Case Law Details
Ushaben Jayantilal Patel Vs ITO (ITAT Ahmedabad)
Block period for the proceeding under Section 153C of the Act has to be computed from the date of receipt of books of accounts or documents by the AO of the non-searched person
The case of Ushaben Jayantilal Patel vs. ITO (ITAT Ahmedabad) revolves around the legal interpretation and application of Section 153C of the Income Tax Act, 1961. The central issue in this appeal was the validity of the assessment initiated under Section 153C, following a search conducted on a third party, where documents relating to the assessee were found.
Background:
- A search under Section 132 was conducted on Shri Anil Hiralal Shah on 04.12.2014, during which a hard disk containing an MS Excel sheet named ‘CCCCC.xls’ was found. Some entries in this sheet pertained to the assessee, Ushaben Jayantilal Patel.
- Based on this discovery, the Deputy Commissioner of Income Tax (DCIT), Central Circle-1(2), Ahmedabad forwarded the information to the Assessing Officer (AO) of the assessee, initiating proceedings under Section 153C r.w.s. 153A for the assessment year (A.Y.) 2011-12.
Legal Grounds Raised by the Assessee:
- The assessee challenged the addition of INR 22,56,000 under Section 69 for alleged cash payment for property purchase, arguing that no corroborative evidence existed apart from the Excel sheet.
- The assessee contended that the AO failed to furnish the “satisfaction note” of the searched person, as required by the Supreme Court’s direction in the Calcutta Knitwears case and CBDT Circular No. 24/2015.
- The assessee also argued that the AO did not provide copies of statements recorded or an opportunity for cross-examination, violating legal rights.
Additional Legal Grounds:
- The assessee argued that the assessment proceedings under Section 153C were initiated improperly, as the satisfaction note was recorded on 31.03.2018. According to the assessee, this meant the block period for which proceedings could be initiated should have been A.Y. 2012-13 to A.Y. 2017-18, not 2011-12.
- This argument was based on the first proviso to Section 153C, which stipulates that the block period should be computed from the date of receipt of books or documents by the AO, not the date of search.
ITAT’s Ruling:
- The ITAT agreed with the assessee’s argument regarding the block period. It held that the block period for proceedings under Section 153C must be computed from the date the AO of the non-searched person (the assessee in this case) received the relevant documents, not the date of the original search.
- The ITAT referenced the Supreme Court’s decision in CIT vs. Jasjit Singh and the Delhi High Court’s ruling in PCIT vs. Ojjus Medicare (P.) Ltd. to support its decision, confirming that the AO had exceeded his jurisdiction by initiating proceedings for A.Y. 2011-12, which was outside the permissible block period.
Conclusion: The ITAT Ahmedabad ruled in favor of the assessee, Ushaben Jayantilal Patel, by concluding that the assessment under Section 153C for A.Y. 2011-12 was invalid. The key takeaway from this case is the importance of correctly interpreting the starting point of the block period under Section 153C, which should be based on the date of receipt of relevant documents by the AO, not the date of the original search
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal is filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-12, Ahmedabad (in short ‘the CIT(A)’) dated 15.12.2023 for A.Y. 2011-12.
2. The brief facts of the case are that no original return of income was filed by the assessee for A.Y. 2011-12. A search under Section 132(1) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) was conducted at the residence of one Shri Anil Hiralal Shah on 04.12.2014. In the course of search certain documents i.e. hard disc with MS Excel sheet named ‘CCCCC.xls’ was found and certain entries in this excel sheet were found pertaining to the assessee. The information pertaining to the assessee was forwarded by the DCIT, Central Circle-1(2), Ahmedabad to the AO of the assessee, based on which proceedings under Section 153C r.w.s. 153A of the Act was initiated in the case of the assessee. The assessment for A.Y. 2011-12 was completed under Section 143(3) r.w.s. 153C of the Act on 30.10.2018 at total income of Rs.24,96,120/-. Aggrieved with the order of the AO, the assessee filed an appeal before the First Appellate Authority, which was decided by the Ld. CIT(A) vide the impugned order and the appeal of the assessee was dismissed. Now, the assessee is in appeal before us.
3. The assessee has taken following grounds in this appeal:
“1. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in confirming an addition of INR 22,56,000 under section 69 of the Act being alleged cash payment for purchase of property in as much as there is no evidence about payment of cash by the Appellant
2. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in confirming an addition merely basis on excel sheet from a searched person without any corroborative evidence
3. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (learned AO’) has erred in not furnishing the satisfaction note of the searched person in compliance with the directions issued by the Hon’ble Supreme court in the case of Calcutta Knitwears in Civil Appeal No 3958 of 2014 dated 12 March 2014 following CBDT circular No 24/2015 and thereby the entire assessment is bad in law.
4. On the facts and in the circumstances of the case and in law, the Hon’ble CIT(A) has erred in rejecting the argument of the Appellant to provide copies of statements recorded and also an opportunity for cross examination by the Appellant which is a legal right and hence, entire assessment order is liable to be quashed.”
