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Facts
The assessee filed her return for AY 2019-20. A search on a third party led to seizure of documents belonging to the assessee. The assessee's husband's statement indicated a land sale at Rs. 1.30 Crores, with Rs. 40 lakhs through banking and Rs. 90 lakhs in cash. The AO initiated proceedings under Section 153C alleging understatement of capital gains.
Held
The Tribunal held that for valid assumption of jurisdiction under Section 153C, there must be seized incriminating material belonging to the assessee pertaining to the relevant assessment year. As there was no such material, the satisfaction of the AO was based on assumptions, rendering the proceedings and assessment void ab initio.
Key Issues
Whether the initiation of proceedings under Section 153C was valid without any seized incriminating material belonging to the assessee pertaining to the relevant assessment year.
Sections Cited
153C, 143(3), 132, 147, 153A, 11, 12
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Income Tax Appellate Tribunal, Hyderabad ‘A’ Bench, Hyderabad
Before: SHRI RAVISH SOOD & SHRI MADHUSUDAN SAWDIA
(निर्धारण वर्ा/Assessment Year:2019-20) Vijetha Donthiri, Asst. Commissioner of Income Vs. Hyderabad. Tax, Central Circle 2(4), PAN:ALQPD4873P Hyderabad. (Appellant) (Respondent) निर्धाररती द्वधरध/Assessee by: Shri M.V. Prasad, C.A. रधजस् व द्वधरध/Revenue by: Shri Gurpreet Singh, SR-DR सुिवधई की तधरीख/ 05/08/2025 Date of hearing: घोर्णध की तधरीख/ 20/08/2025 Pronouncement: आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.: This appeal is filed by Vijetha Donthiri (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals)-12, Hyderabad (“Ld. CIT(A)”), dated 29.11.2024 for the A.Y. 2019-20.
The assessee has raised the following grounds of appeal :
3. The brief facts of the case are that, the assessee is an individual, filed her return of income for the assessment year 2019-20 on 01.10.2019 declaring total income of Rs.28,420/-. Later on, the assessee filed a revised return on 31.12.2019 admitting total income of Rs.63,420/-. A search was conducted on a third party i.e. M/s. MSN Laboratories Pvt. Ltd. and its associates on 06.02.2020, during which certain documents belonging to the assessee were seized. Subsequently, the search and seizure operation under section 132 of the Income Tax Act, 1961 (“the Act”) were carried in the residence of the assessee also. The husband of the assessee Mr. D.Venugopal Reddy, an employee of MSN Group stated in response to question no.14 of his statement that the assessee had sold one land for Rs.1.30 Crores by receiving Rs.40 lakhs through banking channel and Rs.90 lakhs through cash, admeasuring 267 sq. yards at Vasanth Nagar, Kukatpally, Hyderabad. He also stated that, the assessee utilised the said cash of Rs.90 lakhs for the purchase of two plots. However, on perusal of return of income of the assessee, the Learned Assessing Officer (“Ld. AO”) found that capital gain from the above sale of land was admitted by taking sale consideration of Rs.40,50,000/- only instead of Rs.1.30 Crores. Accordingly, the Ld. AO formed a satisfaction based on the seized material (Annexure A/DVR/Res/33, page nos. 9 to 18 of the paper book) and the said statement of the husband of assessee, that the assessee had not reflected the correct amount of sale consideration in her return of income. Based on this satisfaction, the Ld. AO issued notice under section 153C of the Act on 22.11.2022 for A.Y. 2019-20. After pursuing the submission of the assessee, the Ld. AO reworked the assessee’s Long Term Capital Gains on sale of land by considering the alleged on-money as additional consideration. Accordingly, the Ld. AO completed the assessment under section 153C read with section 143(3) of the Act by taking the sale consideration of the land at Rs.1.30 Crores.
4. Aggrieved by the order of the Ld. AO, the assessee filed appeal before the Ld. CIT(A), who dismissed the appeal of the assessee.
5. Aggrieved by the order of Ld. CIT(A), the assessee is in further appeal before this Tribunal. At the outset, the Learned Authorised Representative (“Ld. AR”) submitted that the solitary issue in the appeal of the assessee is regarding validity of notice issued under section 153C of the Act. He submitted that the issuance of notice under section 153C of the Act is without jurisdiction as there is no incriminating material found during the course of search which belongs to the assessee or pertains to the sale transaction in question. It was contended that the seized material relied upon by the Ld. AO only demonstrates the cash payment made by the assessee for purchase of two plots and does not establish any receipt of unaccounted money on sale of land. Relying on the decision of Hon’ble Delhi High Court in the case of PCIT Vs. Best Infrastructure (India) Pvt. Ltd. (2017) 397 ITR 82 (Delhi), the Ld. AR also submitted that the statement of the assessee’s husband cannot be treated as incriminating material without any corroborative evidence.
