NIRVAZA ENTERPRISES PRIVATE LIMITED,DELHI vs. ASSIST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-29, DELHI

In first appeal, the Ld. CIT(A) has dismissed the appeal of the assessee, both on legal as well as on factual aspects, therefore, the assessee is in appeal before the Tribunal by taking the following grounds of appeal:

The grounds of appeal No.1 & 2 are general in nature.

The ground of appeal No.3 is with respect to the initiation of proceedings u/s 153C without following the due procedure of the Act.

Before us, the Ld. AR submits that in the case of the assessee, consolidated satisfaction note is recorded for all assessment years i.e. for Assessment Years 2012- 13 to 2018-19. Further, ld. AR submits that no year wise income is identified in the and 5879 Del/2024 Nirvaja Enterprises Private Ltd. vs. ACIT satisfaction note recorded. Ld. AR placed reliance on the judgment of Hon’ble Supreme Court in the case of DCIT vs. Sunil Kumar Sharma, reported in [2024] 168 taxmann.com 77 (SC) and further on the judgment of the Co-ordinate Bench of Tribunal in the case of Brij Kumar vs. DCIT in ITA No.2011/Del/2023.

Ld. AR of the assessee further submits that in the satisfaction note recorded by the Assessing Officer, he has not recorded the satisfaction that the material found during the course of search on third persons “pertained to the assessee” and “has bearing on the determination on total income of the assessee”, which is pre-requisite for initiating the proceedings U/s 153C of the Act. For this reliance is placed on the judgement of the Hon’ble Supreme Court in the case of ITO vs. Saksham Commodities Ltd. reported in [2025] 170 taxmann.com 87 (SC). He, therefore, prayed that the initiation of proceedings u/s 153C is invalid and accordingly, consequently orders passed deserves to be quashed.

On the other hand, the Ld. CIT-DR supports the order of the lower authorities and submits that the AO has recorded the satisfaction that there was some material found and seized during the course of search of third person which is related to the assessee and thereafter, after recording due satisfaction note, the proceedings u/s 153C of the Act were initiated in the case of the assessee. Ld. CIT DR thus, prayed for the confirmation of the orders of lower authorities.

Heard both the parties and perused the materials available on record. The satisfaction note recorded by the Assessing Officer is reproduced as under: “23.09.2019- A search and seizure action u/s 132(1) of the IT Act, 1961 was conducted on 13.04.2017 in the case of Mr. Himanshu Verma, M/s Global Impex Pv.t Ltd, M/s Plus Finvest Pvt Ltd, M/s Vohra Imports Pvt Ltd, M/s Advance Finvest Pvt Ltd, Mis Advance Homes & Personal Care Pvt Ltd, M/s Advance Surfactants Pvt Ltd at C-43, Sudarshan Park, Moti Nagar, New Delhi. Mr. Himanshu Verma is and 5879 Del/2024 Nirvaja Enterprises Private Ltd. vs. ACIT maintaining more than 200 shell companies/concerns for providing accommodation entries in lieu of commission during the search action on Himanshu Verma & Others group, various incriminating documents pertaining to these 200 shell companies such as bill book, tally data etc. were found and seized at C-48, Sudarshan Park, Moti Nagar, New Delhi. M/s Nirvaza Enterprises Pvt. Ltd. is one of the 200 shell companies/entities which is being controlled by Himanshu Verma for providing accommodation entries in lieu of commission. This was confirmed by Mr. Himanshu Verma in his statement recorded during the course of search. Further, on perusal of bank book of M/s Nirvaza Enterprises Pvt. Ltd., there is credit and debit entries in the following bank(s), which remains unexplained for A.Y. 2012- 13 to Α.Υ. 2018-19. Bank Debit (In Rs.) Credit (In Rs.) Axis Bank (914020022029559) 543607944.00 543607944.00 Safdarjung Axis Bank Ltd. (914020002287681) 272294669.10 272294669.10 AC CLOSED Dhanlaxmi Bank 216070000.00 216070000.00 J & K BANK 20562438.00 20562438.00

