HARISH CHANDRA AGRAWAL vs. DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 28, DELHI

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W.P.(C)/5784/2023HC DelhiDLHC01016637202306 March 2025Bench: HON'BLE MR. JUSTICE HARISH VAIDYANATHAN SHANKAR,HON'BLE MR. JUSTICE YASHWANT VARMA4 pages
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What did the High Court hold?

The Delhi High Court allowed the writ petitions, quashing the impugned notices dated December 30, 2021, and the assessment orders dated March 26 and 27, 2023, issued under Section 153C of the Income Tax Act, 1961, along with all consequential proceedings. The Court's reasoning was based on its prior decision in Saksham Commodities Limited vs. Income Tax Officer, Ward 22(1), Delhi & Anr. The Tribunal held that Section 153C proceedings are triggered only upon the discovery of material that is likely to have a bearing on the determination of total income for specific assessment years. It emphasized that abatement or initiation of proceedings under Section 153C would follow the formation of an opinion by the AO that the gathered material is likely to impact the computation of income for a particular AY or AYs. The Court reiterated that "incriminating material" must be identified with respect to the AY it relates to or is likely to impact before initiating proceedings under Section 153C. The mere existence of a power to assess or reassess does not justify indiscriminate invocation of the section. Therefore, absent any material that casts doubt on the estimation of total income for a particular year, the AO is not justified in invoking Section 153C.

What were the facts?

The petitioners, Harish Chandra Agrawal, filed writ petitions challenging notices issued under Section 153C of the Income Tax Act, 1961, dated December 30, 2021, and subsequent assessment orders dated March 26 and 27, 2023. These actions pertained to Assessment Years (AYs) 2016-17, 2014-15, and 2020-21. The core of the dispute lies in the fact that the Satisfaction Note issued by the jurisdictional Assessing Officer (AO) on December 24, 2021, related to incriminating material for AYs 2013-14 and 2015-16. The petitioners argued that no incriminating material was found for the AYs under challenge, rendering the Section 153C proceedings invalid for those years.

What were the issues?

1. Whether the notices issued under Section 153C of the Income Tax Act, 1961, and the consequential assessment orders are valid when the satisfaction note of the jurisdictional AO pertains to different assessment years than those for which the notices were issued? Assessee's Contention: The assessee argued that the Section 153C proceedings were initiated without any incriminating material pertaining to the assessment years under challenge (AYs 2016-17, 2014-15, and 2020-21). The satisfaction note issued by the AO only covered AYs 2013-14 and 2015-16, indicating a lack of basis for invoking Section 153C for the disputed AYs. They relied on the principles laid down in their own case, Saksham Commodities Limited vs. Income Tax Officer, Ward 22(1), Delhi & Anr. [2024 SCC OnLine Del 2551]. Revenue's Contention: The judgment does not record any specific arguments made by the revenue.

Which sections of the Income-tax Act were involved?

Section 153C

AI-generated summary — verify with the full judgment below

Heard together (3 matters)

W.P.(C) 5733/2023
W.P.(C) 5735/2023
W.P.(C) 5784/2023

Read from the judgment's own cause title. This page is filed under one of them.

W.P.(C) 5733/2023 & connected matters Page 1 of 4

$~49 to 51 * IN THE HIGH COURT OF DELHI AT NEW DELHI 49 + W.P.(C) 5733/2023

HARISH CHANDRA AGRAWAL

.....Petitioner Through: Mr. Salil Kapoor, Mr. Sumit Lalchandani, Mr. Tarun Chanana and Ms. Ananya Kapoor, Advs.

versus

DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 28, DELHI

.....Respondent Through: Mr. Shlok Chandra, SSC with Ms. Madhavi Shukla and Ms. Naincy Jain, JSCs. 50 + W.P.(C) 5735/2023

HARISH CHANDRA AGRAWAL

.....Petitioner Through: Mr. Salil Kapoor, Mr. Sumit Lalchandani, Mr. Tarun Chanana and Ms. Ananya Kapoor, Advs.

versus

DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 28, DELHI

.....Respondent Through: Mr. Shlok Chandra, SSC with Ms. Madhavi Shukla and Ms. Naincy Jain, JSCs.

51 + W.P.(C) 5784/2023

HARISH CHANDRA AGRAWAL

.....Petitioner Through: Mr. Salil Kapoor, Mr. Sumit Lalchandani, Mr. Tarun Chanana and Ms. Ananya Kapoor, Advs.

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/07/2025 at 18:48:46

W.P.(C) 5733/2023 & connected matters Page 2 of 4

versus

DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 28, DELHI

.....Respondent Through: Mr. Shlok Chandra, SSC with Ms. Madhavi Shukla and Ms. Naincy Jain, JSCs.

