2024 (7) TMI 1575 - AT - Income Tax

Validity of Assessment u/s 153C - period of limitations - HELD THAT - AO having jurisdiction of such other person shall initiate proceedings u/s 153C, if he is satisfied that such books of accounts or documents have a bearing on the determination of the total income of such other person. The proceedings u/s 153C of the Act can be initiated for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made. There is no ambiguity that for the proceedings u/s 153C the year of search shall be substituted by the year of receipt of books or documents by the AO of the other person and thereafter the period of six years has to be counted backwards from that year. In the instant case, seized documents were received by the AO of the assessee in F.Y. 2017-18 relevant to A.Y. 2018-19. The proceeding u/s 153C could have been initiated in the case of the assessee for the six years preceding the A.Y. 2018-19 i.e. for the A.Y. 2017-18 to A.Y. 2012-13 only. Scope of amended provision of section 153A - Proceedings can be started for the assessment year beyond preceding six assessment years from the date of search or from the date of handing over the documents pertaining to other person but not later than ten assessment years, if the income that has escaped assessment is rupees fifty lakhs or more in aggregate. Thus, the proceeding could have been initiated in this case for the A.Y. 2011-12 only if the escaped income for this year or for the preceding 7th to 10th year was Rs. 50 Lacs or more. From the satisfaction as recorded by the AO for initiating proceeding u/s 153C of the Act, no such fact is evident. In fact, the addition made by the AO in the A.Y. 2011-12 was to the extent of Rs. 22.56 Lakhs only. Therefore, the condition of escapement of income of Rs. 50 Lacs or more was also not satisfied in this year. Therefore, no proceeding u/s 153C could have been initiated in this case for the A.Y. 2011-12. AO had no jurisdiction to initiate proceedings u/s 153C for the A.Y. 2011-12. Therefore, the additional ground taken by the assessee is allowed and the order of the AO passed u/s 153C r.w.s. 143(3) of the Act, being beyond jurisdiction, is quashed. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions presented and considered in this judgment are:

• Whether the initiation of proceedings under Section 153C of the Income Tax Act, 1961 was valid, given the date of receipt of documents by the Assessing Officer (AO) of the assessee.
• Whether the addition of INR 22,56,000 under Section 69 of the Act was justified based on the evidence presented.
• Whether the failure to provide the satisfaction note and opportunity for cross-examination invalidated the assessment proceedings.
• Whether the assessment for A.Y. 2011-12 was within the permissible period for initiation under Section 153C, considering the provisions related to the six-year and ten-year periods.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Proceedings under Section 153C

• Relevant Legal Framework and Precedents: Section 153C of the Income Tax Act allows the AO to assess or reassess the income of any other person (not the searched person) if seized documents pertain to them. The first proviso to Section 153C specifies that the date of receiving the documents by the AO is the reference point for calculating the six-year period for assessment.
• Court's Interpretation and Reasoning: The court emphasized that the date of receipt of documents by the AO, not the date of search, determines the assessment period under Section 153C. This interpretation aligns with precedents set by the Supreme Court in CIT vs. Jasjit Singh and the Delhi High Court in PCIT vs. Ojjus Medicare (P.) Ltd.
• Key Evidence and Findings: The AO received the relevant documents in F.Y. 2017-18, making A.Y. 2018-19 the reference year. Thus, the permissible assessment years were A.Y. 2012-13 to A.Y. 2017-18.
• Application of Law to Facts: Since the proceedings for A.Y. 2011-12 were initiated beyond the permissible six-year period, they were deemed invalid.
• Treatment of Competing Arguments: The court rejected the respondent's reliance on the AO's orders, emphasizing legal precedents and statutory interpretation.
• Conclusions: The initiation of proceedings under Section 153C for A.Y. 2011-12 was beyond jurisdiction and therefore quashed.

Issue 2: Addition of INR 22,56,000 under Section 69

• Relevant Legal Framework and Precedents: Section 69 of the Act pertains to unexplained investments, allowing for additions to income when the nature and source of investments are not satisfactorily explained.
• Court's Interpretation and Reasoning: The court did not delve into this issue due to the quashing of the assessment order on jurisdictional grounds.
• Conclusions: As the order was quashed on jurisdictional grounds, this issue was not adjudicated further.

Issue 3: Non-provision of Satisfaction Note and Cross-examination

• Relevant Legal Framework and Precedents: The Supreme Court's decision in Calcutta Knitwears mandates the provision of a satisfaction note, and cross-examination is a legal right.
• Court's Interpretation and Reasoning: The court did not address this issue directly due to the quashing of the assessment order on other grounds.
• Conclusions: This issue was not adjudicated further due to the quashing of the assessment order.

3. SIGNIFICANT HOLDINGS

• Preserve Verbatim Quotes of Crucial Legal Reasoning: "The date of receiving of the books of accounts by the AO of the other person shall be treated / deemed as date of search and six years preceding to that year will be construed as the relevant years for which proceedings under Section 153C of the Act can be initiated in respect of such other person."
• Core Principles Established: The assessment period under Section 153C is determined by the date of receipt of documents by the AO, not the date of search. The six-year period is counted backwards from this date.
• Final Determinations on Each Issue: The proceedings under Section 153C for A.Y. 2011-12 were quashed as they were initiated beyond the permissible period. Other issues were not adjudicated due to this jurisdictional finding.