The Delhi High Court has clarified that requirement for Two-Tier Satisfaction of the Assessing officer of both the searched and non-searched entity for initiating reassessment even before 2015 Amendment in Section 153C of the Income Tax Act, 1961.
The bench of Justice Yashwant Varma and Justice Harish Vaidyanathan Shankar has observed that undoubtedly Section 153C as it stood at the relevant time did not contemplate a two tier recordal of satisfaction and the AO of the searched person was merely obliged to transmit the material belonging or pertaining to a third person gathered in the course of a search, proceedings under the said provision could not have been triggered mechanically absent the formation of opinion by the AO of the non-searched person that the material was likely to impact an assessment made.
The bench noted that the subsequent introduction of the words “have a bearing on” in the provision was not an introduction of a new obligation upon the AO. The primordial requirement of the material relating to undisclosed income had existed even prior to the amendments introduced in 2015 and which position has been consistently recognised by our Court including in RRJ Securities and the host of precedents which followed.
“This would also appeal to reason since the family of provisions concerned with search were intended to enable the AO to utilise the material that may have been uncovered in a search to test the validity of assessments completed or the veracity of the disclosures made by assessees,” the bench noted.
The Principal Commissioner of Income Tax sought to order of the Income Tax Appellate Tribunal and which has upheld the stand as taken by the respondent- assessee of the material seized in the course of a search not being incriminating and thus not justifying the initiation of assessment proceedings referable to Section 153C of the Income Tax Act, 1961, as it stood at the relevant time.
The years in question before the Tribunal were Assessment Years 2004-05 and 2005-06. However, the provisional balance sheet which was recovered in the course of the search was undisputedly referring to a position as it existed on 30 September 2005.
The Tribunal, while holding in favour of the respondent, Ridgeview, has essentially followed a consistent line taken by the Court as well as the Tribunal of a notice under Section 153C of the Income Tax Act being liable to sustained only if the material gathered be recognisable as incriminating and pertaining to the AY in question.
Ex facie, therefore, a provisional Balance Sheet which sought to capture affairs as existing on 30 September 2005 could have possibly had no corelation or impact in so far as AYs 2004-05 and 2005-06 were concerned.
The amendments which came to be introduced in that section by virtue of Finance Act, 2015 were explanatory and would thus also apply to any search that may have been conducted prior to those amendments coming to exist in the statute. The submission was addressed since the sheet could not have perhaps belonged to Ridgeview. However, it could have legitimately been viewed as pertaining to that entity.
The court found that the provisional Balance Sheet could not be said to be reflective of affairs pertaining to AYs 2004-05 and 2005-06. It was clearly not a document which displayed carried forward or past entries of income or expenditure. The Tribunal was thus justified in annulling the assessment undertaken.
Case Details
Case Title: PCIT Versus M/S Ridgeview Construction Pvt. Ltd.
Case No.: ITA 618/2019
Date: 13.02.2025
Counsel For Appellant: Indruj Singh Rai
Counsel For Respondent: Gautam Jain
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