6. It was further submitted by the Ld. AR that as per the settled legal position, for valid assumption of jurisdiction under section 153C of the Act, there must be seized incriminating material belonging to the assessee and relating to the relevant assessment year, failing which the proceedings are void. The Ld. AR relied heavily on the decision of the Hon’ble Supreme Court in the case of Principal CIT v. Sinhgad Technical Education Society [(2017) 397 ITR 344 (SC)], wherein it was held that in the absence of any incriminating material relating to the relevant assessment year, the assumption of jurisdiction under section 153C of the Act is invalid and any addition made thereunder is liable to be deleted.
Per contra, the Learned Departmental Representative (“Ld. DR”) supported the findings of the Ld. AO and submitted that although there was no direct material regarding the alleged receipt of on-money, the husband of the assessee, in his statement, had admitted that the cash used for purchase of plots by the assessee was sourced from unaccounted consideration received on the sale of land. The Ld. DR argued that the seized documents, read together with the statement, form a reasonable basis for the Ld. AO to believe that the income had escaped assessment and therefore justified the issuance of notice under section 153C of the Act.
We have heard the rival contentions and carefully perused the records. The only issue before us is whether the initiation of proceedings under section 153C of the Act is valid in the absence of any seized incriminating material belonging to the assessee. On perusal of the satisfaction note (page no.1 of the paper book) and the seized material referred to therein (page nos. 9 to 18 of the paper book), we find that the documents relate only to cash paid by the assessee for purchase of plots. There is no document seized during the search which belongs to the assessee and evidences the alleged on-money receipt of Rs.90 lakhs on sale of her land.
Further, we also found that the reworking of Long Term Capital Gains by the Ld. AO is based solely on the statement of the assessee’s husband, which is a third-party statement. No corroborative seized evidence supports this assertion. In this regards, we have gone through para no. 38 of the decision of Hon’ble Delhi High Court in the case of PCIT vs. Best Infrastructure (India) Pvt. Ltd., (supra), which is to the following effect :
“38. Fifthly, statements recorded under Section 132 (4) of the Act of the Act do not by themselves constitute incriminating material as has been explained by this Court in Commissioner of Income Tax v. Harjeev Aggarwal (supra). Lastly, as already pointed out hereinbefore, the facts in the present case are different from the facts in Smt. Dayawanti Gupta v. CIT (supra) where the admission by the Assessees themselves on critical aspects, of failure to maintain accounts and admission that the seized documents reflected transactions of unaccounted sales and purchases, is non-existent in the present case. In the said case, there was a factual finding to the effect that the Assessees were habitual offenders, indulging in clandestine operations whereas there is nothing in the present case, whatsoever, to suggest that any statement made by Mr. Anu Aggarwal or Mr. Harjeet Singh contained any such admission.”
On perusal of above, we found that, the Hon’ble Delhi High Court held that statements recorded under Section 132(4) of the Act do not, by themselves, serve as incriminating material. The court emphasized that these statements must be supported by independent evidence to be admissible for making assessments. Therefore, in view of the decisions of the Hon’ble Delhi High Courts, it is clear that, a statement of assessee at the time of search on standalone basis has no evidentiary value and cannot be acted upon to fasten any liability on the assessee. Hence we hold that, a statement alone does not constitute incriminating material, unless backed by documentary evidence.
We have also gone through para nos. 13 to 23 of the decision of, the Hon’ble Supreme Court in the case of Principal CIT v. Sinhgad Technical Education Society [(2017) 397 ITR 344 (SC)], which are to the following effect :
“13. Mr. Jehangir D. Mistri, learned senior counsel appearing for the assessee, countered the aforesaid submissions. He argued that the Tribunal was right in permitting the assessee to raise the issue regarding validity of notice under Section 153C of the Act when it was ex facie found that such a notice was time barred and, therefore, it was a jurisdictional ground which could be raised by the assessee. Coming to the merits of that ground, learned senior counsel submitted that the Satisfaction Note dated April 18, 2007 is ex facie recorded/prepared by the AO in his capacity as the AO of the assessee society and does not set out the date on which the books of accounts or documents or assets seized etc. from the person searched were handed over/dealt with in the capacity of AO of the assessee society, but this cannot be earlier than April 18, 2007, i.e. the date when the Satisfaction Note was prepared. Since the Assessment Order pursuant thereto can be passed under Section 153A(1) of the Act for a period of six Assessment Years, immediately preceding the Assessment Year relevant to the Previous Year in which the books of accounts or documents or assets were received by the AO of the assessee, he argued that no notice could have been issued for the Assessment Years prior to 2002-03. Therefore, notice for the Assessment Years 2000-01 and 2001-02 was clearly time barred. In respect of Assessment Years 2002-03 and 2003-04, the submission of Mr. Mistri was that one of the jurisdictional conditions precedent to the issue of a notice under Section 153C is that ‘money, bullion, jewellery or other valuable article or thing’ or any ‘books of accounts or documents’ must be seized or requisitioned. In the present case, nothing was seized relating to any of the Assessment Years in question and hence the notice under Section 153C and the assessment under Section 153A, read with Section 153C, pursuant thereto are invalid.
