of the proceedings u/s 153C of the Act.

3.0 The learned Assessing Officer had mentioned in the satisfaction that impugned seized documents belonged to the third parties and therefore passing of the assessment order pursuant to such satisfaction u/s 153C is bad in law and liable to be quashed.

4.0 The Assessment Order passed is bad in law in absence of seizure of any incriminating document belonging to the appellant. Neither any addition or disallowance was made on the basis of alleged seized documents nor any reference to seized material was made in connection with additions/disallowances.

5.0 The learned Commissioner of Income-tax (Appeals) erred in law and on facts in passing an ex-parte order. The impugned order was passed without appreciating the fact that proper representation could not be made before him because its Promoter Director Shri Sanjay Gupta had been facing a lot of adversities on account of investigations launched by multiple agencies since 2013 onwards and in absence of availability of supporting staff.

6.0 The appellant may be allowed to add, amend, alter or raise additional grounds of appeal.

3. Counsel for the assessee stated that grounds No.1-4 of the additional grounds had not been raised before the ld. CIT(A) and being legal grounds ,requiring no fresh consideration of any facts ,they ought to be admitted for adjudication .He relied upon the decision of the Hon’ble Apex Court in the case of NTPC Ltd. vs CIT reported in 229 ITR 383 in this regard.

4. We have gone through the additional grounds and have noted that in Ground No 1-4 the assessee has challenged the validity of the assessment framed u/s. 153C of the Act, which we agree is a legal ground and in view of the decision of the Hon’ble Apex Court in the case of NTPC Ltd. (supra), the same is admitted for adjudication.

5. We shall first be dealing with the said grounds No.1-4, identically raised in all the appeals, since they challenged the validity of assessment framed itself, in the present case u/s. 153C of the Act.

5.1 The argument of the ld. Counsel for the assessee before us was that the requirement of law for initiating proceedings u/s 153C of the Act , was that the Assessing Officer should be satisfied that incriminating material belonging to the assessee had been found during the course of search on a third person. He contended that the requirements of documents belonging to the assessee being found and the documents being incriminating also, both were not fulfilled in the present case.

6. In this regard, he drew our attention to the satisfaction of the A.O., copy of which was filed before us vide letter dated 13^th April 2021 and the contents of which are reproduced as under:

REASONS FOR ISSUE OF NOTICE U/S 153C r.w.s. 153A OF THE INCOME TAX ACT, 1961

1. In case of Shri Sanjay Gupta Warrant of Authorization, was Issued u/s 132 of the Act for -the premises at B-202, Dhananjay Tower, Anandnagar Road, Satellite, Ahmedabad. Documents found and seized from the above mentioned premise of Neesa leisure ltd. and belonging to Neesa Infrastructure Ltd. are as under:

a. Page no. 92 Annexure B-1, seized from the residential premise of Shri Sanjay Gupta exhibits daily sales details of Neesa Technology Pvt. Ltd.

2. A search proceeding under the I.T. Act, 1961, were carried out on 08.09.2010 in case of Neesa Group and its associates. In case of M/s. Neesa leisure Ltd. Warrant of Authorisation was issued u/s 132 of the Act for the premises at Cambay Square, GIDC, Electronics Estate, Sector-25, Gandhinagar. Documents found & seized from the above mentioned premise of Neesa leisure ltd, and belonging to Neesa Agritech Pvt. Ltd. are as under:

a. Page no. 26 of Annexure A-6 exhibits M/s. Euclid Solutions Pvt. Ltd. ledger account in the books of Gujarat Sysport Services Pvt. Ltd. (Now known as Neesa Technologies Pvt. Ltd.)

3. In view of the above facts, I am satisfied that it fulfill all the pre requisite condition of section 153C of the Act and therefore, it is a fit case for issuing -of notice u/s 153C r,w.s. 1S3A of the Act., Therefore, notice u/s 153C of the Act is being issued to the assessee for AY 2005-06 to AY 2010-11.

