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Facts
A search was conducted on Dev Priya Group, not the assessee (Sumit Gupta and Sons HUF), for AY 2013-14. Documents found indicated the assessee received bogus Long Term Capital Gain (LTCG) accommodation entries. Consequently, a notice under section 153C was issued to the assessee based on a satisfaction note, which the assessee challenged as invalid.
Held
The Tribunal found deficiencies in the satisfaction note, noting no search was conducted on the assessee and no incriminating material linking the assessee's alleged bogus LTCG was brought on record. Citing a High Court precedent, the Tribunal ruled that the assumption of jurisdiction under section 153C was void ab initio because the satisfaction note lacked conclusive findings based on seized material.
Key Issues
Whether the Assessing Officer validly assumed jurisdiction under section 153C of the Income Tax Act, 1961, when the satisfaction note for initiating proceedings lacked factual basis and conclusive findings derived from seized material.
Sections Cited
153C, 143(3), 132, 127(2), 153A, 139
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
O R D E R PER M. BALAGANESH, A. M.: The appeal in AY 2013-14, arises out of the 1. order of the Commissioner of Income Tax (Appeals)-3, Noida [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. CIT(A),Kanpur- 4/10464/2017-18 dated 14.11.2023 against the order of assessment passed u/s 153C r.w.s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 29.12.2017 by the Assessing Officer, ACIT, Central Circle, Meerut (hereinafter referred to as „ld. AO‟).
2. Though the assessee has raised several grounds of appeal before us, the preliminary issue to be decided in this appeal is as to whether the ld AO had validly assumed jurisdiction u/s 153C of the Act in the facts and circumstances of the instant case.
We have heard the rival submissions and perused the materials available on record. The assessee is a Hindu Undivided Family (HUF) having following members and coparceners :-
Shri Sumit Gupta - Karta Smt Garima Gupta - Wife Kumari Anumitya Agarwal - Minor Daughter Master Nachiketa Agarwal - Minor Son
4. The return of income for the Asst Year 2013-14 was filed by the assessee HUF on 20.7.2013 declaring total income of Rs 9,84,680/-. No regular assessment was framed on the said return. A search and seizure operation was conducted u/s 132 of the Act in Dev Priya Group on 1.3.2016 and assessee‟s case was also centralized vide order of ld PCIT u/s 127(2) of the Act dated 29.3.2017. The assessee was never subjected to search u/s 132 of the Act. The documents related to the assessee that it had received accommodation entries by giving colour of Long Term Capital Gain (LTCG) were found during search of Dev Priya Group. Accordingly, notice stood issued u/s 153C of the Act to the assessee on 11.10.2017 after recording the following satisfaction note:-
“Satisfaction note for issue of notice under section 153C of the Act. Α.Υ.2013-14 1. Search & Seizure operation was conducted in the Devpriya group cases of Meerut on 01/03/2016 and search warrant was also in the name of the assessee. As a result of this search, it was found by Investigation Team that the assessee has received accommodation entries of Rs. 1,86,21,295/- showing it as long term capital gain on sale of scripts of CCL International Ltd which is bogus long term capital. Accordingly, notice under section 153C of the Act is issued on 11/10/2017 to examine the matter.
2. As per provisions of section 153C of the Act, the assessing officer shall notice, assess or reassess the income of the other person in accordance Page | 2
with the provisions of section 153A. Thus, if the return of income has been filed under this section, then provisions of this act shall apply accordingly, if such return were a return required to be furnished under section 139.”
5. We find that the following deficiencies are evident from the aforesaid satisfaction note:-
a) First of all there was no search conducted in the hands of the assessee. Hence factually incorrect statement was made in the satisfaction note. b) The satisfaction note does not make any reference to any seized material found in the hands of Dev Priya Group of cases. On what basis, the investigation team or the Assessing Officer of Dev Priya Group had come to a conclusion that the exempt long term capital gain (LTCG) derived by the assessee on sale of shares of CCL International Ltd is bogus is not brought out. Neither the seized material, if any, to support the said allegation is brought on record by the ld AO nor the findings of the investigation team to prove categorically that the exempt LTCG declared by the assessee is bogus. c) Further the satisfaction note clearly states the intention of the ld AO that he intends only to examine the exempt LTCG of the assessee on sale of shares of CCL International Ltd. Hence there was no conclusion drawn by the ld AO that the assessee‟s claim of exemption of LTCG is bogus as such or such conclusion is drawn from any seized material or investigation findings. It is trite law that no assessment proceedings u/s 153C of the Act could be initiated on a person merely to examine a particular aspect. This examination should be done prior to initiation of proceedings u/s 153C of the Act only then satisfaction could be drawn by the assessee that exempt LTCG shown by the Page | 3 assessee is only out of conversion of his unaccounted income. If this is not done, then the element of satisfaction of the ld AO to initiate proceedings u/s 153C of the Act preceded by formation of his opinion vanishes in thin air. d) It is pertinent to note that the entire satisfaction note does not even state that whether the findings of investigation , if any, or the seized documents, if any, on the aspect of exempt LTCG has any bearing on determination of total income of the assessee before us.
We find that few of the deficiencies pointed out hereinabove were subject matter of adjudication by the Hon‟ble Jurisdictional High Court in the case of Mukesh Chandra Agarwal vs DCIT in WP(C ) 6162, 6164 & 6271 / 2023 dated 4.9.2024. For the sake of convenience, the entire order is reproduced below:-
“1. The writ petitioner impugns the initiation of proceedings referable to Section 153C of the Income Tax Act, 1961¹ and insofar as they pertain to Assessment Years 2014-2015, 2017-2018 and 2018-2019.