14. We have bestowed our due consideration to the respective submissions of the counsel for the parties.
At the outset, it needs to be highlighted that the assessment order passed by the AO on August 7, 2008 covered eight Assessment Years i.e. Assessment Year 1999-2000 to Assessment Year 2006-07. As noted above, insofar as Assessment Year 1999-2000 is concerned, same was covered under Section 147 of the Act which means in respect of that year, there were re-assessment proceedings. Insofar as Assessment Year 2006-07 is concerned, it was fresh assessment under Section 143(3) of the Act. Thus, insofar as assessment under Section 153C read with Section 143(3) of the Act is concerned, it was in respect of Assessment Years 2000-01 to 2005- 06. Out of that, present appeals relate to four Assessment Years, namely, 2000-01 to 2003-04 covered by notice under Section 153C of the Act. There is a specific purpose in taking note of this aspect which would be stated by us in the concluding paragraphs of the judgment.
In these appeals, qua the aforesaid four Assessment Years, the assessment is quashed by the ITAT (which order is upheld by the High Court) on the sole ground that notice under Section 153C of the Act was legally unsustainable. The events recorded above further disclose that the issue pertaining to validity of notice under Section 153C of the Act was raised for the first time before the Tribunal and the Tribunal permitted the assessee to raise this additional ground and while dealing with the same on merits, accepted the contention of the assessee.
First objection of the learned Solicitor General was that it was improper on the part of the ITAT to allow this ground to be raised, when the assessee had not objected to the jurisdiction under Section 153C of the Act before the AO. Therefore, in the first instance, it needs to be determined as to whether ITAT was right in permitting the assessee to raise this ground for the first time before it, as an additional ground.
The ITAT permitted this additional ground by giving a reason that it was a jurisdictional issue taken up on the basis of facts already on the record and, therefore, could be raised. In this behalf, it was noted by the ITAT that as per the provisions of Section 153C of the Act, incriminating material which was seized had to pertain to the Assessment Years in question and it is an undisputed fact that the documents which were seized did not establish any co-relation, document-wise, with these four Assessment Years. Since this requirement under Section 153C of the Act is essential for assessment under that provision, it becomes a jurisdictional fact. We find this reasoning to be logical and valid, having regard to the provisions of Section 153C of the Act. Para 9 of the order of the ITAT reveals that the ITAT had scanned through the Satisfaction Note and the material which was disclosed therein was culled out and it showed that the same belongs to Assessment Year 2004-05 or thereafter. After taking note of the material in para 9 of the order, the position that emerges therefrom is discussed in para 10. It was specifically recorded that the counsel for the Department could not point out to the contrary. It is for this reason the High Court has also given its imprimatur to the aforesaid approach of the Tribunal. That apart, learned senior counsel appearing for the respondent, argued that notice in respect of Assessment Years 2000- 01 and 2001-02 was even time barred.
We, thus, find that the ITAT rightly permitted this additional ground to be raised and correctly dealt with the same ground on merits as well. Order of the High Court affirming this view of the Tribunal is, therefore, without any blemish. Before us, it was argued by the respondent that notice in respect of the Assessment Years 2000-01 and 2001-02 was time barred. However, in view of our aforementioned findings, it is not necessary to enter into this controversy.
Insofar as the judgment of the Gujarat High Court relied upon by the learned Solicitor General is concerned, we find that the High Court in that case has categorically held that it is an essential condition precedent that any money, bullion or jewellery or other valuable articles or thing or books of accounts or documents seized or requisitioned should belong to a person other than the person referred to in Section 153A of the Act. This proposition of law laid down by the High Court is correct, which is stated by the Bombay High Court in the impugned judgment as well. The judgment of the Gujarat High Court in the said case went in favour of the Revenue when it was found on facts that the documents seized, in fact, pertain to third party, i.e. the assessee, and, therefore, the said condition precedent for taking action under Section 153C of the Act had been satisfied.
