2023 (9) TMI 335 - HC - Income Tax

Assessment u/s 153C - Whether the provisions of Section 144 of the Act could be invoked to pass a best judgment assessment? - Validity of issuance of notice without DIN - HELD THAT - Respondent has erroneously proceeded on the basis that no return had been filed by petitioner pursuant to the notice u/s 153C since he records that no return is available on the ITBA portal. This factual basis is demonstrably erroneous. A return of income pursuant to notice issued u/s 153C(1) of the Act has been filed on 15th August 2021 and an acknowledgment showing an e-filing acknowledgment number is on record. Section 144(1)(a) of the Act cannot apply since petitioner has filed a return, no best judgment assessment u/s 144 of the Act could have been passed - Respondent no. 1 has also, in the impugned order of assessment dated 28th September 2021, recorded that no notice u/s 143(2) of the Act was issued by him. Therefore, there is no question of the provisions of Section 144(1)(c) of the Act being applicable. So far as, the provisions of Section 144(1)(b) of the Act are concerned, as explained hereinabove, there has been no failure to comply with the terms of any notice issued under Section 142(1) of the Act. Therefore, the purported exercise of powers u/s144 of the Act cannot be sustained. Even if one assumes that one of the jurisdictional preconditions set out in Section 144(1)(a), (b) or (c) of the Act is satisfied then, Section 144(1) read with the 1st proviso requires that an AO shall give an assessee an opportunity of being heard as to why the proposed assessment of income to the best of his judgment should not be made. A perusal of the show cause notice shows that this has not been done in the instant case. Further, the provisions of the 2nd proviso to Section 144(1) of the Act cannot apply since petitioner has not failed to comply with any notice under Section 142(1) of the Act. Therefore, the impugned assessment order could, if at all, have been passed under Section 153C read with Section 143(3) of the Act. If the validity of the impugned order of assessment is tested on this basis it cannot be sustained. It is a jurisdictional condition precedent to passing an order under Section 153C read with Section 143(3) of the Act that a notice u/s 143(2) of the Act must be issued as held in Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT Whether the impugned assessment order is invalid on account of it being issued without a DIN? - HELD THAT - It is indisputable that the impugned assessment order dated 28th September 2021 does not bear a DIN and further that the said order issued without a DIN does not bear the required format set out in paragraph 3 of the Circular and, therefore, the impugned assessment orders for Assessment Year 2011-2012 to 2019-2020 ought to be treated as invalid and deemed never to have been issued. We find support for this view in Brandix Mauritius Holdings Ltd. 2023 (4) TMI 579 - DELHI HIGH COURT wherein has held that an order passed in contravention of the said Circular is void, bad in law and of no legal effect - Therefore, the satisfaction note dated 13th July 2021 and the impugned order of assessment dated 28th September 2021 ought to be treated as invalid and deemed never to have been issued. Whether respondent has jurisdiction to take proceedings u/s 153C in the case of petitioner in respect of assessment years where assessments proceedings have not abated? - Since the original assessment in the case of petitioner has not abated, and since no incriminating material has been found relating to petitioner in the course of proceedings under Section 132 of the Act in the case of Hubtown Limited, respondent cannot assume jurisdiction to assess/re-assess petitioner under Section 153C. Whether it can be said that any income chargeable to tax has escaped assessment in respect of the issues setout in the satisfaction note? - During the course of the original assessment proceedings, a specific query was raised by respondent as to the allowability of write off of part of the loan granted by petitioner to Hubtown Limited. In response, full and comprehensive details of the amount written-off was provided as well as the reasons therefore and the same were accepted by the Assessing Officer when completing petitioner s assessment on 29th June 2019. Therefore, there can be no question of the allowability of this write-off now being reviewed and a different view being taken in these proceedings. Ex-facie, there has been no failure to disclose truly and fully all material facts. Further, no new tangible material having a bearing on petitioner s income in this regard has come to the notice of respondent. Disallowing the very same write-off that had been allowed in the original assessment clearly constitutes a change of opinion and a review of the original decision taken by the assessing officer and cannot fall within the ambit of the phrase the Assessing Officer is satisfied that the documents seized have a bearing on the determination of the total income of petitioner. The provisions of Section 153C of the Act cannot override the jurisdictional safeguards and conditions precedent required to assess or re-assess income such as a review, a change of opinion, a different view being taken without any new tangible material and without any failure on the part of petitioner to disclose fully and truly all material facts. Assuming that respondent has jurisdiction to take proceedings u/s 153C whether assessments can be made in respect of years beyond six years preceding the assessment year relevant to the previous year in which the proceedings under Section 132 of the Act was conducted? - In order to make an assessment for assessment year which falls beyond six assessment years but not later than ten assessment years from the end of the assessment year relevant to the previous year, in which the search was conducted, the 4th proviso to Section 153(A)(1) of the Act sets out certain further conditions which are required to be fulfilled before a notice can be issued for the relevant assessment years. Clause - (a) of the 4th proviso requires that the Assessing Officer must have in his possession books, documents or evidence which reveal that income represented in the form of an asset which has escaped assessment amounts to or is likely to amount to rupees fifty lakhs or more. Explanation 2 to Section 153A(1) of the Act sets out an expanded definition of the word asset for the purposes of the 4th proviso. In the instant case, the satisfaction note refers to two items. First, the loan account between petitioner and Hubtown Limited and the alleged escapement is only in respect of the part thereof which is written off during the year. That clearly, i.e., the writing-off of a bad debt cannot fall within the ambit of income, represented in the form of an asset . In view of the fact that this has been considered and allowed in the original assessment proceedings, the same cannot be said to be income which has escaped assessment. Secondly, the other item referred to in the satisfaction note, that is to say, trading in shares of Hubtown Limited has been undertaken on the stock exchange, recorded in the books of account of petitioner, and the resulting gain offered for tax and the amounts taxed in the hands of petitioner. Finally, even in the impugned re-assessment order for A.Y. 2017-2018 no addition has been made on this account; Since the write-off of a bad debt cannot be held to be an asset, clause - (a) of the 4th proviso to Section 153A(1) of the Act would bar any assessment that is proposed to be made for the relevant assessment year/years.