From the perusal of the above satisfaction note, it can be seen that Assessing Officer recorded satisfaction of unexplained income for seven assessment years starting from Assessment Year 2012-13 to Assessment Year 2018-19. It is further seen that in this satisfaction note, no reference is made as to how much amount of income is related to each individual Assessment Year which could be treated as unexplained income of the assessee for which the satisfaction is recorded for initiating the proceedings u/s 153C of the Act. It is also seen that in the said satisfaction note, the AO has not recorded the satisfaction that these are “pertaining to the assessee” and the entries contained therein has bearing on determination of total income” which is precondition for initiating the proceedings u/s 153C of the and 5879 Del/2024 Nirvaja Enterprises Private Ltd. vs. ACIT Act. The Hon’ble Supreme Court in the case of Sunil Kumar Sharma (supra) held as under: “Section 153C, read with section 153A, of the Income-tax Act, 1961 Search and seizure Assessment of any other person (Recovery of loose sheets of paper) Assessment years 2012-13 to 2018-19-High Court by impugned order held that it is established in law that a sheet of paper containing typed entries and in loose form, not shown to form part of books of account regularly maintained by assessee or his business entities, do not constitute material evidence - It further held that, therefore, action taken by respondent/revenue against assessee based on material contained in diaries/loose sheets, were contrary to law and thus, impugned notices under section 153C were required to be set aside, as same were void and illegal Whether special leave petition filed against said order of High Court was to be dismissed-Held, yes [Para 3] [In favour of assessee]

Further in the case of Saksham Commodities Ltd. (supra) while dismissing the SLP filed by the Revenue, the Hon’ble Supreme Court confirmed the findings of the Hon’ble Jurisdictional High Court wherein the hon’ble jurisdictional High Court has made the following observations: 48. In terms of the Second Proviso to Section 153A, all assessment or reassessment proceedings relating to the six AYs' or the "relevant assessment year" pending on the date of search are statutorily envisaged to abate. Abatement is envisioned to be an inevitable consequence of the initiation of action under Section 153A.Neither issuance of notice nor abatement are predicated upon a formation of opinion by the AO of the searched person that the material is likely to impact the total income of that assessee. However, the spectre of abatement insofar as the "other person" is concerned would arise only after the jurisdictional AO has formed the requisite satisfaction of the material having "a bearing on the determination of the total income of such other person" and having formed the opinion that proceedings under Section 153C are liable to be initiated. It would be pertinent to bear in mind that Kabul Chawla was a decision rendered in the context of Section 153A.It was in the aforesaid backdrop that the Court significantly observed that once a search takes place under Section 132 of the Act, notice under Section 153A(1) would mandatorily issue. The abatement of assessment and reassessment pending on that date would, in the case of a Section 153A assessment, be a preordained consequence. However, and in light of what has been observed hereinabove, it is apparent that Section 153Cconstructs a subtle and yet significant distinction insofar as the question of commencement of proceedings or assumption of jurisdiction is concerned.

What we seek to emphasise is that merely because Section 153C confers jurisdiction upon the AO to commence an exercise of assessment or reassessment for the block of years which are mentioned in that provision, the same alone would not be sufficient to justify steps in that direction being taken, unless the incriminating material so found is likely to have an impact on the total income of a particular AY forming part of the six AYs' immediately preceding the AY pertaining to the search year or for the "relevant assessment year".

Ultimately Section 153C is concerned with books, documents or articles seized in the course of a search and which are found to have the potential to impact or have a bearing on an assessment which may be undergoing or which may have been completed. The words "have a bearing on the determination of the total income of such other person" as appearing in Section 153C would necessarily have to be conferred pre-eminence. Therefore, and unless the AO is satisfied that the material gathered could potentially impact the determination of total income, it would be unjustified in mechanically reopening or assessing all over again all the ten AYs' that could possibly form part of the block of ten years.

The decisions which hold that an assessment is liable to be revised only if incriminating material be found, even if rendered in the context of Section 153A, would clearly govern the question that stands posited even in the context of Section 153C. It would be relevant to recall that the Division Bench in Kabul Chawla had observed that in the absence of any incriminating material, a completed assessment may be reiterated and the abated assessment or reassessment be concluded. The importance of incriminating material was further underlined in Kabul Chawla with the Court observing and 5879 Del/2024 Nirvaja Enterprises Private Ltd. vs. ACIT that completed assessments could be interfered with, only if some incriminating material were unearthed. This aspect came to be reiterated in RRJ Securities when the Court held that it would be impermissible to either reopen or reassess a completed assessment which may not be impacted by the material gathered in the course of the search and which may have no plausible nexus. The aforesaid position also comes to the fore when one reads para 17 of ARN Infrastructure and which annulled an action aimed at reopening assessments for years to which the incriminating document which was found did not relate.

Sinhgad Technical Education Society also constitutes a binding precedent in respect of the aforesaid proposition as would be evident from the Supreme Court noticing that the material disclosed pertained only to AY 2004-05 or thereafter and that consequently the Section 153C action initiated for AYs' 2000-01 to 2003-04would not sustain. It was this position in law as enunciated in that decision which came to be reiterated by our Court in Index Securities.

