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Facts
The Revenue filed an appeal against the order of the CIT(A) who had allowed the assessee's appeal. The assessee had purchased two plots for Rs. 90,00,000/- in cash from M/s. Yugandhar Housing Pvt Ltd. The AO made an addition of Rs. 90 lakhs as unexplained investment. The assessee contended that the assessment order was passed without issuing notice u/s. 153C of the Act.
Held
The Tribunal held that for assessment proceedings initiated under Section 153C of the Act, it is mandatory to issue a notice under the said section. In this case, the AO relied on material seized from M/s. Yugandhar Housing Pvt Ltd for assessment of the assessee but failed to issue notice u/s. 153C.
Key Issues
Whether the assessment order passed u/s. 143(3) of the Act is sustainable without issuing notice u/s. 153C of the Act when the assessment is based on material seized in another person's search.
Sections Cited
143(3), 153C, 153A
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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI K NARASIMHA CHARY, HON’BLE & SHRI S BALAKRISHNAN, HON’BLE
सुनवधई की तधरीख / Date of Hearing : 20/02/2025 घोर्णध की तधरीख/Date of Pronouncement : 07/03/2025 O R D E R PER S. BALAKRISHNAN, Accountant Member :
This appeal filed by the Revenue is against the order of the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi (“Ld.CIT(A)”) vide DIN & Order No. ITBA/APL/S/250/2024-25/1068643412(1), dated 12/09/2024 for the AY 2017-18 arising out of the order passed U/s. 143(3) of the Income Tax Act, 1961 (“the Act”).
2 2. Brief facts of the case are that the assessee filed the return of income on 25/01/2018 admitting a total income of Rs.14,37,930/- for the AY 2017-18. A search & survey operation was conducted in the case of M/s. Yugandhar Housing Pvt Ltd on 25/10/2017. During the course of search operations, certain documents were found and seized as Annexure No. A/YHPL/PH/04. These documents contain the details of transactions between the assessee and M/s. Yugandhar Housing Private Limited. It was noticed that the assessee purchased two plots from M/s. Yugandhar Housing Pvt Ltd by paying the on money of Rs. 90,00,000/- in cash to the seller. Sri M. Maheswara Reddy, the Managing Director of M/s. Yugandhar Housing Private Limited has confirmed the receipt of on money from the assessee. Based on the seized documents and the confirmation by the Managing Director of M/s. Yugandhar Housing Private Limited, the Ld. AO made addition of Rs. 90 lakhs as unexplained investment and added the same to the total income of the assessee while framing the assessment U/s. 143(3) of the Act. Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee contended the validity of the assessment order passed U/s. 143(3) of the Act without issuing notice U/s. 153C of 3 the Act. The Ld. CIT(A) considering the submissions of the assessee, allowed the appeal. On being aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal by raising the following grounds of appeal:
“1. The Ld. CIT(A) erred in not appreciating the fact that the AO relied on clause (vi) of para 1 of Instruction No. 04/2018 dated 20/08/2018 of CBDT and not clause (iii) of said Instruction assuming that the information was forwarded by the Officer working in other wing of the Department and followed due procedure viz., recording satisfaction for evasion of tax and getting prior approval of the Pr. Commissioner of Income Tax to convert the case into complete scrutiny.
The Ld. CIT(A) erred in holding that the provisions of section 153C of the Act are applicable to the assessee whereas the assessee’s case is covered under clause (vi) of para 1 of Instruction No. 04/2018 dated 20/08/2018 of CBDT and not U/s. 153C as the Assessing Officer has not received any information from the order of the AO but from the investigation wing.
The Ld. CIT(A) erred in not discussing the merits of the case ignoring the fact that there was clear evasion of tax since the assessee failed to explain the sources for investing Rs. 90 lakhs (on-money) in purchase of immovable property.
4. The Ld. CIT(A) erred in allowing additional legal grounds of appeal
at later stage of appeal proceedings without considering the fact that the assessee never questioned the legality of non-issuance of notice U/s. 153C of the Act during the course of assessment proceedings.
5. The Ld. CIT(A) erred in allowing the appeal of the assessee even though he has not denied the fact that the AO recorded his satisfaction for conversion of the assessee’s case for complete scrutiny since there was evasion of tax.