Note:- A Legal Dissection of Best Judgment Assessments in Tax Law, in the context of Sections 153A/153C in pursuance of search and seizure: Insights from a High Court Ruling

Issues Involved:
1. Invocation of Section 144 of the Income Tax Act, 1961.
2. Validity of the assessment order without a DIN.
3. Jurisdiction under Section 153C of the Income Tax Act.
4. Assessment beyond six years preceding the assessment year relevant to the previous year of search.
5. Whether income chargeable to tax has escaped assessment.

Summary of Judgment:

1. Invocation of Section 144 of the Income Tax Act, 1961:
The court examined whether the provisions of Section 144 could be invoked to pass a best judgment assessment. It was found that the respondent erroneously proceeded on the basis that no return had been filed by the petitioner pursuant to the notice under Section 153C, which was factually incorrect. The return was filed on 15th August 2021, and the acknowledgment was on record. The court noted that the assessment order could not be sustained under Section 144, as the conditions specified in Section 144 (1) (a), (b), or (c) were not satisfied. The court emphasized that a notice under Section 143(2) was a jurisdictional condition precedent for passing an assessment under Section 153C read with Section 143(3).

2. Validity of the Assessment Order Without a DIN:
The court held that the impugned assessment order dated 28th September 2021 did not bear a DIN, violating the CBDT Circular No. 19/2019 dated 14th August 2019. The court referenced the Delhi High Court's decision in CIT (International Taxation) V/s. Brandix Mauritius Holdings Ltd., which held that an order passed in contravention of the said Circular is void, bad in law, and of no legal effect. Consequently, the assessment orders for Assessment Years 2011-2012 to 2019-2020 were deemed invalid and never issued.

3. Jurisdiction under Section 153C of the Income Tax Act:
The court found that the respondent could not assume jurisdiction to assess or re-assess income under Section 153A/153C in cases where assessment proceedings have not abated unless incriminating material relating to the petitioner was found during the search. The satisfaction note did not reveal any incriminating material, as it only recorded that the petitioner's account in the books of Hubtown Limited agreed with the account of Hubtown Limited in the petitioner's books. The court concluded that no incriminating material was found, and the original assessment had not abated, thus the respondent could not assume jurisdiction under Section 153C.

4. Assessment Beyond Six Years Preceding the Assessment Year Relevant to the Previous Year of Search:
The court held that the write-off of a bad debt could not be considered as "income represented in the form of an asset" under the 4th proviso to Section 153A(1). Consequently, the assessment for Assessment Years 2011-2012, 2012-2013, and 2013-2014 could not be made beyond six years preceding the assessment year relevant to the previous year in which the search was conducted.

5. Whether Income Chargeable to Tax Has Escaped Assessment:
The court noted that during the original assessment proceedings, the write-off of the loan granted by the petitioner to Hubtown Limited was specifically queried and accepted by the Assessing Officer. There was no failure to disclose material facts, and no new tangible material had come to notice. Thus, disallowing the write-off constituted a change of opinion and could not fall within the ambit of reassessment under Section 153C.

Conclusion:
The court quashed the impugned assessment orders dated 28th September 2021 for all the assessment years involved, making the rule absolute in terms of prayer clause - (a) in each of the petitions.

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