In any case, Abhisar Buildwell, in our considered opinion, is a decision which conclusively lays to rest any doubt that could have been possibly harboured. The Supreme Court in unequivocal terms held that absent incriminating material, the AO would not be justified in seeking to assess or reassess completed assessments. Though the aforesaid observations were rendered in the context of completed assessments, the same position would prevail when it comes to assessments which abate pursuant to the issuance of a notice under Section153C. Here too, the AO would have to firstly identify the AYs' to which the material gathered in the course of the search may relate and consequently it would only be those assessments which would face the spectre of abatement. The additions here too would have to be based on material that may have been unearthed in the course of the search or on the basis of material requisitioned. The statute thus creates a persistent and enduring connect between the material discovered and the assessment that may be ultimately made. The provision while speaking of AYs' falling within the block of six AYs' or for that matter all years forming part of the block of ten AYs', appears to have been put in place to cover all possible contingencies. The aforesaid provisions clearly appear to have been incorporated and made applicable both with respect to Section 153A a swell as Section 153C ex abundanti cautela. Which however takes us back to what had been observed earlier, namely, the existence of the power being merely enabling as opposed to a statutory compulsion or an inevitable consequence which was advocated by the respondents.

Take for instance a case where the material gathered in the search is contemplated to have an adverse impact on the declarations and disclosures made by an assessee pertaining only to AYs' 2016-17 and 2017-18.What we seek to emphasise is that pending assessments for those two years could validly form subject matter of action under Section 153C and pending and 5879 Del/2024 Nirvaja Enterprises Private Ltd. vs. ACIT assessments in that respect would surely abate. However, that by itself would not be sufficient to either reopen or issue notices in respect of AYs' prior to or those falling after those two AYs' and which may otherwise fall within the maximum block period of ten years merely because the statute empowers the AO to do so. Unless the material gathered and recovered is found to have relevancy to the AY which is sought to be subjected to action under Section 153C, it would be legally impermissible for the respondents to invoke those provisions. Consequently, the AO would be bound to ascertain and identify the year to which the material recovered relates. The years which could be then subjected to action under Section 153C would have to necessarily be those in respect of which the assessment is likely to be influenced or impacted by the material discovered. Section 153C neither mandates nor envisages a mechanical or an enblanc exercise of power, or to put it differently, one which is uninformed by a consideration of the factors indicated above.

We also bear in mind the pertinent observations made in RRJ Securities when the Court held that merely because an article or thing may have been recovered in the course of a search would not mean that concluded assessments have to "necessarily" be reopened under Section 153C and that those assessments are not liable to be revised unless the material obtained have a bearing on the determination of the total income. This aspect was again emphasised in para 38 of RRJ Securities with the Court laying stress on the existence of material that may be reflective of undisclosed income being of vital importance. All the aforenoted judgments thus reinforce the requirement of incriminating material having an ineradicable link to the estimation of income fora particular AY.

It becomes pertinent to note that both Sections 153A and 153C require the assessee upon being placed on notice to furnish ROIs' for the six AYs' or the "relevant assessment year". All that the two provisions mandate is that notwithstanding the submission of those ROIs', the AO would frame one assessment order in respect of each of the years which were made subject matter of the notice and which would deal with both disclosed and undisclosed income. This too reinforces our view that Section 153C would apply only to such AYs' where the jurisdictional AO is satisfied and has incriminating material for those AYs' and which may be concerned with disclosed and undisclosed income.

The aforesaid position stands further fortified from a reading of the First Proviso to Section 153A and which speaks of the power of the AO to assess or reassess the total income in respect of "each assessment year". The aforesaid phraseology stands replicated in Section 153B(1)(a) which again alludes to "each assessment year" falling within the six AYs or the "relevant assessment year". The aforesaid language is then reiterated in Section 153D and which prescribes that no order of assessment or reassessment shall be passed by an AO in respect of "each assessment year" referred to in Section and 5879 Del/2024 Nirvaja Enterprises Private Ltd. vs. ACIT 153A or 153B of the Act, except with the prior approval of the Joint Commissioner. We note that once the aforesaid principles are borne in mind, there would exist no discernible distinction between abated and completed assessments. This, since in both situations, the AO would be bound to base its decision to abate or reopen on material that is likely to impact the assessment of the total income for a particular AY. In case of assessment proceedings which are ongoing on the date when the AO proceeds to draw its satisfaction and in respect of which no incriminating material has been discovered, there would exist no justification to initiate proceedings under Section 153C.

