2025 (4) TMI 259 - AT - Income Tax

Validity of Order u/s 153C in the absence of any incriminating material pertaining to the Appellant found from the persons searched - addition/s on account of unexplained investment u/s 69 Identify the relevant assessment year for the purposes of computing the ten year block - HELD THAT - As the ten AYs would have to be computed from the end of the AY relevant to the FY in which the search was conducted or requisition made. The ten AY period consequently is to be reckoned from the end of the AY pertaining to the previous year in which the search was conducted as distinct from the preceding year which is spoken of in the case of the six relevant AYs. In the context of the present case therefore it would be manifest that AY 2022-23 would form the first year of the block of ten AYs and with the maximum period of ten AYs terminating in AY 2013-14. Hence as the ten AYs when computed from the end of AY 2022-23 would terminate upon AY 2013-14 according to us AY 2012-13 would clearly fall outside the block period of ten AYs and therefore the AO could not have legally reopened the same under section 153C read with section 153A of the Act. Accordingly the notice dated 30-12-2021 issued u/s 153C of the Act for AY 2012-13 is held to be ab inito void and consequently the assessment order passed u/s 153C/143(3) dated 31-03- 2022 for AY 2012-13 being bad in law is accordingly quashed. Whether the AO had satisfied the essential condition precedent set out in the fourth proviso of Section 153A of the Act prior to reopening the assessments for AYs 2012-13 2013-14 u/s 153C of the Act which fell beyond the period of six assessment years - The seized material in question didn t contain any information relating to unexplained/ undisclosed asset as defined in Explanation 2 to the fourth proviso of Section 153A. According to us the AO was not in possession of any evidence / material which suggested that income represented in form of an asset had escaped tax in these AYs 2012- 13 2013-14 and therefore the jurisdictional fact as prescribed under the fourth proviso to Section 153A of the Act is found to be absent and the AO is noted to have usurped jurisdiction u/s 153C r.w.s 153A of the Act on wrong assumption of jurisdictional fact. As a consequence we hold that the AO could not have legally proceeded further with the reassessment for AYs 2012-13 2013-14. Accordingly the impugned orders passed u/s 153C/143(3) of the Act for AYs 2012-13 2013-14 are held to be ab initio void and bad in law for want of jurisdiction and the same is hereby directed to be quashed. Addition/s impugned in unabated AYs 2012-13 2013-14 were not based on any incriminating material found in the course of search - For determining the abated/unabated assessment u/s 153C of the Act the date of search is required to be ascertained in terms of first proviso to Section 153C of the Act. In the present case irrespective whether the date of search is taken to be 25-02-2020 (date of original search) or 31-12-2021 (date of satisfaction note) the assessment for AYs 2012-13 2013-14 are unabated assessments. In the circumstances the assessment u/s 153C of the Act for the relevant AYs 2012-13 2013-14 could have been framed only with reference to any incriminating material found/unearthed during search. Hon ble Supreme Court in the case of DCIT vs U.K. Paints (Overseas) Limited 2023 (5) TMI 373 - SC ORDER has held that in absence of any incriminating material which was found from the premise of the third party (searched person) no addition/s is permissible in an unabated assessment u/s 153C of the Act of the assessee (other person). Additions made u/s 69 - As perused the contents of the statement of Mr. Jain and it is nobody s case that he had admitted to any wrong doing or had averred that the bank credits represented his unaccounted monies. Reading of the statement shows that he had only sought time to verify from his records and submit the details regarding the investments sold as understandably the data was quite old and Shri Jain could not have been reasonably expected to recollect and provide the exact details. This according to us cannot be treated as incriminating statement to draw adverse inference in an unabated assessment. Having regard to the foregoing and more so when the impugned statement itself didn t contain any admission or surrender to any wrong doing we do not countenance this plea of the Revenue that the said statement constituted incriminating material unearthed in the course of search. As there was no incriminating material found in the course of search on the basis of which additions u/s 69 of the Act could have been legally made in the unabated AYs 2012-13 and 2013-14. We accordingly direct the AO to delete the impugned addition/s made u/s 69 of the Act in the unabated AYs 2012-13 2013-14. Appeals of the assessee stands allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core issues considered in this judgment revolve around the legality of the assessment orders issued under Section 153C of the Income Tax Act for the Assessment Years (AY) 2012-13 and 2013-14. The specific questions are:

