2017 (4) TMI 1194 - HC - Income Tax

Validity of assessment u/s 153C - Satisfaction Note - Held that - The letter dated 27th January 2010 written by the Petitioner to RGEPL and recovered from the premises of RGEPL was a document which belonged to the Petitioner. As regards the other document seized and mentioned in the Satisfaction Note viz. the extract of the ledger account maintained by the Petitioner concerning the payments of commission made by it to RGEPL even if it is held to belong to the Petitioner it could hardly be said to be an incriminating document. This was a document relevant only for the AY 2010-11. It could not have been used for re-opening the assessments of the earlier years i.e. AYs 2007-08 to AY 2009-10 2011-12 and 2012-13. This position again stands settled by the decision in CIT-7 v. RRJ Securities Ltd (2015 (11) TMI 19 - DELHI HIGH COURT). The fact that the Revenue s SLP against the said decision is pending in the Supreme Court does not make a difference sine the operation of the said decision has not been stayed. While the ledger account extract may be relevant for AY 2010-11 it cannot be said to be incriminating material warranting re-opening of the assessment. The return originally filed by the Petitioner for the said AY 2010-11 was picked up for scrutiny and finalised by an assessment order under Section 143 (3) of the Act. The payments of commission to RGEPL to the tune of 4.95 crores as reflected in the ledger account was already disclosed in the Petitioner s accounts which were examined while finalising the regular assessment. Therefore the ledger account could not have led the AO to be satisfied that any income had escaped assessment for the AY 2010-11. The net result is that neither of the documents mentioned in the Satisfaction Note could have formed a valid basis for the AO to initiate proceedings against the Petitioner under Section 153 C of the Act for AY 2010-11 or any of the other years as proposed.- Decided in favour of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction under Section 153C of the Income Tax Act, 1961.
2. Validity of the satisfaction note and seized documents.
3. Applicability of Section 153C for the Assessment Years (AYs) 2007-08 to 2012-13.
4. Relevance and incriminating nature of the seized documents.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 153C of the Income Tax Act, 1961:
ARN Infrastructures India Ltd. challenged the jurisdiction assumed by the Income Tax Department under Section 153C by issuing a notice dated 23rd July 2014 and subsequent order dated 18th March 2016 for AYs 2007-08 to 2012-13. The court scrutinized the procedural adherence to Section 153C, particularly focusing on the satisfaction note prepared by the Assessing Officer (AO) of the searched person, Earth Infrastructures Ltd. (EIL).

2. Validity of the Satisfaction Note and Seized Documents:
The satisfaction note dated 21st July 2014 indicated that certain documents seized during a search at EIL’s premises belonged to ARN Infrastructures. The court examined whether these documents, specifically a letter dated 27th January 2010 and a three-page ledger account, genuinely belonged to ARN Infrastructures or to Real Gain Estate Pvt. Ltd. (RGEPL). The court concluded that the letter belonged to RGEPL, and the ledger account, even if belonging to ARN, was not incriminating.

3. Applicability of Section 153C for the Assessment Years 2007-08 to 2012-13:
The court referred to CIT-7 v. RRJ Securities Ltd., which established that the six-year period for initiating proceedings under Section 153C starts from the year the satisfaction note is prepared. Given the satisfaction note was dated 21st July 2014, the relevant AYs were 2009-10 to 2014-15, excluding AYs 2007-08 and 2008-09. Thus, the initiation of proceedings for these years was deemed without authority.

4. Relevance and Incriminating Nature of the Seized Documents:
The court analyzed whether the seized documents could be considered incriminating for reopening assessments. The ledger account, relevant only for AY 2010-11, was already disclosed in ARN’s regular assessment. The court held that the documents did not indicate concealed income or justify reopening assessments for AYs 2007-08 to 2009-10, 2011-12, and 2012-13. The pending Special Leave Petition (SLP) against CIT-7 v. RRJ Securities Ltd. did not alter this conclusion, as the decision had not been stayed.

Conclusion:
The court quashed the impugned notice dated 23rd July 2014 and all subsequent proceedings, including the order dated 16th March 2016, under Section 153A read with Section 153C of the Income Tax Act. The writ petitions were allowed, and no costs were ordered.