Likewise, the Delhi High Court also decided the case on altogether different facts which will have no bearing once the matter is examined in the aforesaid hue on the facts of this case. The Bombay High Court has rightly distinguished the said judgment as not applicable giving the following reasons: “8. Reliance on the judgment of the Division Bench of the High Court of Delhi reported in case of SSP Aviation Ltd. Vs. Deputy Commissioner of Income Tax (2012) 346 ITR 177 is misplaced. There, search was carried out in the case of “P” group of companies. It was found that the assessee before the Hon’ble Delhi High Court had acquired certain development rights from “P” group of companies. Based thereon, the satisfaction was recorded by the Assessing Officer and he issued notice in terms of Section 153C. Thereupon the proceedings were initiated under section 153A and the assessee was directed to file returns for the six assessment years commencing from 2003-04 onwards. The assessees filed returns for those years but disclosed Nil taxable income. These returns were accepted by the Assessing Officer, however, in respect of the assessment year 2007-08 there was a significant difference in the pattern of assessment for this year also, the return was filed for Nil income but there were certain documents and which showed that there were transactions of sale of development rights and from which profits were generated and taxable for the assessment year 2007-08. Thus, the receipt of Rs.44 crores as deposit in the previous year relevant to the assessment year 2008-09 and later on became subject matter of the writ petition before the Delhi High Court. That was challenging the validity of notice under section 153C read with section 153A. In dealing with such situation and the peculiar facts that the Delhi High Court upheld the satisfaction and the Delhi High Court found that the machinery provided under section 153C read with section 153A equally facilitates inquiry regarding existence of undisclosed income in the hands of a person other than searched person. The provisions have been referred to in details in dealing with a challenge to the legality and validity of the seizure and action founded thereon. We do not find anything in this judgment which would enable us to hold that the tribunal’s understanding of the said legal provision suffers from any error apparent on the face of the record. The Delhi High Court judgment, therefore, will not carry the case of the revenue any further.” We, thus, do not find any merit in these appeals.
We now advert to the implication of the fact which has been emphasised in para 15. As pointed out in the said para, the assessment order passed by the AO covers eight Assessment Years. Assessment done in six Assessment Years is under Section 153C of the Act. Assessment order is set aside only in respect of four such Assessment Years that too on the technical ground, noted above. This objection pertaining to the four Assessment Years in question does not relate to the other two Assessment Years, namely, 2004-05 and 2005-06. Likewise, this decision has no bearing in respect of assessment done qua Assessment Year 1999-2000 as well as Assessment Year 2006-07. The necessary consequence would be that insofar as the conclusions of the AO in his assessment order regarding the activities of the trust not being genuine and not carried out in accordance with the trust deed or cancellation of registration, denial of benefits of Sections 11 and 12 etc. are concerned, the same would not be affected by this judgment. It is, thus, clarified that this Court has not dealt with the matter on merits insofar as incriminating material found against the assessee or Mr. Navale is concerned. Pithily put, this Court has not given any clean chit to the assessee insofar as the finding of the AO to the effect that the assessee had been indulging in profiteering and collecting capitation fee is concerned. Whatever other repercussions are there, based on these findings, they can follow. This Court was not informed and, therefore, unaware of any challenge to the assessment order in respect of other four Assessment Years and outcome thereof. Wherever any such proceedings are pending, same would be considered without being affected by the outcome of these proceedings.
The appeals are dismissed with the aforesaid observations.”
On perusal of above, we found that, dealing directly with the scope of section 153C of the Act, the Hon’ble Supreme court has held that satisfaction under section 153C of the Act must be based on documents which (i) belong to the assessee, and (ii) pertain to the relevant assessment year, and that absence of such material renders the jurisdiction exercised under section 153C invalid. In the present case, there is neither any incriminating material belonging to the assessee, nor is there any direct or indirect document evidencing the receipt of on-money. The satisfaction recorded by the Ld. AO is thus based on assumptions and not on seized documents as mandated by law. The pre-condition for valid assumption of jurisdiction under section 153C, as laid down by the Hon’ble Supreme Court, is clearly not satisfied.
In light of the above, we hold that the initiation of proceedings under section 153C of the Act is without valid jurisdiction, and consequently, the assessment framed thereunder is liable to be quashed. Therefore, respectfully following the binding precedent of the Hon’ble Supreme Court in the case of PCIT Vs. Sinhgad Technical Education Society (supra), we hold that the satisfaction recorded under section 153C is legally unsustainable in the absence of incriminating material. Accordingly, the assessment made under section 153C of the Act is quashed as being void ab initio.
In the result, the appeal of the assessee is allowed.