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2024 (8) TMI 502 - HC - Income TaxValidity of Assessment framed u/s 153C - search was carried at the secret office of the searched person - determination of period of limitation - as argued when the AO of searched person and third person is same, it is sufficient by AO to record in satisfaction note that documents seized from searched person belonged to other person and there is no requirement of transmitting documents so seized from searched person - gross violation of principles of natural justice for not allowing any of the respective petitioners to cross examine the searched person and the Accountant of the searched person . HELD THAT - As per definition of Books and Books of Accounts in Section 2(12A) of the Income Tax Act, 1961, at the time when the search was conducted at the premises of the searched person u/s 132 of the Income Tax Act, 1961 on 10.11.2020, i.e., before amendment and after amendment to Section 2 of the Income Tax Act, 1961 by the Finance Act, 2022 with effect from 01.04.2022, since the definition uses the word includes it should be given a wide connotation. Mere substitution of phrase in the written form or as print-outs of data stored with in the written form or in electronic form or in digital form or as print-outs of data stored in such electronic form or in digital form or in will not mean that the information that was stored in a floppy disk, tape or pen drive or any other form of electro-magnetic data storage device did not qualify as books and books of account for the purpose of section 2(12A) of the IT Act, 1961. The amendment to the definition of Books and Books of Accounts to clause (12A) to Section 2 of the Income Tax Act, 1961 by The Finance Act, 2022 w.e.f 01.04.2022 by substituting the words in written form or as print-outs of data stored with in written form or in electronic form or in form or in digitial form or as print-outs of data stored in such electronic form or in digital form was intended to merely align the definition with the current practice on account of the advancement of technology and its widespread utility in daily conduct of business for maintaining books of accounts. The Amendment to the definition of books and books of accounts in clause (12A) to Section 2 of the IT Act, 1961 is clarificatory and therefore, retrospective. The expression print-outs of data stored would include pdf copies of the print-outs in electronic form or in digital form. At the time when the search was completed on 10.11.2020 not only print outs of data stored in a floppy disk, tape, pen drive or any other form of electro-magnetic data storage device was included in the definition of Books and Books of Accounts also other forms of storage implying that the informations stored in such form of electro-magnetic data search devicse such as san disk, hard disk etc., already quantified as Books and Books of Accounts . The amended definition includes books of accounts in electronic form or in digital form or scanned copies of data or printouts of data stored in digital or electronic form. Therefore, arguments advanced by Petitioner that there was a jurisdictional error in invoking Section 153C cannot be accepted and is rejected. Period of limitation - The time limit for completing Assessment proceedings and passing the Assessment order will be one year from the date on which the documents were handed over or deemed to have been handed over to the Assessing Officer of the other person such as these petitioners, i.e. 31.03.2024. Therefore, the Writ Petition challenging the Assessment Orders passed under Section 153C read with Section 143(3) of the IT Act, 1961 are liable to be dismissed. The above periods are relevant only for preparation and issuance of the satisfaction note under Section 153C of the Income Tax Act, 1961. They are not relevant for the purposes of computation of limitation for completing the assessment under Section 153C read with Section 143(3), Income Tax Act, 1961. The assessment of the searched person was completed on 31.3.2022. The satisfaction notes of the Assessing officers of the searched person are after passing of the assessment order for the searched person as on 31.03.2022. These notices under Section 153C preceded satisfaction notes of the Assessing Officers of the searched person followed by satisfaction notes of the Assessing Officers and the respective petitioners (other person) as detailed above. Thus, the last date for issuance of the satisfaction note(s) under Section 153C of the Income Tax Act, 1961 for the respective petitioners i.e other person could be at the time of or along (or) during the course of assessment (or) immediately after passing of the assessment order of the searched person on 31.3.2022. There is hardly any time lag between 31.03.2022 and the date of satisfaction note(s) under Section 153C of the Income Tax Act for the respective Assessing officers although such satisfaction note(s) could have been issued earlier as per the decision of Calcutta Knitwears. Ludhiana 2014 (4) TMI 33 - SUPREME COURT These satisfaction notes issued under Section 153C of the IT Act, 1961 of the respective Assessing Officers were in time. It cannot be said that no incriminating material were unearthed during the search. Once notices u/s 153C were issued in time, and since the presence of incriminating material is the only requirement, the assessment had to be completed with the period of limitation under 3rd proviso to Section 153B(1) - As per the 3rd proviso to Section 153B(1) of the Income Tax Act, 1961, the last date for completing the assessment for the notices issued to the respective Petitioners under section 153C of the Income Tax Act, 1961, is twelve months from the end of the financial year from the date on which the documents were handed over or deemed to have been handed over to the assessing officer of the other person i.e. the respective petitioners. Even if the Assessing Officers of the searched person and the Assessing Officer of other persons like the respective petitioner are same, the date of satisfaction note is to be the deemed date of handing over of the books of account or documents or assets seized or requisitioned for the purpose of computation of limitation. Thus, twelve months from the end of the financial year from the date on which the documents were handed over or deemed to have been handed over to the Assessing Officer of the other person such as these petitioners would be start running for computation of limitation from 31.03.2023. Therefore, it has been held that initiations of proceedings against the respective petitioners were both justified and were in time. That apart all these Petitioners have