It would be pertinent to recall that Section 153C essentially seeks to merge ongoing assessments with a search assessment which may be triggered by the discovery of material obtained in a search and which was the statutory procedure which prevailed in terms of the provisions contained in Chapter XIV B. However, and in cases where on facts it is found that the material gathered is unlikely to have any impact on the computation of total income for a particular year, there would exist no justification to invoke the powers conferred by Section 153C.

Before concluding, we also deem it imperative to briefly notice certain aspects which emerge from a reading of the Satisfaction Notes themselves. As is manifest from a reading of the Satisfaction Note drawn by the jurisdictional AO of the assessee in W.P. (C) 1459/2024, after noticing the material which was recovered during the search and related to FYs' 2009-10, 2010-11 and 2011-12 [corresponding AYs' thus being AYs'2010-11, 2011-12 and 2012- 13], it has proceeded to observe that the assessments which were liable to abate orbe reopened would be AYs' 2010-11 to 2020-21. A similar note appears in W.P. (C)1117/2024. Here again, after referring to the material pertaining to FY 2009-10 [and thus relating to AY 2010-11], the AO proceeded to seek approval for initiating action under Section 153C in respect of AYs' 2010-11 up to 2020-21.

A reading of the aforesaid Satisfaction Notes would establish that jurisdictional AOs' appear to have proceeded on the premise that the moment incriminating material is unearthed in respect of a particular AY, they would have the jurisdiction and authority to invoke Section 153C in respect of all the assessment years which could otherwise form part of the "relevant assessment year" as defined in Section 153A. In our considered opinion, the aforesaid understanding of Section 153C is clearly erroneous and unsustainable. As explained hereinabove, the discovery of material likely to implicate the assessee and impact the assessment of total income for a particular AY is not intended to set off a chain reaction or have a waterfall effect on all AYs' which could form part of the "relevant assessment year". This, more so since none of the Satisfaction Notes record any reasons of how that material is likely to materially influence the computation of income for those AYs'.

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 belikely 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.

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 beconsequent 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. H. OPERATIVE DIRECTIONS 69. When tested in light of the aforesaid principles, we find that except for a few exceptions which were noticed in the introductory parts of this judgment, the writ petitions forming part of this batch, impugn the invocation of Section and 5879 Del/2024 Nirvaja Enterprises Private Ltd. vs. ACIT 153C in respect of AYs' for which no incriminating material had been gathered or obtained. The Satisfaction Notes also fail to record any reasons as to how the material discovered and pertaining to a particular AY is likely to "have a bearing on the determination of the total income" for the year which is sought to be abated or reopened in terms of the impugned notices. The respondents have erroneously proceeded on the assumption that the moment any material is recovered in the course of a search or on the basis of a requisition made, they become empowered in law to assess or reassess all the six AYs' years immediately preceding the assessment correlatable to the search year or the "relevant assessment year" as defined in terms of Explanation 1 of Section 153A. The said approach is clearly unsustainable and contrary to the consistent line struck by the precedents noticed above.

In view of the above facts and further by respectfully following the judgments of Hon’ble Supreme Court and of the jurisdictional high court and of the Tribunal as stated above, we are of the view that the Assessing Officer has not recorded proper satisfaction before initiation of proceedings u/s 153C of the Act and solely relied upon the statements of Shir Himanshu Verma without even identified how much of the income is not disclosed by the assessee for each assessment years separately. Therefore, the initiation of proceeding u/s 153C of the Act is bad in law and the consequent order passed is hereby quashed.

Since, we have already allowed the legal ground of appeal No.3 taken by the assessee, other grounds of appeal require no adjudication.

In the result, appeal of the assessee is allowed. for Assessment Year 2018-19

In this appeal filed by the assessee, in Ground of Appeal

Before us, both the parties agreed that the facts are identical and single satisfaction note was recorded for both the assessment year for initiating the proceedings u/s 153C of the Act. Thus, by following the observations made in for AY 2017-18 which are mutatis mutandis applied to the facts of the present appeal also. Accordingly, we hold that the proceedings initiated u/s 153C of the Act are invalid and quashed the consequent order passed u/s 153C of the Act. Therefore, ground of appeal No. 8 taken by the assessee is allowed.

Since, we have already allowed the assessee’s legal ground of appeal No. 8, therefore, the other grounds of appeal taken on merits of the additions require no adjudication.

In the result appeal of the assessee is allowed.

In the final result, both the appeals filed by the assessee are allowed.