The Delhi High Court has quashed the notices issued pursuant to the search action undertaken by Revenue on the fundament error on the part of Assessing Officer to notice, examine and consider the alleged material which were found during the course of search, in the satisfaction note i.e. before assuming the jurisdiction while issuing the notice under Section 153C of the Income Tax Act.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja did not agreed with the attempt of the department to refer to the Show Cause Notice which alluded to the alleged material gathered from a laptop found and seized.
The bench reiterated that it is only once the AO of the non-searched entity is satisfied that the material coming into its possession is likely to “have a bearing on the determination of the total income” that a notice under Section 153C would be issued.
Section 153C of the Income Tax Act is to empower the Assessing Officer of the person searched to handover the money, gold, jewellery or other relevant articles/things or books of account or documents belonging to the other person to the Assessing Officer of that other person and the Assessing Officer of that other person in accordance with the provisions of Section 153A to assess undisclosed income resulting from such money, bullion, jewellery and valuable articles or things, books of account or other documents.
The petitioner/assessee has challenged the initiation of proceedings referable to Section 153C of the Income Tax Act, 1961 pertaining to Assessment Years2 2014-2015, 2017-2018 and 2018-2019.
The satisfaction rested on transactions which were dated 21 April 2014, 26 August 2015 and 30 May 2019. None of those transactions pertained to the AYs in question.
The assessee relied on the decision of Saksham Commodities Limited v. Income Tax Officer, Ward 22(i), Delhi & Anr in which it was held that it would thus be incorrect to either interpret or construe Section 153C as envisaging incriminating material pertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment or reassessment for the entire block of the “relevant assessment year”. The “incriminating material” which is spoken of would have to be identified with respect to the AY to which it relates or may be likely to impact before the initiation of proceedings under Section 153C of the Act.
The assessee contended that a material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income. The mere existence of a power to assess or reassess the six AYs’ immediately preceding the AY corresponding to the year of search or the “relevant assessment year” would not justify a sweeping or indiscriminate invocation of Section 153C.
The department relied on a Show Cause Notice5 which refers and alludes to material gathered from a laptop found and seized from the residence of an individual.
The court noted that the material which is referred to the SCN was neither noticed, examined nor considered in the satisfaction note.
The court while allowing the petition found that the action under Section 153 was unsustainable and the notice and all the consequential proceedings are liable to be quashed.
Case Title: Mukesh Chandra Agarwal Versus DCIT
Case No.: W.P.(C) 6162/2023 & CM APPL. 24246/2023 (Stay)
Date: 04.09.2024
Counsel For Petitioner: Advocates Sumit Lalchandani, Salil Kapoor, Ananya Kapoor, Tarun Chanana & Shivam Yadav
Counsel For Respondent: Sr. SC Abhishek Maratha