4. The assessee has also taken following additional grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the learned Assessing Officer (learned AO) has erred in initiating the assessment proceedings under section 153C of the Act without appreciating the fact that provisions of section 153C of the Act are not applicable in the present case on account of the following
1.1. Since satisfaction note by learned AO of the other person was recorded on 31 March 2018 and that notice was issued on 31 March 2018 i.e. previous year 2017-18 AY 2018-19, first proviso to section 153C of the Act provides that in case of search involving person other than searched person, the reference to the date of initiation of the search under section 132 (for the purpose of computation of six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted i.e. AY 2012-13 to AY 2017-18) shall be construed as the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person. And
1.2 Fourth proviso to section 153A of the Act which states that no notice for assessment or reassessment shall be issued by the Assessing Officer for the relevant assessment year or years where alleged escaped, assessment amount is not likely to amount to fifty lakhs rupees or more.
The above mentioned additional ground does not need any verification of facts and is purely a legal issue. We, therefore, request Your Honours to kindly admit the additional ground and decide on merits
As Your Honours are aware that additional grounds can be raised by the appellant before Hon’ble Income Tax Appellate Tribunal, in view of following decision of Hon’ble Courts:
- National Thermal Power Co. Ltd vs. CIT 229 ITR 383 (SC)
- Jute Corporation of India Ltd 187 ITR 688 (SC)
- Ahmedabad Electricity Co. Ltd 199 ITR 351 (Bom) (FB)
In view of the above, we request Your Honours to kindly consider our additional ground of appeal and decide on merits.”
5. As the additional grounds taken by the assessee goes to the root of jurisdiction of the AO for conducting assessment under Section 153C of the Act for this year, we deem it proper to adjudicate the additional ground first.
6. Shri Dhinal Shah, the Ld. AR of the assessee explained that proceeding under Section 153C of the Act was initiated by the AO on 31.03.2018. He explained that a copy of the satisfaction note of the AO to initiate the proceeding under Section 153C r.w.s. 153A of the Act was obtained in the course of assessment proceedings, which is placed at page nos. 4 to 9 of the paper book filed by the assessee. The Ld. AR submitted that the AO while recording the satisfaction on 31.03.2018 had initiated proceedings under Section 153C r.w.s. 153A of the Act for the A.Ys. 2009-10 to 2014-15, which was not in accordance with the provisions of the Act. According to the Ld. AR, the reference to the date of initiation of search for initiating proceedings under Section 153A of the Act is replaced by date of receiving the books of account or documents by the AO having jurisdiction over the other person, for initiating proceeding under Section 153C of the Act in the case of other person. According to Ld. AR, since the documents pertaining to the assessee were received by the AO in the F.Y. 2017-18 (as apparent from the satisfaction dated 31.03.2018 recorded by the AO) relevant to A.Y.2018-19, the proceeding under Section 153C of the Act could have been initiated only for six years preceding the assessment year 2018-19 Thus, the relevant years for which the proceedings u8/s 153C could have been initiated were A.Ys. 2012-13 to 2017-18. In view of this position, the Ld. AR assailed the jurisdiction of the AO to initiate the proceeding under Section 153C of the Act for the A.Y. 2011-12 as it was not within the permissible limit of six years from the year in which the documents pertaining to the assessee was received by the AO. In this regard, he relied upon the decision of Hon ’ble Supreme Court in the case of CIT vs. Jasjit Singh, [2023] 155 taxmann.com 155 (SC) and on the decision of Hon ’ble Delhi High Court in the case of PCIT vs. Ojj us Medicare (P.) Ltd., [2024] 161 taxmann.com 160 (Delhi).
7. Per contra, Shri Ashok Kumar Suthar, Sr. DR relied upon the orders of AO & CIT(A).
8. We have carefully considered the facts of the case and the materials available on record. There is no dispute to the fact that the proceedings under Section 153C of the Act was initiated by the AO on 31.03.2018. A copy of the satisfaction note to initiate proceedings under Section 153C of the Act has been brought on record, as per which the AO had initiated proceedings under Section 153C of the Act for A.Y. 2009-10 to A.Y.2014-15 in the case of the assessee. As per provision of Section 153C of the Act, if the AO of the searched person is satisfied that the seized books of accounts or documents or any information contained therein relates or pertains to person other than the searched person, then the books of accounts or documents shall be handed over to the AO having jurisdiction over such other person. Thereafter, the AO having jurisdiction of such other person shall initiate proceedings under Section 153C of the Act, if he is satisfied that such books of accounts or documents have a bearing on the determination of the total income of such other person. The proceedings under Section 153C of the Act can be initiated for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. The first proviso of Section 153C of the Act further explains the date of initiation of search for the proceedings under Section 153C of the Act as under:
Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of 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 Assessing Officer having jurisdiction over such other person :
9. The above proviso makes it crystal clear that the date of initiation of search as referred in 2n d Proviso of Section 153A of the Act shall be construed as reference to the date of receiving the books of accounts or documents or assets seized or requisitioned by the AO having jurisdiction over such other person. Thus, the date of receiving of the books of accounts by the AO of the other person shall be treated / deemed as date of search and six years preceding to that year will be construed as the relevant years for which proceedings under Section 153C of the Act can be initiated in respect of such other person. In this regard, it is relevant to consider the observation of the Hon’ble Delhi High Court in the case of PCIT vs. Ojj us Medicare (P.) Ltd. (supra):
The First Proviso to Section 153C introduces a legal fiction based on which the commencement date for computation of the six year or the ten year block is deemed to be the date of receipt of books of accounts by the jurisdictional AO. The identification of the starting block for the purposes of computation of the six and the ten year period is governed by the First Proviso to Section 153C, which significantly shifts the reference point spoken of in Section 153A(1), while defining the point from which the period of the “relevant assessment year” is to be calculated, to the date of receipt of the books of accounts, documents or assets seized by the jurisdictional AO of the non-searched person. The shift of the relevant date in the case of a non-searched person being regulated by the First Proviso of Section 153C(1) is an issue which is no longer res integra and stands authoritatively settled by virtue of the decisions of this Court in SSP Aviation and RRJ Securities as well as the decision of the Supreme Court in Jasjit Singh. The aforesaid legal position also stood reiterated by the Supreme Court in Vikram Sujitkumar Bhatia. The submission of the respondents, therefore, that the block periods would have to be reckoned with reference to the date of search can neither be countenanced nor accepted.
