2024 (5) TMI 1468 - HC - Income Tax

Validity of assessment u/s 153C - Statutory imperatives of incriminating material - HELD THAT - Undisputedly, and as would be evident from a reading of the Satisfaction Note pertaining to the non-searched entity, namely the petitioner, the material which is alluded to pertains to Assessment Year AY 2019-20 only. Action under Section 153C however, sought to encompass AYs 2014-15 to 2020-21. Insofar as AYs other than AY 2019-20 are concerned the impugned action would clearly not sustain bearing in mind the judgment rendered by the Court in Saksham Commodities Limited 2024 (4) TMI 461 - DELHI HIGH COURT wherein held 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. Whether mere recovery of a ledger account cannot possibly be construed as being incriminating? - petitioner, who submits that even for AY 2019-20 the Assessing Officer AO does not refer to any incriminating material - We find ourselves unable to pursue this line of inquiry which is suggested bearing in mind the obvious disputed issues of fact which arise. We also bear in consideration the following conclusions and observations as they appear in the satisfaction note. The writ petition partly succeeds. The impugned action under Section 153C of the Act, pertaining to AYs 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 and 2020-21 are hereby quashed and set aside. However, and insofar as AY 2019-20 is concerned, the same is left untouched. All rights and contentions of respective parties are kept open to be addressed in the ongoing assessment proceedings for AY 2019-20.

Summary

Issues:
Challenge to Impugned Notices and Order under Section 153C of the Income Tax Act for AYs 2014-15 to 2020-21.

Analysis:
The petitioner sought to quash the Impugned Notices dated 24.04.2023 and the Impugned Order dated 22.11.2023 issued under Section 153C of the Act for AYs 2014-15 to 2020-21, alleging them to be illegal and without jurisdiction. The Court noted that while the material alluded to pertained to AY 2019-20, the action under Section 153C sought to encompass AYs 2014-15 to 2020-21. Citing the judgment in Saksham Commodities Limited case, the Court emphasized that incriminating material must be identified with respect to the relevant AY before initiating proceedings under Section 153C. It held that the power to assess or reassess under Section 153C is confined to the years to which the material may relate or influence, and a mere power to assess or reassess the preceding AYs does not justify invoking Section 153C indiscriminately.

The petitioner contended that for AY 2019-20, the Assessing Officer did not refer to any incriminating material, arguing that the recovery of a ledger account cannot be considered incriminating. However, the Court declined to delve into this argument due to the disputed facts involved. The satisfaction note highlighted various findings related to M/s DNC, indicating suspicious activities and bogus transactions involving the entity. Based on these findings, the Court concluded that the impugned action under Section 153C for AYs 2014-15, 2015-16, 2016-17, 2017-18, 2018-19, and 2020-21 was quashed and set aside. However, the action for AY 2019-20 was left untouched, allowing all rights and contentions of the parties to be addressed in the ongoing assessment proceedings for that year.