2. From the Satisfaction Note dated 24 December 2021 which has been drawn by the Jurisdictional Assessing Officer³, we find that the following material was taken note of as warranting assessment being undertaken under Section 153C for AYs 2014-2015 to 2020-2021. That Satisfaction Note is reproduced hereinbelow: "A search and seizure operation was carried out in the Alankit Group of cases on 18.10.2019 subsequently the said group was centralized to the jurisdiction of the undersigned. Accordingly, during the course of assessment proceedings u/s 153A of Alankit Group, material documents related to your case have been found.
Annexure A-1, MCAR, page 1 to 17:- found and seized at 173, Sita Ram Apartments, IP Extension, Delhi wherein copy of Sale deed dated 26.08.2015 in favour of Shri Mukesh Chandra Agrawal found - Residential Plot Sale deed made in Agra, Uttar Pradesh, Plot no. 21, Area 166.47 Sq. Mtr. Located in Swapn Lok Kaloni Kakua, Agra by Vishal Infra Pvt Ltd for Sale to Shri Mukesh Chandra Agrawal, Total Value of Property Rs.6,00,000/-.
2. Annexure A-1, MCAR, page 30 to 46:- found and seized at 173, Sita Ram Apartments, IP Extension, Delhi wherein copy of Sale deed dated 30.05.2019 of Residential flat in favour of Shri Mukesh Chand Agrawal found copy of Sale Deed in case of Residential Plot Area 138.28 Sq. Mtr Flat no. 173, Sitaram Apartment, I P Extention Delhi- 92 in favour of Shri Mukesb Chand Agarwal and Smt Neeta Agarwal, by Shri Ajay Tiwari, F14/118, Krishna Nagar, Delhi-51.Total Value of Property Rs. 1,80,00,000/- 3. Annexure A -1, MCAR, page 51 to 65:- found and seized at 173, Sita Ram Apartments, IP Extension, Delhi wherein copy of Sale deed dated 21.04.2014 of Residential Plot in favour of Shri Mukesh Chand Agrawal found- copy of Residential Plot Sale deed made in Mathura, Uttar Pradesh, Plot Area 166.44 Sq. Mtr. Located in Mauja Bakal pur, Mathura by Agrawal Developers for Sale of Plot 44, Agrawal developers, Mauja Bakalpur, Mathura Total Value of Property Rs.16,00,000/-. The said satisfaction note prepared by the AO of the person searched has been kept on record. I have also examined the above documents and the contents noted/written therein. After examination of these documents, I am also satisfied that these documents belong to the assessee. In view of the same, I am further satisfied that it is fit case for initiating proceedings u/s 153C of the Income Tax Act, 1961 for the A.Ys. 2014-15 to 2020-21. Accordingly, notice u/s 153C is issued as per provisions of the IT Act, 1961.
3. As it manifest from the aforesaid, the satisfaction rested on transactions which were dated 21 April 2014, 26 August 2015 and 30 May 2019. None of those transactions pertained to the AYs in question.
We in this regard bear in mind the following pertinent principles which we had come to enunciate in Saksham Commodities Limited v. Income Tax Officer, Ward 22(i), Delhi & Anr. The relevant paragraphs of the said decision are reproduced below:- "63. On an overall consideration of the structure of Sections 153A and 153C, we thus find that a reopening or abatement would be 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 Page | 5 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.
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.
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.
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 Page | 6 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.
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."
Mr. Maratha, learned counsel for the respondent has however drawn our attention to a Show Cause Notice which refers and alludes to material gathered from a laptop found and seized from the residence of an individual. He specifically draws our attention to the following recitals as appearing in the SCN dated 18 February 2023: "1. During the course of search and seizure operation, several ledgers maintained with regard to various cash payments have been obtained from accounts maintained in the name "Anarkali Complex" in Tally found in folder named DATA 24 in the laptop of Sh. Sunil Kumar Gupta found and seized from the residence of Sh. Sunil Kumar Gupta, at 3584/4, Narang Colony, Gali No. 4 Tri Nagar Delhi (Path: F:\SKGR A-32\SUNIL KUMAR GUPTA HP LAPTOP EXTRACTED DATA\Tally [root].1\Local Disk ANARKALI BACKUP DATA24\DATA24).
Copy of the relevant ledgers extracted from the laptop found and seized from the residence of Sh. Sunil Kumar Gupta at 2584/4, Narang Colony, Gali No. 4, Tri Nagar, Delhi are enclosed with this notice. Further, during the course of search and seizure proceedings statement of Sh. Sunil Kumar Gupta was also recorded wherein he has accepted that he has noted these transaction 20/30 years before of its actual date of occurrence to disguise the authority in case of any investigation/enquiry. The relevant part of the statement of Sh. Sunil Kumar Gupta is reproduced as under:"
6. We however note that the material which is referred to the aforesaid SCN is neither noticed, examined nor considered in the satisfaction note. In view of the aforesaid, we find ourselves unable to sustain the action under Section 153 C.
7. The writ petitions are consequently allowed and the impugned notices dated 28 December 2021 issued under Section 153C and all consequential proceedings arising therefrom are hereby quashed.”
In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we hold that the entire assumption of jurisdiction u/s 153C of the Act in the instant case is void abinitio and hence quashed. Accordingly, the other legal arguments advanced by the ld AR and arguments on merits need not be gone into as it would be academic in nature. The grounds raised by the assessee are allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 26/11/2024.