Place: Ahemdabad
Date: 06.11.2012

(Rohit Raj)
Asst. Commissioner of Income-tax,
Central Circle 2(2), Ahmedabad

7. Referring to the above, he contended that the AO was satisfied for initiating proceedings u/s 153C of the Act on the assessee basis two documents found during the course of search at Shri Sanjay Gupta and Neesa Group

(i) numbered page no. 92 Annexure B-1 and the other

(ii) page no. 26 of Annexure 26.

7.1 For page no. 92 of Annexure B-1, Ld. Counsel for the assessee pointed out that as per the A.O. himself the document belonged to M/s. Neesa Infrastructure Ltd. and not the assessee i.e. Neesa Technologies Pvt. Ltd. Further he drew our attention to the said document placed before us along with the satisfaction note and pointed out there from that other than mentioning certain figures, there was no mention of any date or period therein and therefore was a dumb document and could not be said to be incriminating.

7.2 Vis-à-vis the other document, i.e page no. 26 of Annexure A-6, he contended that admittedly it was a copy of the ledger account of one M/s. Euclid Solutions Pvt. Ltd. in the books of the assessee and being a copy could not be said to” belong” to the assessee. He relied on the decision of the Hon’ble Delhi High Court in the case of Pepsico India Holdings P. Ltd vs ACIT (2015) 370 ITR 295(Del) in this regard. He further contended that being copy of ledger account in the books of the assessee, it could by no stretch of imagination be said to be incriminating since but obviously it stood recorded in the books of the assessee.

7.3. He further pointed out that vis-à-vis both the documents, no addition had been made in the case of the assessee.

8. He therefore contended that with the documents having no bearing on the determination of assessee’s income and no addition also having been made on account of the same, the initiation of proceedings u/s. 153C of the Act was bad in law and liable to be cancelled as invalid. In this regard our attention was drawn to the decision of the ITAT Delhi Bench in the case of Green Range Farms Pvt. Ltd. vs. DCIT reported in (2018) 96 Taxmann.com 249 (Delhi-Trib.)

9. Copy of all the orders referred to before us was placed before us.

10. Ld. DR on the other hand emphasized that both the documents mentioned in the satisfaction note contained entries relating to the assessee and therefore belonged to it and that they were not dumb documents but contained information of sales transaction undertaken by the assessee and therefore were incriminating material. He further contended that the mere fact that the said documents resulted in no addition alone was not sufficient to hold the initiation of proceedings u/s. 153C of the Act as being invalid.

11. We have heard the contentions of both the parties and have also carefully gone through the document referred to before us as also the case laws relied upon.

12. The proceedings whose validity is in challenge before us admittedly relate to those u/s. 153C of the Act. These provisions require persons not subjected to search action to be treated so for the purposes of assessment being framed as in the case of searched persons u/s 153A of the Act, provided that assets or documents belonging to them and being incriminating in nature are found during search action on some other persons. In short persons not covered u/s 153A of the Act are treated so in the circumstances enumerated above. Thus they entail onerous conditions of assessments of preceding six years, alongwith the search year, being framed afresh as per section 153A of the Act. The extant provisions are reproduced hereunder for clarity:

Assessment of income of any other person.

153C. (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 any money, bullion, jewellery or other valuable article or thing, seized or requisitioned belongs or belong 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 and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for the relevant assessment year or years referred to in sub-section (1) of section 153A :]

13. It goes without saying that since the section puts assesses in a disadvantageous position as in case of assesses subjected to search action, despite no search having actually being undertaken on them, reopening their cases of earlier six years as also the year in which the incriminating material is received by the AO, the fulfilment of requirements for assuming jurisdiction under the section has to be strictly complied with. And as is evident from a bare perusal of the section, the trigger for invoking the section is assets or documents belonging to the assessee and having a bearing on the determination of his income, being seized during search or on being requisitioned from another person. The section in very clear terms requires the AO of the searched person to be satisfied with the fulfillment of the condition of asset or document found during search belonging to another person and the AO of the other person being satisfied with the said assets /document being incriminating. There is no dispute vis-à-vis the above proposition of law.