6. Any other ground that may be urged at the time of hearing.”
4 3. The only issue contested by the Revenue is with respect of deletion of addition by the Ld. CIT(A) without issuance of notice U/s. 153C of the Act. On this issue, the Ld. DR argued that the Ld. AO did not rely on the information from the Assessing Officer of the entity where the search was conducted but purely relied on the information received from the Investigation Wing and therefore, no question of issuance of notice U/s. 153C arises. The Ld. DR further argued that the Ld. AO recorded his satisfaction with regard to the escapement of income and therefore he pleaded that the order of the Ld. AO be upheld.
On the other hand, the Learned Authorized Representative (“Ld. AR”) submitted that the assessment order was passed U/s.143(3) of the Act and not U/s. 153C of the Act by the Ld. AO. The Ld. AR further submitted that the Ld. AO relied on the documents seized in the premises of M/s. Yugandhar Housing Private Limited on which the warrant of search was issued. He further argued that based on the seized material, notice U/s.153C of the Act ought to have been issued by the Ld. AO after recording the satisfaction. The Ld.AR also submitted that in the instant case, the Ld. AO failed to issue notice U/s. 153C of the Act and therefore, the assessment order passed U/s. 143(3)
5 of the Act without issuance of notice U/s. 153C of the Act is void ab initio.
We have heard both the sides and perused the material available on record as well as the orders of the Ld. Revenue Authorities. It is an undisputed fact that the Ld. AO in his order referred to the incriminating material seized during the course of search in the case of M/s. Yugandhar Housing Private Limited to make an addition in the case of the assessee. It is a settled law that both the Ld. AOs have to record their satisfaction with respect to every assessment year when the documents or incriminating material seized in the premises of the searched party which is belonging to another person, for initiation of proceedings U/s. 153C of the Act. The requirement of satisfaction of both the Assessing Officers should be year specific and material specific. We extract below the provisions of section 153C of the Act for reference.
153C.(1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, where the Assessing Officer is satisfied that,— (a) any money, bullion, jewellery or other valuable article or thing, seized or requisitioned, belongs to; or (b) any books of account or documents, seized or requisitioned, pertains or pertain to, or any information contained therein, relates to, a person other than the person referred to in section 153A, then, the books of account or documents or assets, seized or requisitioned shall be 6 handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed against each such other person and issue notice and assess or reassess the income of the other person in accordance with the provisions of section 153A, if, that Assessing Officer is satisfied that the books of account or documents or assets seized or requisitioned have a bearing on the determination of the total income of such other person for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years referred to in sub-section (1) of section 153A: Provided that in case of such other person, the reference to the date of initiation of the search under section 132 or making of requisition under section 132A in the second proviso to sub-section (1) of section 153A shall be construed as reference to the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person : Provided further that the Central Government may by rules made by it and published in the Official Gazette, specify the class or classes of cases in respect of such other person, in which the Assessing Officer shall not be required to issue notice for assessing or reassessing the total income for six assessment years immediately preceding the assessment year relevant to the previous year in which search is conducted or requisition is made and for the relevant assessment year or years as referred to in sub-section (1) of section 153A except in cases where any assessment or reassessment has abated. (2) Where books of account or documents or assets seized or requisitioned as referred to in sub-section (1) has or have been received by the Assessing Officer having jurisdiction over such other person after the due date for furnishing the return of income for the assessment year relevant to the previous year in which search is conducted under section 132 or requisition is made under section 132A and in respect of such assessment year— (a) no return of income has been furnished by such other person and no notice under sub-section (1) of section 142 has been issued to him, or (b) a return of income has been furnished by such other person but no notice under sub-section (2) of section 143 has been served and limitation of serving the notice under sub-section (2) of section 143 has expired, or (c) assessment or reassessment, if any, has been made, before the date of receiving the books of account or documents or assets seized or requisitioned by the Assessing Officer having jurisdiction over such other person, such Assessing Officer shall issue the notice and assess or reassess total income of such other person of such assessment year in the manner provided in section 153A. (3) Nothing contained in this section shall apply in relation to a search initiated under section 132 or books of account, other documents or any 7 assets requisitioned under section 132A on or after the 1st day of April, 2021.