had transactions with the searched person . Merely because, the assessing officers are one and the same for both searched person and the other person ipso facto would not mean that the moment the documents were seized either by the investigating team and handed over to the assessing officer for completing the assessment under section 153A of the Income Tax Act, 1961, the limitation for completing the assessment in the case of other person would start running under 3rd proviso to section 153B (1) of the Income Tax Act, 1961. Therefore, even if, the assessing officer of the searched person and the other person were one and the same, the only requirement is that a single satisfaction note in the capacity as the assessing officer of the searched person is sufficient. There is no merits in the arguments advanced on behalf of the respective petitioners that the assessment orders ought to have been passed on or before 31.03.2022. The submissions of the learned counsel for the respective petitioners are fallacious and are liable to be rejected. Validity of scrutiny assessement orders passed u/s 143(3) - Validly initiated proceedings for completing the assessment cannot abate. The respective Assessing Officer have passed Assessment Orders within the time stipulated under Section 153 of the Income Tax Act, 1961. Merely because these assessment orders were passed on the same date as on the dates when orders passed under Section 153C read with Section 143(3) of the Income Tax Act, 1961, would not mean that the Assessment Orders were without jurisdiction. Therefore, challenge to scrutiny of the above Assessment Order passed under Section 143(3) of the Income Tax Act, 1961 are without merits. Therefore, these Writ Petitions challenging the Assessment Orders passed under Section 143(3) of the Income Tax Act, 1961 are also liable to be dismissed. Addition of amount of unexplained income to the accounts of both the directors of M/s.KLP Projects Private Limtied, i.e., Manish Parmar and Mr. Sunil Khetpalia. Therefore, the Impugned Orders are liable to be quashed and cases are remanded back to the respondents to redo the exercise by adding the unexplained income under Section 69A of the Income Tax Act, 1961 to the income of the Petitioner.
Issues Involved:
1. Validity of Assessment Orders under Section 153C read with Section 143(3) of the Income Tax Act, 1961. 2. Alleged Violation of Principles of Natural Justice. 3. Jurisdictional Errors in Initiating Proceedings under Section 153C. 4. Admissibility of Electronic Evidence. 5. Limitation Period for Completing Assessments. 6. Overlap of Unexplained Income in the Cases of Directors. Detailed Analysis: 1. Validity of Assessment Orders under Section 153C read with Section 143(3) of the Income Tax Act, 1961: The petitioners challenged the respective impugned Assessment Orders passed under Section 153C read with Section 143(3) of the Income Tax Act, 1961. The court noted that the proceedings against each petitioner commenced with the issuance of notices under Section 153C on various dates. The court held that the initiation of proceedings against the respective petitioners was justified and within the time limits prescribed under the law. The court found that the presence of incriminating material was the only requirement for the initiation of proceedings under Section 153C, and the assessment had to be completed within the period of limitation under the third proviso to Section 153B(1) of the Income Tax Act, 1961. 2. Alleged Violation of Principles of Natural Justice: The petitioners argued that there was a gross violation of principles of natural justice as they were not allowed to cross-examine Mr. Suresh Khatri and Mr. Rajendra Kothari, whose statements were relied upon for initiating the proceedings under Section 153C. The court held that the petitioners' argument on this ground could not be accepted as there was no illegality or invalidity in the proceedings initiated under Section 153C. 3. Jurisdictional Errors in Initiating Proceedings under Section 153C: The petitioners contended that there was a jurisdictional error in assuming the power under Section 153C of the Income Tax Act, 1961. They argued that the 'satisfaction note' did not record any satisfaction to initiate proceedings against them. The court rejected this argument, stating that the satisfaction notes issued under Section 153C were in time and that there was no jurisdictional error in invoking Section 153C. 4. Admissibility of Electronic Evidence: The petitioners argued that the data stored in the pen drive and hard disk seized during the search did not qualify as "books of accounts" under the definition of Section 2(12A) of the Income Tax Act, 1961. They also contended that the procedure under Section 65B of the Indian Evidence Act, 1872 was not followed, making the electronic evidence inadmissible. The court held that the definition of "books of accounts" includes electronic and digital forms, and the amendment to Section 2(12A) by the Finance Act, 2022 was clarificatory and retrospective. The court also noted that the provisions of the Indian Evidence Act, 1872 do not apply to quasi-judicial proceedings before the Assessing Officer. 5. Limitation Period for Completing Assessments: The petitioners argued that the limitation for completing the assessments had expired. The court held that the time limit for completing the assessment for the notices issued to the respective petitioners under Section 153C is twelve months from the end of the financial year from the date on which the documents were handed over or deemed to have been handed over to the Assessing Officer of the "other person." The court found that the assessment orders were passed within the stipulated time and were therefore valid. 6. Overlap of Unexplained Income in the Cases of Directors: The court noted that there was an overlap of unexplained income in the cases of Mr. Maneesh Parmar and Mr. Sunil Khetpalia, directors of M/s. KLP Projects Private Limited. The court quashed the impugned orders in W.P. Nos. 13119, 13125, 13129, 16431, 12018, and 12021 of 2023 and remanded the cases back to the respondents to redo the exercise by adding the unexplained income under Section 69A of the Income Tax Act, 1961 to the income of the respective petitioner. Conclusion: The court dismissed the writ petitions challenging the assessment orders under Section 153C read with Section 143(3) of the Income Tax Act, 1961, except in the cases of Maneesh Parmar and Sunil Khetpalia, where the orders were quashed and remanded for re-assessment. The petitioners were given liberty to file an appeal before the Appellate Authority within thirty days.
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