14. Having said so, we shall now proceed to adjudicate whether the initiation of proceedings u/s 153C of the Act in all the impugned appeals before us qualified as being valid on the touch stone of parameters laid down in the section itself as above.

15. A perusal of the satisfaction note of the A.O. as reproduced above, for all the impugned years, reveals that the initiation of proceedings u/s 153C of the Act was primarily based on two documents found during the course of search, one numbered page 92 Annexure B-1 and the other page 26 Annexure A-6. Vis-à-vis the first document, as rightly pointed out by the ld. Counsel for the assessee, the satisfaction note itself mentions that it belongs not to the assessee, i.e M/s Neesa Technologies Pvt. Ltd., but to M/s Neesa Infrastructure Ltd. The contention of the Ld. D.R. that it contains details of sales made by the assessee and therefore can be said to belong to it, we are unable to agree with the same. Firstly, for the reason that on perusing the contents of the said document we find that it contains not only details of sales made by the assessee but also by other parties. And the mere mentioning of such details relating to the assessee may at best qualify the document as pertaining to the assessee but definitely not belonging to it . The document is reproduced hereunder for clarity:

16. Further as rightly pointed by the ld. Counsel for the assessee, even as per the Assessing Officer recording the satisfaction, the said document belonged not to the assessee but Neesa Infrastructure Ltd. Therefore document Annexure B-1 92 clearly did not fulfill the criteria of belonging to the assessee so as entitle the AO to validly assume jurisdiction to initiate proceeding u/s. 153C of the Act, we hold.

17. Also, as pointed out by the Ld.Counsel for the assessee and which is evident from a bare perusal of the document also, the same contains apparently daily sales data of NAPL, NTPL & OSPL but mentions no date in it. Therefore there is nothing in the document pointing to the fact that it contained data pertaining to any of the impugned years before us. The document not evidencing anything incriminating relating to the impugned years, it could not have formed the basis of initiating proceedings u/s 153C of the Act for the impugned years. The Hon’ble apex court in the case of Commissioner of Income Tax Vs Sinhgad Technical Education Society (2017) 397 ITR 344 (SC) has categorically held that it is a jurisdictional requirement for invoking section 153C of the Act that the incriminating material should pertain to that particular year in which it is sought to be invoked. The relevant findings of the Hon’ble Apex court beginning from para 15 of the order is as under:

“ 15.At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years 2000-01 to 2005-06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered by notice under Section 153C of the Act. There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of the judgment.

16. In these appeals, qua the aforesaid four Assessment Years, the assessment is quashed by the ITAT (which order is upheld by the High Court) on the sole ground that notice under Section 153C of the Act was legally unsustainable. The events recorded above further disclose that the issue pertaining to validity of notice under Section 153C of the Act was raised for the first time before the Tribunal and the Tribunal permitted the assessee to raise this additional ground and while dealing with the same on merits, accepted the contention of the assessee.

17. First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the jurisdiction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground.

18. The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000-01 and 2001-02 was even time barred.

19. We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish.”

18. Thus document page no 92 Annexure B-1 ,not belonging to the assessee and containing no information pertaining to the impugned years, could not, we hold, have formed the basis for assuming jurisdiction by the AO to invoke section 153C of the Act in the present cases.

19. As for the second document i.e. page no. 26 of Annexure A-6, the said document admittedly is a ledger account of Euclid Solutions Pvt. Ltd. in the books of the assessee. It certainly does not therefore reveal any information having a bearing on the determination of income or being incriminating in other words, being already duly accounted for in its books. Further admittedly no addition has been made on account of the said document .Therefore we agree with the Ld. Counsel for the assessee that this document cannot be said to be sufficient for the A.O. to assume jurisdiction to initiate proceedings u/s. 153C of the Act. We draw support from the order of the coordinate Bench of the ITAT in the case of Green Range Farm (P) Ltd.(supra) wherein it was held that documents having no bearing on the determination of income and on the basis of which no addition also is made in assessment framed u/s 153C of the Act, the initiation of proceedings u/s 153C of the Act basis such documents is bad in law . The relevant findings in this regard at para 17 & 18 of the order is as under:

