Pen drive with FY 2014-15 data cannot justify reassessment for AY 2019-20

Panch Tatva Promotors Private Limited Vs ACIT (Delhi High Court)

The Delhi High Court has set aside an Income Tax notice issued under Section 153C of the Income Tax Act, 1961, in the case of Panch Tatva Promotors Private Limited, ruling that a pen drive containing information from a different financial year cannot be the basis for reassessing income.

The judgment, delivered by the Delhi High Court, addressed a notice dated August 28, 2024, pertaining to Assessment Year (AY) 2019-20. The notice was based on a satisfaction note from the Assessing Officer (AO) of Mr. Samir Modi and Ms. Shivani Modi, indicating that documents related to the petitioner were found during a search on February 3, 2021.

However, the court noted that the satisfaction note lacked any information relevant to determining the petitioner’s income assessable in AY 2019-20. The note mentioned a pen drive containing transaction details between High Ground Enterprises Ltd. (HGEL) and companies providing accommodation entries through bogus invoices. While a transaction involving the petitioner for ₹70,78,680 was recorded, it pertained to Financial Year 2014-15.

The court emphasized that the pen drive could not be considered as containing any incriminating material concerning the petitioner for AY 2019-20, thus making the reassessment under Section 153C unjustified.

The Delhi High Court cited the Supreme Court’s decision in Commissioner of Income Tax-III, Pune v. Sinhgad Technical Education Society ([2017] 84 com 290) and its own recent ruling in Saksham Commodities Ltd. v. Income Tax Officer Ward 22 (1), Delhi & Anr. (2024:DHC:2836-DB) to support its decision.

Paragraph 68 of the Sinhgad Technical Education Society judgment was particularly highlighted, stating that the Assessing Officer must be satisfied that the received material is likely to impact the total income of the assessment years in question. Absent any material casting doubt on the income estimation for a specific year, invoking powers under Section 153C is not justified.

Consequently, the Delhi High Court allowed the petition, setting aside the notice issued under Section 153C of the Income Tax Act for AY 2019-20.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. The petitioner has filed the present petition, inter alia, impugning a notice dated 28.08.2024 [the impugned notice] issued under 153C of the Income Tax Act, 1961 [the Act] as well as the proceedings for re­assessment of the petitioner’s income in respect of Assessment Year [AY] 2019-20.

2. The impugned notice is premised on the satisfaction note of the Assessing Officer [AO] of Mr. Samir Modi and Ms. Shivani Modi (searched persons), which recorded that documents containing information pertaining to the petitioner were found during the search conducted in the case of searched persons on 03.02.2021.

3. Admittedly, the satisfaction note does not contain any information which may have a bearing on determining the petitioner’s income assessable in the AY 2019-20. The note indicates that during the course of the search, a pen-drive was found, which contained certain information regarding transactions entered into by HGEL (High Ground Enterprises Ltd.) with companies that had provided accommodation entries through generation of bogus invoices.

4. In so far as the petitioner is concerned, information allegedly found was regarding a purported transaction of ₹70,78,680/-, which was allegedly supported by bogus invoice. However, the said transaction pertains to the Financial Year 2014-15. Paragraph 13 of the satisfaction note is set out below:

“13. Further, during the search action, several digital devices were cloned and had been annexurised. In one red SanDisk pen drive which was cloned into the Hard-Disk marked as Annexure A3, the tally data of entities had been maintained. The Managing director of High Ground Enterprises Limited i.e. Sandeep Ramkrishna Arora admitted that transactions between High Ground Enterprise Limited and companies may not be 100 percent genuine. The pen drive contains all detailed transactions done by HGEL with the companies who may provided accommodation entries through generation of bogus invoices from FY 2014-15 to FY 2020-21.

5. It is clear from the above that the information provided in the satisfaction note dated 28.08.2024 entered by the AO of the assessee could not possibly lead to the conclusion that the income of the Assessee for AY 2019-20 had escaped assessment. The pen drive found cannot be considered as containing any incriminating material pertaining to the petitioner in respect of AY 2019-20. Thus, the petitioner’s assessment for the said year could not be reopened under Section 153C of the Act.

6. Concededly, the aforesaid issue is covered by the decision of the Supreme Court in Commissioner of Income Tax-III, Pune v. Sinhgad Technical Education Society: [2017] 84 com 290 as well as the recent decision of this Court in Saksham Commodities Ltd. v. Income Tax Officer Ward 22 (1), Delhi & Anr.: 2024:DHC:2836-DB.

7. It is relevant to set out paragraph 68 of the said decision which reads as under:

68. The jurisdictional AO would have to firstly be satisfied that the material received is likely to have a bearing on or impact the total income of years or years which may form part of the block of six or ten AYs’ and thereafter proceed to place the assessee on notice under Section 153C. The power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence. Absent any  material that may either cast a doubt on the estimation of total  income for a particular year or years, the AO would not be  justified in invoking its powers conferred by Section 153C. It  would only be consequent to such satisfaction being reached  that a notice would be liable to be issued and thus resulting in  the abatement of pending proceedings and reopening of concluded assessments.

[Emphasis added]

8. In view of the above, the present petition is allowed and the impugned notice issued under Section 153C of the Act in respect of AY 2019-20 is set aside.

9. The pending application is also disposed of.