• Whether the assessment orders for AYs 2012-13 and 2013-14 are valid under Section 153C, considering the absence of incriminating material found during the search.
• Whether the Assessing Officer (AO) was correct in reopening assessments for AYs 2012-13 and 2013-14, which are beyond the standard six-year period, under the extended ten-year block as per the fourth proviso to Section 153A.
• Whether the AO satisfied the necessary conditions precedent for reopening assessments under the fourth proviso to Section 153A, specifically the requirement of having in possession evidence of income represented in the form of an asset that escaped assessment.
• Whether the additions made in the unabated assessments for AYs 2012-13 and 2013-14 were based on any incriminating material found during the search.

ISSUE-WISE DETAILED ANALYSIS

1. Validity of Assessment Orders under Section 153C

The legal framework under Section 153C allows the AO to issue notices to assess income for any other person (not searched) if documents or assets belonging to such person are found during a search. The Court examined whether the seized material was incriminating and justified the reopening of assessments for AYs 2012-13 and 2013-14.

The Court found that the documents seized were regular books of accounts and not incriminating. The AO's reliance on regular books to justify additions was deemed inappropriate, as these documents did not reveal any undisclosed income or asset.

2. Application of the Ten-Year Block Period

The AO attempted to apply the extended ten-year block period, introduced by the Finance Act, 2017, to reopen assessments for AYs 2012-13 and 2013-14. The Court analyzed the relevant legal provisions, including the first proviso to Section 153C and Explanation 1 to Section 153A, which define the computation of the ten-year block period.

The Court concluded that the ten-year block should be computed from the end of the assessment year relevant to the previous year in which the search was conducted. In this case, the deemed date of search was determined to be the date of the satisfaction note, i.e., 31-12-2021. Consequently, AY 2012-13 fell outside the ten-year block, rendering the notice for this year void.

3. Satisfaction of Conditions under the Fourth Proviso to Section 153A

The fourth proviso to Section 153A requires the AO to possess evidence that income represented in the form of an asset, valued at Rs. 50 lakhs or more, has escaped assessment. The Court scrutinized whether the AO had such evidence before issuing notices for AYs 2012-13 and 2013-14.

The Court found that the AO's satisfaction note did not specify any undisclosed asset that escaped assessment for the relevant years. The seized material did not reveal any unaccounted assets, and the AO's reliance on regular books was insufficient to satisfy the jurisdictional fact required by the fourth proviso.

4. Additions in Unabated Assessments Based on Incriminating Material

The Court considered whether the additions made under Section 69 for unexplained investments in the unabated assessments for AYs 2012-13 and 2013-14 were based on incriminating material found during the search.

The Court reiterated the settled legal position that additions in unabated assessments must be based on incriminating material found during the search. In this case, the seized documents were regular books of accounts, and no incriminating material was found to justify the additions. The Court directed the AO to delete the additions made under Section 69.

SIGNIFICANT HOLDINGS

• The Court held that the assessment orders for AY 2012-13 were void as they fell outside the ten-year block period, and the AO lacked jurisdiction to reopen them under Section 153C.
• The Court concluded that the AO did not satisfy the conditions precedent under the fourth proviso to Section 153A for reopening assessments for AYs 2012-13 and 2013-14, as there was no evidence of undisclosed assets valued at Rs. 50 lakhs or more.
• The Court emphasized that additions in unabated assessments must be based on incriminating material found during the search. In the absence of such material, the additions under Section 69 were unsustainable.
• The Court directed the deletion of additions made under Section 69 for AYs 2012-13 and 2013-14, as they were not based on incriminating material.