From a plain reading of the above section, we noticed that when the Assessing Officer relies on the incriminating material seized from the premises belonging to the person referred to in section 153A of the Act, which is related to the other person it shall be handed over to the Assessing Officer having jurisdiction over other person. The Assessing Officer after recording satisfaction has to proceed against such other person and issue notice to assess or reassess the income of the other person. However, in the instant case, no such notice has been issued U/s. 153C of the Act, and neither we find any satisfaction recorded by the Assessing Officer for assessment / reassessment of the income furnished by the assessee. The Ld. CIT(A) in para 6.3.2 to 6.3.4 of his order has held as follows:
“6.3.2. In the present case, a search was conducted in the case of M/s Yugandhar Housing Pvt Ltd. Certain documents were found and seized which were marked as page nos. 19 and 20 of Annexure No A/YHPL/PH/04. There was no search in the case of the appellant. AO relied upon the seized material which was found and seized in case of M/s Yugandhar Housing Pvt Ltd. As per the provisions of section 153C, if the material found in other persons search is to be used for making assessment, then the AO has to follow the procedure stipulated in the section 153C. A notice u/s. 153C has to be issued to the appellant for initiating the assessment proceedings. In light of this, during appellate proceedings, the AO was requested to furnish copy of notice issued u/s. 153C. In response to that AO has commented as below:
8 “On verification of the case record of the assessee Sri Ejaz Ahmed for the A.Y.2017- 18, it is noted that the case of the assessee for the A.Y.2017- 18 was selected for complete scrutiny manually as per the Instruction No. 4/2018 of CBDT dated 20.08.2018 after obtaining prior approval from the Pr.CIT, Vijayawada. Accordingly, notice u/s.143(2) of the Act dated 28.09.2018 was issued to the assessee. Copy of AO’s letter dated 27.09.2018 seeking prior approval of PCIT, Vijayawada, screen-shot of online approval given by the PCIT, Vijayawada on 27.09.218 and copy of notice u/s.143(2) dated 28.09.2018 are attached herewith for kind perusal. It is submitted that no notice u/s.153C of the Act was issued in this case for the A.Y.2017-18 as per record.”
6.3.3. As could be seen from the AO’s comments no notice u/s. 153C was issued to the appellant. Notice u/s. 143(2) dated 28.09.2018 was issued to the assessee. The notice u/s. 143(2) was issued relying upon the Instruction No. 4/2018 of CBDT dated 20.08.2018 regarding manual selection for complete scrutiny during the F.Y. 2018- 2019. The Para 1(iii) of Instruction No. 4/2018 deals with search & seizure cases interalia it stipulates that assessment in search & seizure cases to be made under sections 153A, 153C, 158B, 158BC and 158BD r.w.s. 143(3) of the Act should be selected for complete scrutiny and also returns filed for A.Y. relevant to previous year in which authorization for search & seizure was executed u/s. 132 or 132A of the Act. Meaning thereby search & seizure cases have to be selected for complete scrutiny. The AO is permitted to select the case for complete scrutiny for the impugned A.Y. 2017-18 in the appellant’s case as per the guidelines given in the Instruction NO. 4/2018. However, in the instant case since the assessment is made consequent to search in other case, the AO is bound to issue notice u/s. 153C and thereafter proceed to assess or reassess total income. In the instant case, material found in M/s Yugandhar Housing Pvt Ltd was utilized in appellant’s assessment. While doing so, the AO should follow the procedure as per section 153C. As could be seen from the facts of the case, no notice u/s. 153C was issued to the appellant establishing that the provisions in section 153C were not complied with. Further, the search was conducted in the case of M/s Yugandhar Housing Pvt Ltd on 25.10.2017 i.e. search year being F.Y. 2017-18 and A.Y. relevant to the search year being A.Y. 2018-19. Hence, for A.Y. 2018-19 scrutiny assessment can be done by issuing notice u/s. 143(2). But in the instant case impugned year is A.Y. 2017-18 and issue of notice u/s. 153(C) is mandatory, and as such no notice u/s. 153(1) was issued. 6.3.4. In view of the above facts and circumstances of the case, the AO had failed to issue notice u/s. 153C, the assessment concluded in absence of notice u/s. 153C cannot sustain and hence the assessment is 9 annulled. In view of this, the additional legal grounds raised by the appellant are allowed, as the assessment is annulled other grounds of appeal raised need no separate adjudication.”
7. Therefore, considering the facts and circumstances of the case as discussed in the aforesaid paragraphs, we are of the considered view that the Ld. CIT(A) has rightly concluded by considering the assessment order passed by the Ld. AO U/s.143(3) of the Act in the absence of notice U/s. 153C of the Act is bad in law and cannot be sustained. We therefore find no infirmity in the order of the Ld. CIT(A) and hence no interference is required. Accordingly, grounds raised by the Revenue are dismissed.