Case Law Details
PCIT Vs Victory Apartments Pvt. Ltd. (Delhi High Court)
Introduction: The Delhi High Court recently delivered a significant judgment in the case of PCIT vs. Victory Apartments Pvt. Ltd., addressing the validity of proceedings under Section 153C of the Income Tax Act. The appeals involved three assessees for the Assessment Year 2009-10, challenging the order of the Income Tax Appellate Tribunal (ITAT) dated 24.03.2017.
Detailed Analysis:
1. Background: The appeals questioned the initiation of proceedings under Section 153C, and a key question framed was whether the initiation was valid and in accordance with the law.
2. Legal Issues Considered: The Tribunal focused on two crucial legal issues:
- The impact of the Assessing Officer (AO) of the searched person not recording satisfaction.
- The validity of proceedings in the absence of incriminating material.
3. First Legal Issue – AO’s Satisfaction: The Tribunal found that the AO recorded satisfaction in the case of the assessee, not the searched person, making the jurisdiction assumed by the AO invalid. This conclusion aligned with the Supreme Court’s stance in Super Malls Pvt. Ltd. v. Principal Commissioner of Income Tax.
4. Second Legal Issue – Incriminating Material: The Tribunal held that no incriminating material was found during the search on the directors of the assessee companies. The addition was based on documents already known to the department, making the proceedings invalid under Section 153C.
5. Judicial Precedents: The Tribunal relied on the judgment in PCIT v. Kabul Chawla, which was later affirmed by the Supreme Court in Principal Commissioner of Income Tax vs. Abhisar Buildwell Pvt. Ltd.
Conclusion: In conclusion, the Delhi High Court ruled in favor of the assessees, holding that the proceedings initiated under Section 153C were not valid due to the absence of incriminating material. The judgment emphasized the importance of adhering to legal procedures and maintaining the integrity of search and seizure operations. This decision adds clarity to the interpretation of Section 153C and sets a precedent for similar cases.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The above-captioned appeals concern three (3) assessees. The Assessment Year (AY) in issue in all six appeals is AY 2009-10. The order impugned in the above-captioned appeals preferred by the appellant/revenue is the order dated 24.03.2017 passed by the Income Tax Appellate Tribunal [in short, “Tribunal”]. This order is assailed in the six appeals filed by the appellant/revenue.
2. Via the impugned order, the Tribunal has thus disposed of the cross-appeals filed by the appellant/revenue and the respondents/assessees.
3. The record shows that on 13.08.2018, the above-captioned appeals were admitted and a common question of law was framed which reads as follows:
“Whether the Income Tax Appellate Tribunal was right in allowing the appeal preferred by the respondent/assessee as initiation of proceedings under 153 C of the Income Tax Act, 1961 was bad and contrary to law?”
4. It is common ground that the Tribunal held the proceedings initiated against the assessees under Section 153C of the Income Tax Act, 1961 [in short, “Act”] as bad in law as no incriminating material was found during the search conducted on Mr Pramod Goel, Ms Savita Goel and Mr Ashish Goel [hereafter referred to as “Goels”], the directors of the assessee companies.
5. Although, the Commissioner of Income Tax (Appeals) [in short, “CIT(A)”] ruled in favour of the assessees qua the aspect concerning the untenability proceedings in law in the absence of incriminating material, on merits, he decided in favour of the appellant/revenue.
5.1 This is how cross-appeals were filed by both sides before the Tribunal.
6. A perusal of the impugned order passed by the Tribunal shows that it did not return any ruling on merits and in that sense left the order of the CIT(A) untouched. However, on the two legal issues which arose before the Tribunal, the decision taken was in favour of the assessees. The legal issues which the Tribunal dealt with were the following:
6.1 First, what would be the impact of the Assessing Officer (AO) of the searched person not recording his satisfaction?
6.2 Second, in the absence of incriminating material, whether the proceedings were valid?
7. The Tribunal with respect to the first issue came to the following conclusion:
“15. xxx xxx
xxx
On perusal of the aforesaid satisfaction note, it is crystal clear that the said satisfaction was recorded by the AO in the proceedings relating to the assessee i.e. M/s Victory Dwellings Pvt. Ltd. and not in the case of Sh. Pramod Goel in whose case search and seizure operation u/s 132 of the Act was undertaken on 14.09.2010. Therefore, the jurisdiction assumed by the AO without recording the satisfaction in the case of the searched person was not valid.
xxx xxx
xxx
17. From the plain reading of the aforesaid Circular No. 24/2015 dated even if the AO of the searched person, and of the other person is one and the same then he is required to record his satisfaction in the case of searched person. In the present case, it is an admitted fact that the AO of the searched person has not recorded any satisfaction rather the satisfaction is recorded by the AO of the other person i.e. the assessee which is evident from the satisfaction note, copy of which is placed at page no. 21 of the assessee’s paper book. Therefore, the assessment framed in the hands of the assessee was not valid. …”
[Emphasis is ours.]
8. As regards the second issue, the following observations were made, which are also part of paragraph 17:
“xxx xxx xxx
Moreover, from the observation of the AO in the satisfaction note also it is crystal clear that no incriminating material was found, the addition was made only on the basis of the copy of balance sheet, profit and loss account and schedule of advances against supplies pertaining to the assessee, those documents were already in the knowledge of the department as the same were furnished alongwith the· regular return of income. Therefore, those documents by no stretch of the imagination can be said to be incriminating as those were made out of the regular books of accounts of the assessee, and the return of income was filed on the basis of those documents only.”
[ Emphasis is ours.]
9. Mr Ved Jain, counsel who appears on behalf of the respondents/assessees, fairly concedes that insofar as the first aspect is concerned, the Tribunal’s decision cannot be sustained in view of the judgment rendered by the Supreme Court in Super Malls Pvt. Ltd. v. Principal Commissioner of Income Tax 8, New Delhi, (2020) 4 SCC 581. However, Mr Sanjeev Menon, learned standing counsel, who appears on behalf of the appellant/revenue, cannot but accept the fact that as far as the decision of the Tribunal on the second issue is concerned, i.e., because no incriminating material was found, the proceedings taken out against the assessees under Section 153C of the Act were not valid in the eyes of law, was the correct view.
9.1 We may note that the Tribunal in this behalf relied upon the judgment rendered by the coordinate bench of this court in PCIT v. Kabul Chawla, [2016] 380 ITR 573 (Delhi). The said judgment has been affirmed by the Supreme Court in Principal Commissioner of Income Tax vs. Abhisar Buildwell Pvt. Ltd., [2023] 454 ITR 212 (SC).
10. Thus, having regard to the aforesaid position, according to us, the question of law as framed in the above-captioned appeals will have to be answered against the appellant/revenue and in favour of the respondents/assesses having regard to the finding returned by the Tribunal on the second issue.
11. The appeals are disposed of, in the aforesaid terms.
12. Parties will act based on the digitally signed copy of the order.