10. The Hon’ble Court categorically held that in case of a search assessment undertaken under Section 153C of the Act, the previous year of search would stand substituted by the date or the year in which the books of accounts / documents and assets seized are handed over to the jurisdictional AO of the other person as opposed to the year of search which constitutes the basis for an assessment under Section 153A of the Act. Thus, the block period for the proceedings under Section 153C of the Act has to be computed from the date of receipt of books of accounts or documents by the AO of the non-searched person. This principle has been upheld by the Hon’ble Supreme Court in the case of CIT vs. Jasjit Singh (supra), wherein Hon’ble Court held as under:
10. This Court is of the opinion that the revenue’s argument is insubstantial and without merit. It is quite plausible that without the kind of interpretation which SSP Aviation adopted, the A.O. seized of the materials of the search party, under section 132 would take his own time to forward the papers and materials belonging to the third party, to the concerned A.O. In that event if the date would virtually “relate back” as is sought to be contended by the revenue, (to the date of the seizure), the prejudice caused to the third party, who would be drawn into proceedings as it were unwittingly (and in many cases have no concern with it at all), is dis-proportionate. For instance, if the papers are in fact assigned under Section 153-C after a period of four years, the third party assessee’s prejudice is writ large as it would have to virtually preserve the records for at latest 10 years which is not the requirement in law. Such disastrous and harsh consequences cannot be attributed to Parliament. On the other hand, a plain reading of section 153-C supports the interpretation which this Court adopts.
11. The Apex Court had held in that case that in case of other person the period for which they were required to file returns, commenced only from date when materials were forwarded to their jurisdictional Assessing Officers. The Apex Court categorically held that the proviso to section 153C(1) catered not merely to question of abatement but also with regard to date from which six year period was to be reckoned, in respect of which returns were to be filed by third party whose premises were not searched and in respect of whom specific provision of section 153C was enacted.
12. In view of the above legal position, there is no ambiguity that for the proceedings under Section 153C of the Act, the year of search shall be substituted by the year of receipt of books or documents by the AO of the other person and thereafter the period of six years has to be counted backwards from that year. In the instant case, seized documents were received by the AO of the assessee in F.Y. 2017-18 relevant to A.Y. 2018-19. Therefore, the proceeding u/s 153C could have been initiated in the case of the assessee for the six years preceding the A.Y. 2018-19 i.e. for the A.Y.2017-18 to A.Y.2012-13 only.
13. As per amended provision of section 153A w.e.f. 01.04.2017, proceedings can be started for the assessment year beyond preceding six assessment years from the date of search or from the date of handing over the documents pertaining to other person but not later than ten assessment years, if the income that has escaped assessment is rupees fifty lakhs or more in aggregate. Thus, the proceeding could have been initiated in this case for the A.Y.2011-12 only if the escaped income for this year or for the preceding 7th to 10th year was Rs.50 Lacs or more. From the satisfaction as recorded by the AO for initiating proceeding u/s 153C of the Act, no such fact is evident. In fact, the addition made by the AO in the A.Y. 2011-12 was to the extent of Rs.22.56 Lakhs only. Therefore, the condition of escapement of income of Rs.50 Lacs or more was also not satisfied in this year. Therefore, no proceeding u/s 153C could have been initiated in this case for the A.Y.2011-12.
14. In view of the above facts, we are of the considered opinion, that the AO had no jurisdiction to initiate proceedings under Section 153C of the Act for the A.Y. 2011-12. Therefore, the additional ground taken by the assessee is allowed and the order of the AO passed under Section 153C r.w.s. 143(3) of the Act, being beyond jurisdiction, is quashed.
15. Since, the assessment order is quashed on the basis of legal ground taken by the assessee, we do not deem it necessary to adjudicate the other grounds taken by the assessee.
16. In the result, appeal preferred by the assessee is allowed.
This Order pronounced on 01/07/2024
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