CORAM:

HON'BLE MR. JUSTICE YASHWANT VARMA HON'BLE MR. JUSTICE HARISH VAIDYANATHAN SHANKAR

O R D E R %

06.03.2025 1. These writ petitions have been preferred against the impugned notices dated 30 December 2021 issued under Section 153C of the Income Tax Act, 1961 [“Act”]and the impugned assessment orders 26 March 2023 and 27 March 2023,for Assessment Years [“AYs”] 2016-17 [W.P.(C) 5733/2023], 2014-15 [W.P.(C) 5735/2023], 2020- 21 [W.P.(C) 5748/2023] and all consequential proceedings. 2. Bearing in mind the undisputed fact that the Satisfaction Note dated 24 December 2021 issued by the jurisdictional Assessing Officer [“AO”] of the petitioners relates to incriminating material for AYs 2013-14 and 2015-16, it is ex facie evident that no incriminating material for the aforenoted AYs, namely, 2016-17, 2014-15 and 2020- 21, has been found. 3. Undisputedly, the issue now stands answered and covered in favour of the writ petitioners bearing in mind the principles that we had enunciated in Saksham Commodities Limited vs. Income Tax Officer, Ward 22(1), Delhi & Anr. [2024 SCC OnLine Del 2551]. The relevant paragraphs of the said decision read as follows:- “63. On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/07/2025 at 18:48:46

W.P.(C) 5733/2023 & connected matters Page 3 of 4

triggered only upon the discovery of material which is likely to “have a bearing on the determination of the total income” and would have to be examined bearing in mind the AYs' which are likely to be impacted. It would thus be incorrect to either interpret or construe Section 153C as envisaging incriminating material pertaining to a particular AY having a cascading effect and which would warrant a mechanical and inevitable assessment or reassessment for the entire block of the “relevant assessment year”. 64. In our considered view, abatement of the six AYs' or the “relevant assessment year” under Section 153C would follow the formation of opinion and satisfaction being reached that the material received is likely to impact the computation of income for a particular AY or AYs' that may form part of the block of ten AYs'. Abatement would be triggered by the formation of that opinion rather than the other way around. This, in light of the discernibly distinguishable statutory regime underlying Sections 153A and 153C as explained above. While in the case of the former, a notice would inevitably be issued the moment a search is undertaken or documents requisitioned, whereas in the case of the latter, the proceedings would be liable to be commenced only upon the AO having formed the opinion that the material gathered is likely to inculpate the assessee. While in the case of a Section 153A assessment, the issue of whether additions are liable to be made based upon the material recovered is an aspect which would merit consideration in the course of the assessment proceedings, under Section 153C, the AO would have to be prima facie satisfied that the documents, data or asset recovered is likely to “have a bearing on the determination of the total income”. It is only once an opinion in that regard is formed that the AO would be legally justified in issuing a notice under that provision and which in turn would culminate in the abatement of pending assessments or reassessments as the case may be. 65. We would thus recognize the flow of events contemplated under Section 153C being firstly the receipt of books, accounts, documents or assets by the jurisdictional AO, an evaluation and examination of their contents and an assessment of the potential impact that they may have on the total income for the six AYs' immediately preceding the AY pertaining to the year of search and the “relevant assessment year”. It is only once the AO of the non-searched entity is satisfied that the material coming into its possession is likely to “have a bearing on the determination of the total income” that a notice under Section 153C would be issued. Abatement would thus be a necessary corollary of that notice. However, both the issuance of notice as well as abatement would have to necessarily be preceded by the satisfaction spoken of above being reached by the jurisdictional AO of the non-searched entity. This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/07/2025 at 18:48:46

W.P.(C) 5733/2023 & connected matters Page 4 of 4

66.

Therefore, and in our opinion, abatement of the six AYs' or the “relevant assessment year” would follow the formation of that opinion and satisfaction in that respect being reached. 67. On an overall consideration of the aforesaid, we come to the firm conclusion that the “incriminating material” which is spoken of would have to be identified with respect to the AY to which it relates or may be likely to impact before the initiation of proceedings under Section 153C of the Act. A material, document or asset recovered in the course of a search or on the basis of a requisition made would justify abatement of only those pending assessments or reopening of such concluded assessments to which alone it relates or is likely to have a bearing on the estimation of income. The mere existence of a power to assess or reassess the six AYs' immediately preceding the AY corresponding to the year of search or the “relevant assessment year” would not justify a sweeping or indiscriminate invocation of Section 153C. 68. The jurisdictional AO would have to firstly be satisfied that the material received is likely to have a bearing on or impact the total income of years or years which may form part of the block of six or ten AYs' and thereafter proceed to place the assessee on notice under Section 153C. The power to undertake such an assessment would stand confined to those years to which the material may relate or is likely to influence. Absent any material that may either cast a doubt on the estimation of total income for a particular year or years, the AO would not be justified in invoking its powers conferred by Section 153C. It would only be consequent to such satisfaction being reached that a notice would be liable to be issued and thus resulting in the abatement of pending proceedings and reopening of concluded assessments.” 4. Accordingly, and for reasons assigned in our decision in Saksham Commodities Limited, we allow the instant writ petitions and quash the impugned notices dated 30 December 2021 and the impugned orders dated 26 March 2023 and 27 March 2023, issued and passed under Section 153C of the Act and all consequential proceedings arising therefrom.

YASHWANT VARMA, J.

HARISH VAIDYANATHAN SHANKAR, J. MARCH 06, 2025/akc

This is a digitally signed order. The authenticity of the order can be re-verified from Delhi High Court Order Portal by scanning the QR code shown above. The Order is downloaded from the DHC Server on 01/07/2025 at 18:48:46

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