17. In the case of Index Securities (P.) Ltd. (supra) cited by the Id. counsel for the assessee, a similar issue relating to validity of jurisdiction assumed by the Assessing Officer u/s. 153C had come up for consideration before the Hon’ble Delhi High Court and it was held that by their Lordships by relying on the decision of the Hon’ble Supreme Court in the case of Sinhgad Technical Education Society (supra) as well as their own decision in the case of RRJ Securities (supra) and ARN Infrastructure India Ltd. v, Asstt. CIT [2017] 81 taxmann.com 266/394 ITR 569 (Delhi) that in order to justify the assumption-of jurisdiction u/s. 153C of the Act, the documents seized must be incriminating. In the said case, it was contended like in the present case on behalf of the Revenue that the requirement of having incriminating material found during the course of search was to be met only during the assessment and not for initiation of proceedings u/s. 153C. The Hon’ble Delhi High Court, however, found this contention raised on behalf of the Revenue to be futile by observing that the satisfaction note forms the basis of initiating the proceedings u/s. 153C of the Act. In the said case, two seized documents were referred to in the satisfaction note and since the Assessing Officer had finalized the assessment without making any addition on the basis of the said documents, it was held by the Hon’ble Delhi High Court that the said documents could not be said to be incriminating and consequently the essential requirement for assumption of jurisdiction u/s. 153C was not met. It is pertinent to note here that the assessment years involved in the case of Index Securities (P.) Ltd. (supra) were 2007-08 to 2011-12 and the notices u/s. 153C were issued on 13.02.2013.

18. As already discussed, both the seized documents belonging to the assessee in me present case as relied upon by the Assessing Officer in the satisfaction note were not having any bearing on the determination of the income of the assessee for the year under consideration. As a matter of fact, not only no addition on the basis of the said documents was made by the Assessing Officer in the assessment completed u/s. 153C/143(3), but even there was no reference whatsoever to the said documents in the said assessment. If this undisputed factual position is considered in the light of the ratio laid down by the Hon’ble Delhi High Court in the case of RRJ Securities Ltd. (supra) and Index Securities (P.) Ltd. (supra), we find merit in the contention of the Id. counsel for the assessee that the jurisdictional requirement for initiating proceedings u/s. 153C in the case of the assessee was not satisfied. The initiation of proceedings u/s. 153C in the case of the assessee thus was bad in law and the assessment made by the Assessing Officer u/s. 153C/143(3) in pursuance thereof is liable to be cancelled being invalid. We order accordingly and allow the additional ground raised by the assessee.

20. Besides we have noted that the document/ledger relates to 1-April-2007 to 31-March-2008, i.e. pertaining to A.Y 2008-09, therefore, in view of the decision of the Hon’ble apex court in Sinhgad Technical Education Society (supra) it could not in any case have formed the basis for assuming jurisdiction u/s 153C of the Act for the other years, other than A.Y 2008-09, before us.

21. Therefore we hold that document page no 26 of Annexure A-6 being copy of a legder account in the assesses books, is not incriminating material and no addition having resulted on account of the same also ,it could not have formed basis for assuming jurisdiction u/s 153C of the Act in the cases before us.

22. In view of the above, since the proceedings u/s. 153C of the Act were initiated in the present case on the basis of documents which we have held above neither belonged to the assessee nor were incriminating in nature, they were not sufficient for assuming jurisdiction u/s. 153C of the Act. The jurisdiction so assumed in the present case is clearly invalid and the assessment framed accordingly is liable to be quashed.

23. The additional grounds raised by the assessee are accordingly allowed in above terms.

24. Since we have quashed the assessment proceedings, the grounds raised on merits by the assessee become academic and therefore are not being dealt with by us.

25. In effect, all the appeals filed by the Assessee are allowed in above terms.

Order pronounced in the open court on 22 -04-2022